Boston Scientific Corporation (BSX) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the 2021 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 2021 Annual Meeting of Stockholders of Boston Scientific Corporation. Thank you for joining us. 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 once again to allow us to engage with our shareholders while also prioritizing the health and well-being of our stockholders, employees, directors and other participants. So I'm excited to introduce our Board members here that are with us today. Starting with Nelda Connors, Founder, Chairwoman and CEO of Pine Grove Holdings; Chuck Dockendorff, former 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 of the Board and CEO of Becton, Dickinson; David Roux, Co-Founder and Co-Managing Partner of BayPine Capital; Senator John Sununu, former U.S. Senator from New Hampshire; and Ellen Zane, CEO Emeritus of Tufts Medical Center and Tufts Children's Hospital. 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 available on our website. In today's meeting, I'll first provide a brief overview of our business, then Vance Brown, Vice President, Interim General Counsel and Assistant Corporate Secretary, will lead you through the formal agenda of the meeting and voting. This will be followed by a question-and-answer session. Over the last year, the global pandemic, political strife and racial injustice have tested all of us and our business as never before. Amongst these challenges, Boston Scientific is focused on living our core values and delivering our mission to transform lives through medical solutions that improve the health of patients around the world. Our teams have worked with agility to support customers, manage cost and put strategies in place to navigate through uncertainty. Despite the challenges of the pandemic, we launched dozens of innovative products and touched the lives of over 30 million patients around the globe. At the same time, we stepped up to support COVID-19 relief by contributing more than $18 million in monetary and supply donations and by volunteering and providing engineering and manufacturing expertise and resources. We also strengthened our commitment to diversity, equity and inclusion and took action to confront racism and advance social justice, including a $3.5 million multiyear investment. I'm proud of our success and know they've been possible because of the incredible winning spirit of our employees and the values that define and guide our company. The decline in deferral of elective procedures due to the pandemic affected our revenue and earnings per share in 2020. As a result, our 2020 financials are an exception to what has been a nearly 6-year trend of excellent performance. With our innovative pipeline, strong commercial execution and ongoing expansion to higher-growth markets, we continue to execute against our strategic plan objectives and drive towards ex-COVID 2019 financial goals for 6% to 8% organic sales growth, expanded adjusted operating margins and double-digit adjusted EPS growth. We believe this momentum, combined with our ability to generate and deploy strong free cash flow, positions Boston Scientific very well to create future shareholder value. Our business remains very strong. We believe we are well positioned to return to consistent growth when the pandemic subsides and medical procedure volumes continue to ramp. Our 5 core strategic imperatives provide the framework to align our execution. Category leadership as our strategy to offer the broadest portfolio within a given specialty physician call point. The expansion of that category leadership is building out the portfolio in the faster growth segments of our existing markets and call points such as structural heart failure diagnostics, deep brain stimulation and interventional oncology, to name a few. Our focus on talent, training and product registrations helped drive global expansion. And even when the investments required to strengthen our category leadership, expanding the high-growth adjacencies and drive global expansion, we'll be able to fund the journey by improving adjusted operating margins along the way. And finally, our people are the most important asset, and we've worked hard to develop a culture of engagement and high performance to drive success in the future. We also continue to expand our global digital capabilities, which has been a silver lining of adapting to the COVID-19 pandemic, has been the company's accelerated execution of digital and virtual solutions in health care and greater use of remote monitoring technology in many regions. We've increased our investments in customer and patient engagement, medical education, clinical trial remote case support, sales force enablement and mobile ordering and solutions. We consider these platforms as a catalyst for growth and structural cost savings over time. Boston Scientific products are used to help diagnose or treat complex diseases and conditions across multiple fields, including cardiovasculatory, respiratory, digestive, neurological, urological and public health as well as cancer. By deepening our portfolio in these areas, our category leadership strategy creates value for patients, physicians and payers. We're also extremely excited about our future because of our compelling and differentiated pipeline made possible through organic R&D and multiple sources of innovation, including the disciplined approach to M&A, venture capital investments and strategic partnerships. We fund the innovation at the high end of our peer group, investing over $1 billion annually in research and development. We've also made several acquisitions in the past few years, most recently, Preventice and Lumenis, which is anticipated to close in the second half of 2021. We continue to ensure that we take multiple shots on goal with more than 40 VC investments and other collaborations that enable us to cost effectively bring in the right expertise at the right time while we learn and adapt. We're seeing a positive momentum in first quarter 2021 with 6% operational, 6% organic sales growth. Revenue in emerging markets has grown 13% operationally, and adjusted EPS has increased 33% year-over-year. Our strong cadence of innovation continues with the regulatory approvals of our TheraSphere glass microspheres for treating liver cancer. In Japan, MHLW approval of Ranger for peripheral artery disease. We're further strengthening our innovation pipeline with the Preventice and Lumenis acquisitions. Our culture 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, equity and inclusion, community involvement, culture, talent and innovation. We're making strong progress as reflected in the most recent awards and recognition, including being named to the Dow Jones Sustainability Indices, Forbes Most Just Companies and Best Employers for Diversity. We're also delivering on our environmental commitments. And Boston Scientific was one of the very first medical technology companies to commit to carbon neutrality by 2030. We've made significant progress toward that goal, reducing our carbon footprint by 50% since the beginning of 2017. We expect to source or generate 100% of our electricity from renewable energy sources by 2024. While we're proud of what we accomplished, we know that we still have a lot of work to do. The process of measuring, monitoring and reporting is fundamental to our business management, and that's what pushes us to stay focused on steady improvements. We've recently published our annual integrated performance report in April, which combines financial disclosures with our sustainability report, updates on our 2030 carbon neutral pledge, report on our diversity and inclusion goals and several other metrics. We encourage you to review this online at the bostonscientific.com website. I continue to be very inspired and optimistic about the future of Boston Scientific. Our fundamentals and long-term outlook remains strong, demonstrated by our people, our pipeline, our portfolio and our category leadership strategy in diversified markets. Our response to COVID-19 demonstrated our agility, and as the impact of the pandemic wanes, we will be a stronger company. So working together and guided by our values, we will continue to advance science for life to improve the health of million patients around the world. We sincerely appreciate your interest and investment in Boston Scientific. So with that, I'll turn to the formal agenda of the meeting. On the agenda, there are 4 items of business that we'll address today: first, the election of 9 directors; second, an advisory vote to approve the compensation of our named executive officers; number three, the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the 2021 fiscal year; and finally, number four, a stockholder proposal, requesting production of a report on benefits to the company of nonmanagement employee participation in company governance. So once we get underway, any validated stockholder wishing to address a particular item of business can submit a question following the instructions on our virtual meeting website. We ask that you provide your name, whether you're a stockholder or a proxy holder, and briefly present your question on that item. The assistant corporate secretary or his designee will present appropriate questions to the meeting. Our Board of Directors has appointed Broadridge Financial Services to act as our independent agent to tabulate votes and to serve as inspector of election for this meeting. So today's meeting is officially called to order, and Vance Brown, our Vice President, Interim General Director, and assistant corporate secretary can confirm we have a quorum.

Thanks, Mike. Hello, everyone. The close of business on March 12, 2021, 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 24, 2021, 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 8:12 a.m. on May 6, 2021. I will now review the formal proposals. Item 1 on the Notice of Meeting is to elect 9 directors to hold office until the 2022 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 2022 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 a nomination for directors?

Hello, everyone. My name is [indiscernible]. As proxy for stockholders of Boston Scientific, I nominate each of Nelda Connors, Charles Dockendorff, Yoshiaki Fujimori, Donna James, Edward Ludwig, Michael Mahoney, David Roux, John Sununu and Ellen Zane for election as Directors of Boston Scientific to hold office until the 2022 Annual Meeting of Stockholders.

There is a request for discussion on this item. Please submit your request following the instructions on the virtual meeting website. 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 discussion on this item, please submit your request following the instructions on the virtual meeting website. Item 3 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 2021 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?

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 4 on the Notice of Meeting is a stockholder proposal requesting production of a report on the benefits to the company of nonmanagement employee participation in company governance. We will now play a prerecorded statement from the stockholder proponent in support of this proposal.

My name is Amrita Sankar of NorthStar Asset Management, a socially responsible investment firm based in Boston with clients that are beneficial owners of 281,417 shares of Boston Scientific common stock. Today, I am presenting proposal #4, workforce involvement in corporate governance. One of the many lessons our society learned from the events of 2020 is that a company's workforce is an extremely vital asset. Boston Scientific's ability to recover from the pandemic and flourish in coming decades is, in many ways, reliant upon its employees' commitment to what the company says makes it different: compassion, diversity, collaboration, meaningful innovation, high-performance and a winning spirit. We believe that employee participation on the Board or otherwise in company governance would lay the groundwork to strengthen all of those aspects of the company. Showing employees that their voice is valued and needed at the very highest level of the company could create stronger buy into the company's "relentless pursuit of meaningful progress for patients," encourage more diverse talent and improve company retention and improve efficiencies in the company. Some human resources or governance specialists have encouraged companies to consider adding employees to the Board. Some suggest that adding employees to the Board would encourage workers to "care more and do more" because not only would they be employed by the company, but also because they would become more direct stakeholders in the company who have a seat at the table when decisions are made. Experts also noted that employees on the Board or in governance would increase the diversity of perspectives and bring realistic viewpoints based on rank and file worker experiences. It's also been proposed that employees on the Board would make hierarchies in the company work better. Boston Scientific's employees could bring valuable input directly to the Board about their experiences working with the company's technology, customers, managers and more. Employees are the driving force of the company. And this shareholder proposal offers the company a clear way to investigate whether and how allowing nonmanagement employees to participate in company governance or the Board of Directors can benefit the company's future profitability. We believe that employee representation on the Board is a key way to ensure that employees, a crucial resource, remain fully engaged in the long-term growth of the company and help to ensure operational excellence. We urge shareholders to vote for proposal #4.

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 discussion on this item, please submit your request following the instructions on the virtual meeting website.

So 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 8:19 a.m. on May 6, 2021. The preliminary results of the balloting with respect to item 1, the election of 9 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, Michael Mahoney, David Roux, John Sununu and Ellen Zane. Accordingly, each of them is elected as a 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 92% 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 ratification of the appointment of Ernst & Young as the company's independent registered public accounting firm for the 2021 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 4, the stockholder proposal requesting production of a report on the benefits to the company of nonmanagement employee participation in company governance, preliminary results indicate that less than 5% of the shares voting on this item were voted for its approval. Accordingly, this item has not passed.

Thank you, Vance. With no further business to attend to, I would like to sincerely thank our stockholders for your ongoing support and formally adjourn today's meeting. If you have any questions regarding -- if you have any questions following today's meeting, please submit them following the instructions on the virtual meeting website or address them to the interim general counsel and assistant corporate secretary at [email protected]. May I have a motion to adjourn?

Mike, I move that we adjourn.

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 2021 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. Appropriate questions will now be read by me or my designee 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.

And I do see that we have a question in the queue, which I will read. This question is for Mike. Mr. Chairman, the Carpenter Pension Funds holds a total of 653,080 shares of the company's stock. We appreciate our long-term investment in Boston Scientific. The topic of stakeholder capitalism as an alternative to shareholder capitalism has received considerable attention recently. As long-term pension fund investors, the Carpenter Funds appreciate the sentiments embodied in the stakeholder capitalism perspective, but feel that execution could be complicated. Could you discuss the Board's perspective on the concept of stakeholder capitalism and what principles the Board would use to balance the interest of varied stakeholders as it develops and implements the company's long-term business strategy?

Thank you, Vance, and thank you for the question. We obviously support the stakeholder capitalism concept. And I think it's really demonstrated by the actions of the company and the values of the company. As mentioned, our employees are our most important asset for the company, and they're inspired by our mission of advancing science for life and treating patients. And along with that portfolio innovation, we also are focused on high performance, whether it be delivering on our financial commitments, whether it be delivering on shareholder returns as well as our significant CSR efforts. And those are -- have been highlighted a little bit in the script and really detailed out on our website and our performance IR report. But just to focus on a few, in addition to the innovation, investing at the high end of our peer group in R&D and high-performance business results, we're one of the very first companies to commit to our carbon neutrality pledge that you saw. We've put a significant amount of efforts in our sustainability efforts overall. And we've been also recognized, as I mentioned earlier today, with a number of exciting acknowledgments of our focus on shareholder -- stakeholder capitals, and with our diversity, just recently being named Forbes Top 10 Companies as well as a number of others. So I think the company really does a nice job of balancing these important needs while delivering on our ultimate mission of advancing science for life and driving innovation to help patients. And engaging our employees is critical, and that's very much aligned with the stakeholder concept you're talking about.

Great. Thanks, Mike. And it looks like there's no further questions in the queue. So with that, that concludes the meeting today. Thank you all for attending.