Earnings Call Transcript
BOSTON SCIENTIFIC CORP (BSX)
Earnings Call Transcript - BSX Q1 2025
Operator, Operator
Good morning, and welcome to the Boston Scientific First Quarter 2025 Earnings Call. Please note this event is being recorded. I would now like to turn the conference over to John Monson, Senior Vice President, Investor Relations. Please go ahead.
Jonathan Monson, Senior Vice President, Investor Relations
Thank you, Drew, and thanks, everyone, for joining us. With me today are Mike Mahoney, Chairman and Chief Executive Officer; and Dan Brennan, Executive Vice President and Chief Financial Officer. During the Q&A session, Mike and Dan will be joined by our Chief Medical Officer, Dr. Ken Stein. We issued a press release earlier this morning announcing our Q1 results which included reconciliations of the non-GAAP measures used in this release. The release as well as reconciliations of the non-GAAP measures used in today's call can be found on the Investor Relations section of our website. Please note, on the call, all operational revenue excludes the impact of foreign currency fluctuations, and organic revenue further excludes certain acquisitions and divestitures for which there are less than a full period of comparable net sales. Guidance excludes the previously announced agreement to acquire SoniVie and Entera Oncology, which are expected to close during the second quarter of 2025, subject to customary closing conditions. For more information, please refer to the Q1 financial and operational highlights deck, which may be found on the Investor Relations section of our website. On this call, all references to sales and revenue are organic and relative growth as compared to the same quarter of the prior year, unless otherwise specified. This call contains forward-looking statements regarding, among other things, our financial performance, business plans and product performance and development. These statements are based on our current beliefs using information available to us as of today's date and are not intended to be guarantees of future events or performance. If our underlying assumptions turn out to be incorrect or certain risks or uncertainties materialize, actual results could vary materially from those projected by the forward-looking statements. Factors that may cause such differences are discussed in our periodic reports and other filings with the SEC, including the Risk Factors section of our most recent annual report on Form 10-K. Boston Scientific disclaims any intention or obligation to update these forward-looking statements, except as required by law. So at this point, I'll turn the call over to Mike. Mike?
Michael Mahoney, Chairman and CEO
Thanks, John. Thank you, everyone, for joining us today. In Q1, we delivered excellent results, all while we continue to invest in our highly innovative portfolio and capabilities. Importantly, we remain excited about our near and long-term growth catalysts, which we believe will enable us to deliver on our fundamental aim of driving consistent differentiated performance this year and well beyond. In first quarter '25, total company operational sales grew 22% and organic sales grew 18%, both exceeding the high end of our guidance range of 14% to 16%. Our strong growth continues to reflect the durability of our category leadership strategy, which is powered through the meaningful innovation, clinical evidence generation and the winning spirit of our highly engaged global team. First quarter adjusted EPS of $0.75 grew 34%, exceeding the high end of our guidance range of $0.66 to $0.68. First quarter adjusted operating margin was 28.9%. Turning to our second quarter and full year '25 outlook, we are guiding to organic growth of 13% to 15% for the second quarter '25 and raising our full year guidance from 10% to 12% growth to 12% to 14% organic growth, reflecting the significant strength in our broad-based cardiology portfolio and the global execution of our category leadership strategy across our business units. Our second quarter adjusted EPS guidance of $0.71 to $0.73, and we expect our full year adjusted EPS to be $2.87 to $2.94, which represents growth of 14% to 17%. This also includes an approximate $200 million impact from tariffs. Based on the information that is available today which we expect to offset through sales upside and smart reductions in discretionary spending. Dan will provide more details on this within the financials. We remain committed to our diversified global manufacturing footprint, investing across all regions and notably within the U.S., where we recently opened our new site in Georgia, continue to increase our Minnesota manufacturing capacity and footprint to support long-term growth. I'll now provide some additional highlights on our first quarter results. Regionally, on an operational basis, the U.S. grew 31% with double-digit growth in 5 of our 8 business units. Midway through Q1, we crossed the 1-year mark of the U.S. FARAPULSE launch and the 10-year anniversary of WATCHMAN's approval, 2 clinically impactful technologies that have helped to transform the growth profile of Boston Scientific. Europe, Middle East and Africa grew 8% on an operational basis. This above-market growth was led by exceptional performance in EP as well as double-digit growth in our anchor technologies across the broader portfolio, including complex PCI, TheraSphere and Interventional Oncology, Axios and resume. Asia Pacific grew 11% operationally, led by double-digit growth in Japan. Japan is on track to have an excellent year led by strong FARAPULSE uptake. We continue to anticipate launching FARAWAVE NAV and Fairview in the second half of the year. China also delivered high single-digit growth off a very tough 42% growth comp in first quarter '24 and we anticipate to deliver double-digit growth despite ongoing VBP pricing impacts in China. I'll now provide some additional commentary on our business units. As a reminder, we did have one less selling day in the first quarter of which impacted our growth by approximately 200 basis points. Urology sales grew 25% on an operational basis and 4% organically. Growth in the quarter was driven by our core stone franchise, and we're pleased to have completed our first fluid management case in Chile. The service system is part of our interconnected StoneSmart ecosystem, and we expect U.S. clearance in the second half of '25. Looking ahead, we continue to be excited by the differentiated value Axonics brings and our ability to more broadly serve our customers as we are pleased with the integration progress to date. Endoscopy sales grew 6%, both operationally and organically with balanced growth regionally and across our broad and deep portfolio. We continue to see sustained double-digit performance with our clinically differentiated Axios platform as well as double-digit growth at both OverStitch and Mantis clip, 2 very innovative technologies in our growing endoluminal surgery franchise. Neuromodulation sales grew 7% in the first quarter, with mid-single-digit growth in our brain franchise and high single-digit growth in our pain franchise. Within DBS, we saw improving growth exiting the quarter, driven by early contribution from the launch of our Cartesia leads and acceleration of the Illumina 3D programming algorithm in the U.S. Within our pain portfolio, Intercept grew strong double digits and we continue to see robust demand underpinned by 5-year data demonstrating the long-term efficacy and cost-effectiveness of this treatment. Cardiology delivered another fantastic quarter with sales growing 31%. Within cardiology, interventional cardiology Therapies sales grew an impressive 9%, and coronary therapies was driven globally by double-digit growth in our imaging franchise and excellent performance from our novel agent DCB technology. In the U.S., agent DCB momentum was fueled by strong reorder rates and new account openings with additional reimbursement established in the outpatient setting as of January, and incremental inpatient reimbursement expected to follow later this year. Within the quarter, we're also pleased to present the feasibility results of our VITALYST Circuitory support system with data demonstrating positive early experience and a 100% technical success rate. In addition, we recently announced our agreement to acquire SoniVie, which has developed a clinical-stage differentiated ultrasound-based renal denervation technology. We look forward to closing this acquisition, which we expect in Q2 this year. WATCHMAN grew 24% this quarter, reflecting robust market growth and an increase in our market share driven by strong concomitant uptake. With over half of our U.S. EP implanting customers now have been performing at least one conformance procedure. We continue to invest in global clinical evidence, most recently initiating the Option A trial in Asia Pacific, assessing the effectiveness of FARAPULSE and WATCHMAN in a concomitant procedure. Within the quarter in the U.S., we completed the full conversion of WATCHMAN FLEX PRO which is our third generation and market-leading technology, and we remain committed to increasing patient awareness and advancing physician training and workflow optimization. Looking ahead, we expect the U.S. label update for WATCHMAN as a first-line alternative to OACs in post-ablation patients in the second half of '25 and the CHAMPION AF data readout in the first half of '26. Cardiac Rhythm Management sales grew 1% in the first quarter. Our diagnostics franchise grew high single digits, led by double-digit growth in our leadless category. In core CRM, our low-voltage business grew high single digits, and the high-voltage business declined low single digits. We've expanded our conduction system pacing offering with the recent launch of next-gen lead delivery catheters which will provide physicians with additional tools to target the left bundle branch area of the heart. And further, we anticipate FDA approval in power levels pacemaker in the second half of '25. Electrophysiology sales grew 145% with fantastic performance across the globe. Globally, we are now the #2 clear player in EP, and we intend to continue to expand our leadership position in PFA through clinical evidence, next-generation innovation, new offerings to fill portfolio gaps and commercial capabilities. Within the quarter, we saw high commercial demand for FARAPULSE with strong sales in established accounts and rapid new account openings as the global market continues to convert to PFA given the compelling safety, efficacy and efficiency profile. And earlier this month, results from the investigator-sponsored single-shot CHAMPION clinical trial demonstrate that FARAPULSE achieved superior effectiveness for the treatment of symptomatic paroxysmal AF versus cryoablation. Importantly, this is the first prospective randomized demonstration of PFA superiority over any thermal ablation modality. We also continue to see strong adoption of our Opel HDX integrated mapping solution, which provides operators enhanced visualization and confirmation of pulse field applications. In the first quarter, we completed enrollment in the AVANGAR trial, which studies a new patient population of drug-naive persistent AF patients. We also initiated and completed the first human case in the ELEVATE-PF trial, utilizing the FARAFLEX catheter, which is our large focal high-density mapping blade catheter that integrates with the Opel HDX mapping system. And tomorrow, data from the ADVANTAGE Phase II trial studying the implications of pulse field ablation will be read out at the PFA live case Summit ahead of HRS, which we expect to support U.S. FDA approval by year-end '25. Also, peripheral interventions grew an impressive 16% operationally and 7% organically. Our Interventional Oncology and embolization franchise grew double digits across the portfolio driven by a broad offering of embolization devices and cancer therapy technologies. In the quarter, we received FDA approval to expand the patient population and study additional areas in the brain in the frontier trial. An early feasibility study for the use of TheraSphere to treat recurrent osteosarcoma. We look forward to expanding our portfolio of offerings in this high-growth space and continue to expect the acquisition of Antero Oncology to close in the second quarter. Within our vascular franchise, we saw mid-single-digit growth in arterial and double-digit growth in venous in the first quarter. And earlier this month, we completed the acquisition of Bolt Medical and also received FDA clearance of the IVL system for above-the-knee indication. We aim to initiate a limited launch by the end of '25 as we ramp supply following the acquisition close and earlier-than-anticipated regulatory approval. On the coronary front, we continue to progress the fracture trial, now having enrolled patients in the U.S. Before I turn the call over, as you saw in our press release this morning, Dan Brennan has decided to retire from Boston Scientific after an outstanding 30-year career, including the last 12 years as our CFO. He will be succeeded by John Monson, who you know from his time leading Investor Relations at the end of June this year. Lauren Tengler will return to Investor Relations and succeed John. I would like to personally thank Dan for his leadership, his great friendship and his many contributions over his remarkable career. Dan has been instrumental in transforming the trajectory of our financial performance and building the strong culture and values that are embedded throughout Boston Scientific. Thank you, Dan. And in closing, I'm grateful to our talented team of global employees who work every day to advance science for life, and I'm confident in the sustainability of our top-tier financial performance. With that, I'll turn it over to Dan.
Daniel Brennan, CFO
Thanks, Mike, and thanks for the kind words. First quarter consolidated revenue of $4.663 billion represents 20.9% reported growth versus first quarter 2024 and includes a 130 basis point headwind from foreign exchange, which was unfavorable versus our expectations. Excluding this $49 million foreign exchange headwind, operational revenue growth was 22.2% in the quarter. Sales impact from closed acquisitions contributed 400 basis points, resulting in 18.2% organic revenue growth, exceeding our first quarter guidance range of 14% to 16%. Q1 2025 adjusted earnings per share of $0.75 grew 34% versus 2024, exceeding the high end of our guidance range of $0.66 to $0.68, primarily driven by our strong sales performance in the quarter. Adjusted gross margin for the first quarter was 71.5%, which represents a 170 basis point improvement versus the first quarter of 2024. This strong performance was primarily driven by favorable product mix in the quarter. First quarter adjusted operating margin was 28.9%, this was favorable to our expectations due to our strong gross margin performance and timing of internal investments planned for the year. On a GAAP basis, first quarter operating margin was 19.8%. Moving to below the line. First quarter adjusted interest and other expenses totaled $106 million. On an adjusted basis, our tax rate for the first quarter was 9.8%, which includes favorable discrete tax items related to the benefit from stock compensation accounting. Our operational tax rate was 13.6% for the quarter. Fully diluted weighted average shares outstanding ended at 1,493 million shares in the first quarter. Free cash flow for the first quarter was $354 million, with $541 million from operating activities, less $187 million in net capital expenditures. We continue to expect full year 2025 free cash flow to be in excess of $3 billion. As of March 31, 2025, we had cash on hand of $725 million. We used $1 billion of the $1.5 billion euro-denominated senior note offering completed on February '26 to repay approximately $1 billion of euro-denominated notes that matured in March 2025. During the quarter, we were pleased to receive credit rating upgrades to single A- from both Standard & Poor's and Fitch ratings. Our gross debt leverage ratio was 2.2x. Our top capital allocation priority remains strategic tuck-in M&A, followed by annual share repurchases. In alignment with the strategy, we recently closed the acquisition of Bolt Medical, which complements our existing interventional cardiology and peripheral portfolios. We expect to offset the associated earnings per share dilution through internal cost efficiencies and trade-offs. I'll now walk through guidance for Q2 and full year 2025. We now expect full year 2025 reported revenue growth to be in a range of 15% to 17% versus 2024. Excluding an approximate 50 basis point headwind from foreign exchange, based on current rates, we expect full year 2025 operational growth to be in a range of 15.5% to 17.5%. Excluding a 350 basis point contribution from closed acquisitions, we expect full year 2025 organic revenue growth to be in a range of 12% to 14% versus 2024. We expect second quarter 2025 reported revenue growth to be in a range of 17.5% to 19.5% with a neutral impact from foreign exchange based on current rates. Excluding a 450 basis point contribution from closed acquisitions, we expect second quarter 2025 organic revenue growth to be in a range of 13% to 15% versus 2024. We now expect full year adjusted gross margin to be roughly in line with 2024, reflecting the impact of newly enacted tariffs. Despite this headwind, we remain on track to deliver 50 to 75 basis points of adjusted operating margin expansion for the year. We continue to expect full year 2025 adjusted below the line expenses to be approximately $425 million. Under current legislation, including enacted laws and issued guidance, we continue to forecast a full year 2025 operational tax rate of approximately 13.5% and an adjusted tax rate of approximately 12.5%. We expect full year adjusted earnings per share to be in a range of $2.87 to $2.94, representing growth of 14% to 17% versus 2024, including an approximate $0.04 to $0.05 headwind from foreign exchange. We expect second quarter adjusted earnings per share to be in a range of $0.71 to $0.73. Before I turn it back to John, I want to address the evolving trade environment. With the current schedule of expected tariffs, we forecast an approximate $200 million impact in 2025. We expect to fully offset this $200 million unanticipated headwind through our full year organic sales guidance raise, targeted discretionary spend reductions, and a $0.01 FX benefit. Additionally, tariffs are capitalized in the inventory and recognized in the P&L over the course of finished goods inventory turns. Therefore, the Q2 impact from tariffs will be minimal, and we expect to see most of the tariff impact in the second half of the year. These effects are fully contemplated in the guidance ranges we are sharing today. In closing, I'd like to thank my Boston Scientific teammates over the nearly 30 years for making this such an extraordinary place to call home. Special thanks to Mike for choosing me for this role 12 years ago. I've thoroughly enjoyed our collaborations. I'm thrilled for John as he assumes the CFO role, and I look forward to seeing all the great things he and the team will accomplish for physicians, patients, BSC teammates and investors in the years to come. With that, I'll turn it back to John.
Jonathan Monson, Senior Vice President, Investor Relations
Thanks so much, Dan. Well, Drew, let's open up for questions for the next 40 minutes or so in order for us to take as many questions as possible, please limit yourself to 1 question. Drew, please go ahead.
Operator, Operator
The first question comes from Robbie Marcus with JPMorgan.
Robert Marcus, Analyst
Congrats on a fantastic quarter. Dan, I wish you all the best in retirement. And John, congratulations. I hate to start off on such a great quarter with a tariff question. I'll leave the good performance for others to ask. But just on tariffs here, it's really impressive. You're able to offset it. It looks like about $0.11 or so by my math, for half year, how do we think about the ability as you move through the rest of the year to maybe move around some of the manufacturing? I imagine FX is still a big tailwind for next year at current rates, given your hedging program. And how you're thinking about the different buckets of tariffs and your ability to offset them?
Daniel Brennan, CFO
Sure, Robbie. Just to be clear. So as you said, we have a $200 million tariff headwind for 2025 based on the fact that we capitalized tariffs, as you would expect. Q2 doesn't have much in the way of incremental tariffs from the recent announced tariffs. So it's mostly a second half challenge. So what we're doing is effectively offsetting that with the increase in the revenue performance. So you saw us raise our revenue range to 12 to 14. We do have some targeted discretionary spend reductions travel meetings. Actually, we have some programs going there, and we're just looking to accelerate those programs to deliver more savings. And then we do get $0.01 of FX benefit. So the way I look at it is the revenue and the FX kind of offsets half and then the discretionary spend reductions offset the other half. So we're really pleased that we're able to continue the momentum of the company and drive the raise in the revenue guidance range and the raise in the adjusted EPS guidance range. Relative to moving manufacturing around, we're not making any decisions now relative to moving infrastructure or anything around moving manufacturing around the globe. As Mike mentioned, we just made some significant investments, both in Minnesota and in Georgia and significant capacity and bricks and mortar there. So we have a long-standing, very well-optimized supply chain around the globe and not looking to make any changes to that as we sit here today.
Operator, Operator
The next question comes from Larry Biegelsen with Wells Fargo.
Larry Biegelsen, Analyst
Congrats on a really strong quarter. And of course, congratulations to Dan and John. Thanks for all your help over the years, and I'll miss working with you. So Mike, you mentioned that you're now #2 in EP. And so the market shares look very different in the U.S. and outside the U.S. with the U.S. being much higher. So my questions are, Mike. One, do you think you can overtake J&J to become #1 in EP? And second, what will it take for the OUS share to catch up to the U.S. share?
Michael Mahoney, Chairman and CEO
We have strong momentum globally in electrophysiology. While I can't predict exactly when we will reach the top position in that business, we are certainly focused on achieving that goal over the next few years. Our ambitions are backed by robust clinical science, our leadership in pulsed field ablation, and the significant investments we are making worldwide. In the U.S., we're performing exceptionally well. Europe has also seen impressive growth, especially following the FARAPULSE launch, demonstrating its durability and the enthusiasm in the market despite competition. The European business experienced rapid growth in the first quarter of 2025, while we are still in the early stages in China, which represents a market over $1 billion. We are dedicating substantial investments in clinical and mapping capabilities there, and we anticipate ongoing benefits in 2025, with an even greater impact expected in 2026. Our team in Japan has effectively launched FARAPULSE, and we are a clear leader in pulsed field ablation after receiving our third approval in Japan. The execution in Japan, the U.S., and Europe has been impressive, and our China team is laying the groundwork to replicate that success in their market. Our goal is to maintain our leadership in pulsed field ablation, and we are seeing widespread adoption with considerable momentum.
Operator, Operator
The next question comes from Joanne Wuensch with Citi.
Joanne Wuensch, Analyst
And congratulations to everybody all around. Dan, it's been a pleasure to work with you over the years. I do want to spend a minute or 2 talking about the WATCHMAN franchise, which poked its head back above 20% year-over-year growth. And you made some comments on concomitant procedures and additional data. If you can just unpack that a little bit for us, that would be great.
Michael Mahoney, Chairman and CEO
Sure. We had an excellent quarter with WATCHMAN at 24%. And then as we said, all of our businesses were impacted by about 200 bps of 1 less day sale. So the WATCHMAN sales were excellent in the first quarter. We're seeing very strong adoption of concomitant based on the safety profile, the ease of use, the benefits for the hospital, the benefits for the patient, and the physician. It's really great to see the stars aligned to do the right thing for the patient, the right thing for the hospital system. And we happen to have the leading product in the LAC category and the leading product in the PFA category. And we actually gained share with LAC in the quarter, which is impressive. And we continue to invest significantly in clinical trials and next-gen products with WATCHMAN as well.
Ken Stein, Chief Medical Officer
Yes. Thanks, Mike. And Joanne, as Mike was saying, right, what we've really seen over the course of the quarter is a couple of phenomena. One is the physicians are really now digesting the incredible strength of the data from the option clinical trial, right, which has read out last year. We will have more data from the option to be presented at the upcoming HRS meeting. People are also, I think, just getting more accustomed to the workflow and really just how straightforward the workflow can be doing a concomitant procedure, particularly if it's done in conjunction with using FARAPULSE. People also, frankly, are also getting used to some of the economic advantages, both to hospitals but also to physicians in doing this procedure in an efficient manner under the current reimbursement. So all of that has led to the uptake of concomitant procedures that has been, frankly, faster than we would have expected, say, a quarter or two ago. And just to read what Mike said, it's one of those unique things that it's good for patients, first of all, avoids the need to have 2 procedures. It's also good for docs and good for hospitals and good for the system altogether.
Operator, Operator
The next question comes from Rick Wise with Stifel.
Frederick Wise, Analyst
Mike, maybe talk, if you would, about not tariffs specifically, but sort of other aspects of the trade wars, the potential or current impact on Boston. For example, I was impressed that you still feel like you're going to see double-digit growth in China. But maybe talk to us a little about the environment and how some of these trade battles are complicating Boston's performance there? And maybe just related to that, are you concerned at all? Are you anticipating supply chain disruptions or concerns? How are you planning for that? Just talk about those topics.
Michael Mahoney, Chairman and CEO
Sure. Well, one is the company is delivering excellent results on the top line and bottom line. So our ability to absorb the tariffs, I think, is more unique than most companies given the strength of the growth and the leverage that we're driving to absorb the $200 million, which is unfortunate, but we're able to absorb it and still deliver very high performance. Our operations team is excellent, and we have manufacturing across the globe. And as Dan said, there's no major adjustments other than continuing investments to support the long-term growth of the company. A lot of investments in the U.S., some in Malaysia, and ones that make sense to facilitate our global operations. China is a very complex market. John or Dan, it represents 7% or 8% of our sales approximately. And the team there, despite the challenges, does a great job. We expect to deliver double-digit growth again despite being one of the more impactful VBP impacts for Boston Scientific in 2025 across the PI portfolio and some ICTX and some endo. So a lot of VBP pressure there, but again, the innovation that we have, some of the local partnerships that we've done in China are proving to be beneficial. And we do have some small manufacturing capabilities in China, which also makes sense. So we think our manufacturing footprint makes the most sense for the long term, and we'll continue to invest in that to grow. It's a dynamic market, but our team is the winning spirit of the Boston Scientific team. We find ways to deal with the reality and deliver high performance. And you see we're very bullish on our full year outlook based on the guidance that we gave in sales and EPS.
Frederick Wise, Analyst
Thank you, and thanks to Dan for everything. Congrats on a well-deserved retirement. I hope you won't miss us.
Operator, Operator
The next question comes from David Roman with Goldman Sachs.
David Roman, Analyst
Maybe we could switch gears and talk a little bit about the MedSurg business. And Mike, in your prepared remarks, you did talk a little bit about the turn in neuromodulation here with some of the improvements going organic and the durability of the category leadership strategy and the dynamics you're seeing in the peripheral business. But maybe you could talk to a little bit about the path from the 5%-ish organic growth we saw in Q1 here. And what are the drivers to move that back towards a high single-digit growth rate, especially as Silk turns organic, Exonics turns organic, et cetera?
Michael Mahoney, Chairman and CEO
Sure. Yes. So again, the 5% is really a 7% if you look at the days. So kind of at or slightly above market overall if you do the days adjustment there. And breaking it down, the Endo team continues to deliver at a high level when you factor in those days impact. And with the broad-based portfolio, we expect to see consistent results in that business. The Neuromod team is really starting to strengthen its capabilities; it has gone organic, which is certainly helpful. And we continue to invest quite a bit in that platform as well as continue to strengthen our commercial capabilities organization. So we expect to see improvement in the neuromod results as the year goes on based on the momentum we have there as well as in DBS with the leads and so forth. Axonics is going well. It's an excellent addition to our company, and we continue to integrate that company, and that will go organic, I think, fourth quarter or so this year as well. And in urology, it's a tad under what we're used to from a urology team. Again, very impressed with the Axonics capability and really the global strength we have in our urology portfolio. We are experiencing some supply chain issues across some specific categories, which I won't go into detail that are impacting some back orders within urology business. So we expect that to improve, but be a bit of a headwind for us in '25. And we continue to invest across that portfolio with our StoneSmart in our implant business. So we expect the urology business to kind of grow at market, I would say, in '25 and our endoscopy and Neuromod business to grow above market and overall providing a really healthy balance to our excellent cardiology growth.
Operator, Operator
The next question comes from Travis Steed with Bank of America.
Travis Steed, Analyst
Congrats Dan on your well-deserved retirement. I wanted to mention that first. Now, regarding margins this quarter, it was really strong. I'm curious if that's due to the EP growth becoming more margin-accretive or if there's anything else to note. On the tariff side, with the $200 million in tariffs, I'm not clear on what your assumptions are regarding the rates after 90 days, how much of that is related to China versus Europe, and I assume the plan remains in place from 2016 to continue offsetting the tariff headwinds moving forward.
Daniel Brennan, CFO
Sure, let me address the tariffs first. To clarify, we are facing a $200 million tariff headwind in 2025, primarily in the second half of the year. This includes a 10% blanket tariff effective through the end of the year. The reciprocal tariff rates that began on April 2 will resume in early Q3, and we expect them to do so. The significant component of the $200 million is the tariffs related to China. I won't discuss 2026 as the situation is still quite fluid. However, I am pleased to report that we have managed to offset the $200 million, which will support our projected revenue growth of 12% to 14%, EPS growth of 14% to 17%, and an increase in margin of 50 to 75 basis points, despite facing this unforeseen headwind about 25 days ago. Regarding the operating margin, I must say it surprised me positively in Q1. The growth of FARAPULSE and the steady performance of WATCHMAN in the mid-20s significantly contributed to our gross margin, which stood at 71.5%. I find that number encouraging. Of course, we anticipate tariffs will pose challenges moving into 2025, and I foresee gross margin being in line with the previous year, around 70.3%. The $200 million tariffs are expected to affect gross margin by over 100 basis points. The strategy I outlined in February may need adjustments. Our team has shown adaptability in the face of this $200 million headwind. While we initially anticipated an increase in gross margin, a slight reduction is now likely. Our approach will involve eliminating discretionary spending that won't impact our top line or long-term growth, while still aiming for that 50 to 75 basis points of expansion, targeting a margin of 27.5 to 27.75 for the year. We expect to end up below the 28.9 we recorded in Q1 for the full year, especially in the latter half, but we are confident in achieving our target.
Operator, Operator
The next question comes from Patrick Wood with Morgan Stanley.
Patrick Wood, Analyst
Congrats to both Dan and John. I'd love to just touch on CRM actually of all things. And I'm curious, obviously, you saw the shift between high and low voltage, but I'm curious in terms of Empower and the approval of that in the second half, how are you thinking of the outlook for that division? How much does Empower impact growth going forward? Just any kind of details on the CRM side of things would love a little bit more.
Michael Mahoney, Chairman and CEO
Sure. Really pleased with the future of CRM, I would say. So I'd say we're kind of slightly below market with those results. Most all of our businesses grew at or above market, which we expect likely to be the case for most of 2025. But I think if you look at 2016 and beyond and really the momentum maybe tumors to the end of '25, we're really confident in our CRM business. A lot of investment in CSP labeling, Ingevity changes, and new CSP catheters. The Empower, we should have approval at some point in the second half of '25. So that will have a nice larger impact in 2026. And also, one of the biggest organic investments we've had in the company for 6 years now is really the total product refresh of our S-ICD tachy brady portfolio called Denali which will launch starting off with high power in 2026. And really, those impacts across that broad portfolio throughout the strategic plan period. So we continue to make strong investments there, excited about Empower. So I think you'll see maybe a slight lag in performance throughout 2025, but then hopefully improved momentum likely in the fourth quarter and accelerating in 2026 and throughout the period.
Ken Stein, Chief Medical Officer
And Patrick, maybe I just want to give a little more color just on Empower overall, just to make sure everyone understands why we're excited about it. Again, once we do get approval and train people and get into a full launch of it. I think a right, it gets us into the leadless pacing space. And while we've been holding our own in all voltage even without a leadless pacer, right, this is an important growing area in CRM to get into. But in Empower, I want to recognize is much more than just a leadless pacemaker and the truly differentiated feature of it is the ability to communicate with SICD and provide a modular option for patients who have an SICD who go on to develop a need either for brady pacing or for antitachycardia pacing. This is probably the most important unmet medical need in high-voltage therapy today. ICD leads three times likely to fail as brady leads and recognizing all the advantages of having a system that is leadless, where the defibrillating lead is extrathoracic, we think, again, this is an important option for patients with an existing S-ICD, but also importantly, it's an enabler for docs to use the S-ICD in a much broader group of primary prevention patients because they don't have to be afraid that the patient is subsequently going to develop a need for pacing.
Operator, Operator
The next question comes from Danielle Antalffy with UBS.
Danielle Antalffy, Analyst
Dan, I'm going to miss you a lot and miss talking sports with you for sure. So you better keep in touch so I can continue to tell you how much I hate Boston Sports teams. Sorry, Mike. But John.
Daniel Brennan, CFO
I will miss that. You know you're in a big Patriots fan.
Danielle Antalffy, Analyst
I'm excited to continue working with you, John, and it's great to have Lauren back. I apologize for the long introduction, but I have a quick question regarding some recent acquisitions. The acquisition of SoniVie is interesting. When you get a chance, could you share your expectations for that acquisition? I know it's early, but I'm curious about the timing for it and the clinical and regulatory milestones that could indicate when it might start contributing significantly, especially since we're doing extensive work in that area. The potential numbers could be quite large, so any insights you could provide would be appreciated.
Michael Mahoney, Chairman and CEO
Yes, I’ll begin, and Dr. Sam may want to add some comments. We are excited about the acquisition of SoniVie, which we expect to close in the second quarter. We have been following this company for some time, and it originated from our venture portfolio. We believe that ultrasound will be the most effective method for hypertension relief, but we still need more clinical proof since the trial is in its very early stages in the U.S. Therefore, we cannot provide too many details at this moment, as we don’t officially own the company yet. Once the acquisition is finalized, we will be actively involved in the clinical trial and the enrollment strategy, which is already established. We are very impressed with SoniVie’s capabilities and believe our timing is advantageous. There are some changes needed in the market regarding reimbursement and payer support. We aim to generate strong clinical results from the U.S. trial to bolster reimbursement, which is crucial in this area. As we progress, we expect our timing to be favorable, knowing it will take time to enroll patients, conduct follow-ups, and secure approvals. John, I’m not sure if you have shared any public estimates on when we anticipate approval, but we will provide more updates soon. We are enthusiastic about this opportunity, as we view it as a differentiated product in a potentially significant market.
Ken Stein, Chief Medical Officer
Yes. And Danielle, maybe just to add on to what Mike said. Again, first off, there are a number of cards that need to fall into place, reimbursement, finishing our pivotal, et cetera. And just high level, this is one of the most important unmet medical needs today. Recognize half of U.S. adults have high blood pressure, the majority of whom are not adequately controlled on medications alone accounts for probably somewhere around $150 billion a year in health care costs in this country, just reflecting the burden of the disease due to uncontrolled hypertension accounts for half of all cardiovascular disease globally. So there is a need for a solution. And we do believe that SoniVie is likely to prove out to have important differentiated advantages over the competition. Ultrasound, first of all, we believe, will turn out to be a better modality for doing renal denervation, offers greater tissue penetration, and the really unique feature on some of the catheter is that it's able to do ultrasound-based renal denervation without having abstract flow in the renal artery which means you don't have to worry about heating to the vascular endothelium. You don't have to worry about anything to do specifically to cool. It's cooled by blood flow. So right to recap, very optimistic about the clinical differentiation of SoniVie. And if all of the cards do fall into place, this addresses one of the most important unmet medical needs out there.
Operator, Operator
The next question comes from Josh Jennings with TD Cowen.
Joshua Jennings, Analyst
I would like to get an update on the current capacity within the electrophysiology sector. There are no immediate challenges, but the growth of PFA commercialization has led to a substantial increase in credit completion volumes, and WATCHMAN is anticipating significant growth as well. Could you provide an overview of capacity today and the potential for PFA to support cases, particularly in ASCs or specifically A fibrillation cases? Additionally, can you clarify the run rate and what Boston is doing to open that channel?
Michael Mahoney, Chairman and CEO
Yes. So on capacity today, we do not see an issue at this point in time with capacity. And one of the reasons why is this is a highly successful procedure that's very efficient and it also continues to have strong appropriate reimbursement. And you also saw a potential proposal from CMS to further increase reimbursement for both AFib ablation and LAC at roughly 10-ish percent. So these are financially strong categories for hospitals and very effective and very efficient procedures. Therefore, many hospitals are prioritizing their capital investments to meet the demand for this increased patient population for both LAC and for AFib. So we are seeing quite a bit of investment in new cash labs being invested in and created around the world. But again, these categories are growing very quickly. So there may potentially be some more capacity constraints, which would open up your question on site of service. I don't know, Dr. Stein, if you have any comments there.
Ken Stein, Chief Medical Officer
Yes. The only other thing I'd add to that, Josh, particularly with respect to maybe moving more to an outpatient or ASC setting, there's stuff that's in our control, there's stuff that's outside of our control, outside our control is reimbursement. But in our control, right? I mean what do you need to do to move these procedures out of the inpatient hospital setting? And that's having procedures that are safe, number one, that are efficient and that are predictable. And I'd submit that FARAPULSE is industry-leading on all 3 of those accounts. And particularly when you look at the ability to do procedures without the need for intubated general anesthesia, if you want to drive lab efficiency with the advent of our FARAWAVE NAV catheter and FARAWAVE software and Opel if you want to do the mapping, the ability to do the mapping in a way that is very cost-effective without needing to pull out a separate mapping catheter. And so we've done everything that we can within our power, to optimize these procedures again, both for safety, for efficiency and for predictability with FARAPULSE.
Operator, Operator
The next question comes from Michael Polark with Wolfe Research.
Michael Polark, Analyst
I'm going to thrill with a question on tax in this Trump temps, the questions to me have been tariffs and tax. And so Dan, I was hoping for a brief refresher on why the Boston operational and adjusted tax rate is so low. Do you view this as durable? Is there anything as it relates to Pillar 2, some of the discussions around transfer pricing, other policy changes that might put the tax rate at risk in the out years? Help us understand why this is the way that it is.
Daniel Brennan, CFO
Sure, Mike. Yes. So as you look at why our tax rate is where it is, and it's been pretty durable for a decade or more, you look at things like the source of manufacturing, your geographic mix of business and profits. The treatment of acquisitions, integration, location of IP, it's pretty complex, as you would imagine. So that all nets down to the 13.5% operational, 12.5% that we talked about today, 13.5% operational, 12.5% adjusted. So we've been very public in saying for the last couple of years that as you look at 2026, there's a potential for 200 to 300 basis point headwind on that relative to the sunsetting of TCJA from back in 2017. I am heartened by some of the developments in Washington, some things and some discussions that are going on that might help us there. So nothing is final until it's on paper and enacted, but I'm optimistic that might happen. But until that does, we would have a 200 to 300 basis point upward headwind in our tax rate for 2026.
Operator, Operator
The next question comes from Vijay Kumar with Evercore ISI.
Vijay Kumar, Analyst
Dan and John, congratulations to both of you. I have a question about the pipeline. When you look at the TAVR and WATCHMAN, both seem to be in an interesting phase. Regarding Champion, have you conducted any patient preference studies? Assuming the trial is successful, how should we consider the adoption? Also, can you provide any updates on the U.S. FDA submission for TAVR?
Michael Mahoney, Chairman and CEO
So on TAVR, there's no updates on this call. We're continuing to work with the authorities in the U.S. And hopefully, we'll have more of a clear update at some point in the second quarter, but nothing new to report on the TAVI front at this point, with the exception that the Prime valve in Europe continues to do well. We did have a slower first 2 months of the quarter than a nice pickup in March. And so we expect the prime results tend to be extremely well in Europe. And we continue to put our focus there as it relates to ACURATE and more news to come regarding the U.S.
Ken Stein, Chief Medical Officer
Yes. And Vijay, on Champion, again, we continue to expect to read out the CHAMPION data in the first half of next year. To remind everyone, right? That's our all-comer randomized trial launch against the new oral anticoagulants. And we continue to believe that a positive readout on Champion supports the continued 20% plus growth of WATCHMAN over the near to medium term. And as we said in our last Investors Day, right, that between positive option, positive champion that supports a tripling of the potential addressable market for WATCHMAN. And from a patient standpoint, I can tell you, even back when I was in practice, the single thing that patients with Afib wanted more than anything else was the ability to get off blood thinners. And so we do see having a one and done alternative to being on lifelong blood thinners as something that is very attractive to patients.
Operator, Operator
And I understand there is time for one last question. That will be from Matt Miksic with Barclays.
Matthew Miksic, Analyst
To conclude, we’ve discussed a lot today. I’d like to ask about your recent acquisitions and where you see them heading under your management. Could you also share what other areas you’re still investing in and view as opportunities for expanding this portfolio? Congratulations to both John and Dan; it’s been a pleasure working with you, and thank you for taking my question.
Michael Mahoney, Chairman and CEO
Sure, Matt. As you know, we're very active and continuing to strengthen and widen our category leadership across the businesses that we have and expand our investment which we've done consistently over many years and aim to continue to do that. I made a few comments. So Axonics and Bolt are both in active integrations now and we'll go organic in the fourth quarter, very bullish on both those platforms. When they go organic in '26 and for the future. Made a lot of other investments at closing of Antara in our Interventional Oncology business and also some very recent news that you saw on Bolt, where we're very excited about entering the IVL space by the end of the year with the both the knee applications in our PI vascular business and then below the knee, and we've initiated our clinical trial right now. That deal is closed. And then we made some comments earlier about SoniVie. And we've also continued to have the largest venture fund in med tech. We continue to invest more and more in that fund as it's been a nice source of acquisition growth for the company. So we'll continue to be aggressive in the venture portfolio. So I don't think you've seen any change in behavior here.
Jonathan Monson, Senior Vice President, Investor Relations
Thanks, Mike, and thanks, everyone, for joining us today. Appreciate your interest in Boston Scientific. And if we're unable to get to your question or if you have any follow-ups, please don't hesitate to reach out to the Investor Relations team. Before you disconnect, Drew will give you all the pertinent details for the replay. Thanks so much, everyone. Have a great day.
Operator, Operator
Please note a recording will be available in 1 hour by dialing either 1 (877) 344-7529 or 1 (412) 317-0088, using replay code 3699621 until April 30, 2025, at 11:59 p.m. Eastern Time. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.