Boston Scientific Corp (BSX) Q2 2021 Earnings Call Transcript

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Boston Scientific Corp (BSX -0.23%)
Q2 2021 Earnings Call
Jul 27, 2021, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Boston Scientific Second Quarter 2021 Earnings Call. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Lauren Tengler, Vice President, Investor Relations. Please go ahead.

Lauren Tengler -- Investor Relations

Thank you, Andrew. Good morning everyone and thanks for joining us.

With me on today's call are Mike Mahoney, Chairman and Chief Executive Officer; Dan Brennan, Executive Vice President and Chief Financial Officer. We issued a press release earlier this morning [Technical Issues] results which included reconciliations of non-GAAP measures used in the release. We have posted a copy of that release as well as reconciliations of the non-GAAP measures used in today's call to the Investor Relations section of our website under the heading Financials and Filings. The duration of this call will be approximately one hour.

Mike will focus his comments on Q2 performance, largely compared to 2019 [Technical Issues] impact from COVID as well as future catalysts and the outlook for our business including Q3 and full year '21 guidance. Daniel will review the financials for the quarter, provide more details regarding our Q3 and full-year '21 guidance and then we'll take your questions. During today's Q&A session, Mike and Dan will be joined by our Chief Medical Officers, Dr. Ian Meredith and Dr. Ken Stein.

Before we begin, I'd like to remind everyone on the call that operational revenue growth excludes the impact of foreign currency fluctuation and organic revenue growth further excludes acquisitions and divestitures, for which there are less than a full period of comparable net sales. Relevant acquisitions for organic growth versus 2020 and 2019 include Preventice which closed March 1, 2021, and Vertiflex and BTG Interventional Medicines, which closed in May and mid-August of 2019 respectively. Divestitures include BTG Specialty Pharmaceuticals, which closed on March 1, 2021 and the global embolic microspheres portfolio and Intrauterine health franchise, which were divested in mid-August 2019 and second quarter of 2020, respectively.

Guidance excludes the recently announced Lumenis Surgical acquisition, which is expected to close in second half of 2021 and Farapulse acquisition, which is expected to close in Q3 2021 which are subject to customary closing conditions [Technical Issues] For more information, please refer to Slide 9 of our financial operating highlights deck, which may be found on our Investor Relations website.

On this call all references to sales and revenue unless otherwise specified are organic. Finally growth goals of 6% to 8%, ex-COVID, represent comparisons between time periods in which results are not materially impacted by the COVID-19 pandemic.

Of note, this call contains forward-looking statements within the meaning of federal securities laws, which may be identified by words like anticipate, expect, may, believe, estimate, and other similar words. They include, among other things, the impact of the COVID-19 pandemic upon the Company's operations and financial results, statements about our growth and market share, new product approvals and launches, acquisitions, clinical trials, cost savings and growth opportunities, our cash flow and expected use, our financial performance, including sales margins and earnings, as well as our tax rates, R&D spend and other expenses.

Factors that may cause such differences include those described in the Risk Factors section of our most recent 10-K and subsequent 10-Qs filed with the SEC. These statements speak only as of today's date and we disclaim any intention or obligation to update them.

At this point, I'll turn it over to Mike for his comments. Mike?

Michael F. Mahoney -- Chairman and Chief Executive Officer

Thanks, Lauren, and thank you to everyone joining us today. I'm pleased to report very strong Q2 financial results today as the resumption of elective procedures strengthened in the US and improved in many, but certainly not all regions, across the globe. We are well positioned for the second half of 2021 and beyond as we continue to execute our category leadership strategy, driven by our innovative pipeline, expansion into faster growth markets, globalization efforts and enhanced digital capabilities.

Total company second quarter operational sales grew 50% versus 2020. Organic sales grew 52% versus 2020 and 9% versus 2019, exceeding expectations as recovery from the pandemic occurred more quickly than expected, particularly in the US. Importantly, six out of our seven businesses grew double digits organically versus 2019 and we estimate that five of our business units grew faster than their respective markets. We are pleased with our ongoing and new product launches and we are now enrolling our clinical trials at pre-COVID run rates.

Q2 adjusted EPS of $0.40 grew 378% versus 2020 and 3% versus 2019, exceeding the high end of guidance by $0.02 primarily due to sales outperformance and lower spend. Adjusted operating margin of 25.1% was slightly ahead of our expectations as we continued to balance investment with the sales recovery. We continue to be pleased with our free cash flow, with second quarter free cash flow generation of $541 million and adjusted free cash flow of $838 million.

Given the second quarter outperformance, we are increasing and narrowing our guidance ranges for both sales and EPS, which assumes a manageable level of COVID impact in the second half of this year. Compared to 2020, we target Q3 '21 organic revenue growth of 12% to 14% and full year 19% to 20%. Compared to 2019, we target Q3 '21 organic revenue growth of 5%- to % and for the full year, growth of 6% to 7%.

Our Q3 '21 adjusted EPS estimate is $0.39 to $0.41, and we are updating full year adjusted EPS to a revised range of $1.58 to $1.62. Dan will provide more details on both sales and EPS performance and outlook, including the revenue contribution from Preventice. We continue to expect a Q3 close for Farapulse, and an second half '21 close for Lumenis Surgical. I'll now provide additional highlights on Q2 '21 results, along with comments on our Q3 and 2021 outlook.

Within the regions, on an operational basis versus Q2 2019, the U.S. grew 22%, Europe/Middle East/Africa grew 9%, AsiaPac grew 4%, and Emerging Markets sales grew 11%. Organically, in the U.S., U.S. grew 12% versus 2019 as strength was supported by faster than anticipated recovery of procedure volume levels, along with ongoing new product launches across the entire portfolio.

Operationally, EMEA delivered an excellent Q2 with broad based growth across nearly all major markets and franchises, even as some countries experienced COVID related lockdowns and procedural delays. The EMEA region also had double digit growth in PI, EP, Endo and Neuromod, driven by products such as ACURATE Neo2, TheraSphere, POLARx, AXIOS and WaveWriter Alpha with notable strength in Middle East and North African countries.

In Asia Pacific, although Q2 results included approximately 600 basis points of negative impact from the China tender pricing versus 2019, five of our businesses grew double digits, with strong growth in China, Australia, and Korea. While Japan's Q2 results were impacted by COVID, we are seeing success with ongoing and new product launches such as Ranger DCB, Stablepoint, and Watchman FLX.

China sales grew 16% versus 2019, with strong double-digit growth within all business units with the exception of Intervention Cardiology, which included the negative impact of tender pricing. We continue to be pleased with our strong growth in Complex PCI and Imaging, enabled by both our innovative portfolio and by the tender win. We continue to expect full year 2021 double-digit growth from China versus both 2019 and 2020. I'll now provide some comments on business units.

Starting with Urology and Pelvic Health, sales were very strong, growing organically 16% versus 2019, with balanced growth across our Stone, Prostate Health and Pelvic Health franchises. Stone, which is the largest franchise grew double digits, as enthusiasm continues ahead of the Lumenis acquisition, which will expand our category-leading Urology portfolio with this differentiated laser technology. The Prostate Health franchise grew strong double digits, with continued strength in our Rezum and SpaceOAR businesses.

Rezum growth was driven by further traction of its direct to patient efforts in the United States, global expansion and continued appreciation for the long term durability and cost benefits of this minimally invasive therapy. Within our SpaceOAR business, growth was supported by the ongoing launch of next generation SpaceOAR Vue hydrogel in the U.S. and our recent launch in Europe. SpaceOAR Vue is visible under CT and negates the need for physicians to use MRI, an important step to optimizing treatment planning for patients undergoing prostate radiation therapy.

Our Endoscopy team delivered an excellent Q2 with sales growing organically 15% versus 2019. Q2 sales grew double digits across all major franchises with notable strength in Biliary, Hemostasis and Infection Prevention, thanks to our differentiated product portfolio including key products such as AXIOS, Spyglass DS, and Resolution hemostasis clips. Within the quarter, we completed CE Mark for Exalt B and are pleased with early launch feedback highlighting differentiated visualization and suction and remain on track to launch in the US in the second half of 2021. We continue to make progress with Exalt D, with a physician peer training program launched in Q2 as well as the resumption of more normal market development activities as access to hospitals improves.

In Cardiac Rhythm Management, sales were down 6% organically versus 2019. We believe that our CRM performance was slightly below the overall market, inclusive of a temporary impact from the recent EMBLEM S-ICD physician advisories. Importantly, we recently began launching our enhanced SICD electrode and anticipate improved performance in overall CRM in the second half, as we expect SICD revenues to rebound. In our diagnostics franchise, our Lux-Dx implantable cardiac monitor continues to perform very well and gain market share in the U.S. We are also pleased with the strong growth and execution of the Preventice team and continue to anticipate full year growth in that business of at least 20% on a pro forma basis versus 2020.

Electrophysiology sales were up 10% versus 2019. Strong international sales growth of 29% were driven by the ongoing success of POLARx in Europe and Stablepoint Force-Sensing catheter in Europe and Japan. US EP sales will likely lag market growth until we receive approval for these therapies, which are currently enrolling in their respective U.S. IDE trials. We also exercised our option to acquire Farapulse, which is a leader in pulsed field ablation, an emerging field that has the potential to improve safety, efficacy, and ease of use for cardiac ablation procedures. Farapulse is the only company with a commercially approved pulse ablation product in Europe and is actively enrolling its US IDE, ADVENT trial. We are excited to bring this differentiated therapy into our EP portfolio in Q3 2021.

In Neuromodulation, organic revenue grew 14% versus 2019. Our Pain Management franchise growth accelerated in Q2, supported by the ongoing launch of our next gen WaveWriter Alpha SCS System with Cognita digital solutions and continued clinical evidence generation. At the NANS mid-year meeting, we released the one-year follow-up data for our COMBO study demonstrating a sustained, high level of clinical and functional success at 84% responder rate.

We have also started reporting on the real-world results of the FAST therapy, which is designed to provide profound and immediate pain relief. Beyond advancing outcomes for our existing indications, we are also pleased with the progress of our SOLIS Study, which is focused on non-surgical back population, which started in Q1 of this year and look forward to beginning our diabetic peripheral neuropathy study by the end of the year.

In Deep Brain Stimulation, the business continues to gain share globally and delivered strong double digit growth, driven by the launch of the Vercise Genus platform, the expansion of our commercial infrastructure, and partnership with Brainlab. In Interventional Cardiology, organic sales grew 10% versus 2019 with double digit growth in Structural Heart Valves, WATCHMAN and Complex PCI and Imaging franchises.

The growth of the WATCHMAN franchise accelerated sequentially. The impressive growth was driven primarily by increasing hospital and physician utilization rates in the US and some share gains in Europe. Importantly, nearly all US accounts have fully transitioned from WATCHMAN 2.5 and are now using FLX exclusively. Additionally, we're pleased with the two year results of PINNACLE FLX, featured as a late-breaker at TVT, which reinforced our positive one year primary outcomes and met its secondary effectiveness endpoint.

We remain excited about the outlook for the WATCHMAN franchise with our next generation FLX device, global expansion, and continued work toward indication expansion with ongoing clinical trials. Notably the OPTION trial, comparing WATCHMAN FLX to first-line oral anticoagulants for patients with non-valvular afib who also undergo a cardiac ablation procedure, recently we completed enrollment ahead of schedule, in spite of challenges presented by the pandemic.

In TAVR, our ACURATE neo2 launch continues to do well in Europe supported in part by the real-world data presented at Euro PCR which demonstrate that the low ACURATE neo2 PVL rate is comparable to contemporary TAVI devices, with continued low permanent pacemaker implantation rates. These outcomes were reiterated in the Early Neo2 Registry, also presented last week at TVT as a late-breaker. Sentinel, our cerebral embolic protection device, achieved its highest quarterly sales to date with strong new account openings globally and we continue to enroll in the PROTECTED TAVR randomized clinical trial.

Coronary therapies declined mid-single digits versus 2019, attributable to Drug-Eluting Stents, which include the impact of China tenders and global price pressure. We continue to see strong growth in Complex PCI and Imaging, with particular strength in RotaPro and IVUS. Importantly, our global complex PCI and imaging business is now 50% larger than our DES business. We're advancing opportunities for future growth drivers and within the quarter began enrollment in our AGENT DCB trial, which is a first in the U.S. study of coronary in-stent restenosis.

Peripheral Interventions delivered organic sales up 10% versus Q2 2019. Within Interventional Oncology, TheraSphere grew over 30% versus 2019 on a pro forma basis in its first full quarter post PMA approval. In Venous, Varithena continues to grow double digits and gain share in the varicose vein market.

Within Arterial, our Drug-eluting portfolio achieved record sales in Q2, supported by global expansion along with the sector's continuing recovery. We are pleased to have started enrollment on the Elegance registry, a study that will gather clinical evidence on the risk of PAD in previously underrepresented patient populations. The study will also look at long-term outcomes of patients being treated with Eluvia DES or Ranger DCB.

I'd also like to highlight Boston Scientific's recent inclusion on the JUST Capital Top 100 list of Companies Supporting Healthy Families and Communities along with our recognition as a Best Place to work for Disability Inclusion. We are proud to be recognized for providing our employees an inclusive and supportive environment and remain committed to global sustainable practices.

Overall, we are pleased with our performance through the first half of this year and we remain bullish on the long-range outlook for Boston Scientific. We look forward to sharing our strategic plan objectives at our hybrid Investor Day event on September 22nd. I'd like to extend a big thank you to our employees for their contributions and winning spirit, and I'll now turn the call over to Dan.

Daniel J. Brennan -- Executive Vice President and Chief Financial Officer

Thanks, Mike. Second quarter consolidated revenue of $3.077 billion represents 53.6% reported revenue growth versus the second quarter 2020 and reflects an $81 million tailwind from foreign exchange.

On an operational basis, revenue growth was 49.6% in the quarter. Sales from the Preventice acquisition contributed 240 basis points, more than offset by the divestiture of Specialty Pharmaceuticals, resulting in 52.4% organic revenue growth, above our guidance range of 44% to 48% growth versus 2020. Compared to second quarter 2019, organic growth was 8.9%, above our guidance range of 3% to 6%. This 8.9% growth excludes $15 million in 2019 sales of divested intrauterine health and embolic beads businesses, as well as $178 million in 2021 sales of acquired businesses, which consists of two months of Vertiflex, and a full quarter of BTG Interventional Medicines and Preventice.

Top line results drove Q2 adjusted earnings per share of $0.40, representing 378% growth versus 2020, 3% growth versus 2019, and exceeding our guidance range of $0.36 to $0.38. Adjusted gross margin for the second quarter was 70.5%, slightly above our expectations driven by sales outperformance in higher margin businesses. As expected, we have materially worked through the COVID-driven negative manufacturing variances capitalized on the balance sheet in 2020, and as a result expect slight improvements in second half gross margin compared to the first half, though still not at full year 2019 levels as other headwinds remain, in particular, the lingering cost of running plants with COVID-specific measures, as well as some impact from inflation. Not unique to us, this inflation includes items like increased freight costs, selective wage pressure and some price increase on direct materials.

Second quarter adjusted operating margin was 25.1%, slightly above our expectations driven by sales outperformance and balanced investment, and also includes a reserve for a legal settlement that we expect will improve access to additional markets for some of our cardiovascular technology. GAAP charges within the quarter additionally include $298 million in litigation-related expenses to account for incremental costs to resolve newly estimable claims, as well as known claims and corresponding legal fees within our legal reserve.

Materially all U.S. claims remain settled or in the final stages of settlement. Our reserve assumptions are based on full global resolution now in 2023 given recent claim activity and expected litigation. Our total legal reserve was $617 million as of June 30, an increase of $162 million versus March 31 driven by the mesh reserve increase and cardiovascular settlement, partially offset by payments to close out majority of the state attorneys general mesh settlement as well as continuing mesh product liability payments.

Moving to below-the-line, adjusted interest and other expense totaled $107 million, in line with expectations. Our tax rate for the second quarter was 11.1% on an adjusted basis, also in line with expectations. Adjusted free cash flow for the quarter was $838 million and free cash flow was $541 million, with $643 million from operating activities less $102 million net capital expenditures. Our goal remains to deliver adjusted free cash flow in line with 2020, approximately $2.0 billion, as we continue to expect increased working capital headwinds in inventory and accounts receivable during the remainder of the year.

As of June 30, 2021, we had cash on hand of $2.7 billion. Our top priority for capital deployment remains tuck-in M&A and we continue to expect to close the acquisition of Lumenis Surgical in the second half of the year, and Farapulse in Q3. We have capacity to pursue additional business development opportunities while continuing to remain active with our venture capital portfolio and consider opportunistic share repurchase.

We ended Q2 with 1.432 billion fully diluted weighted-average shares outstanding. I'll now walk through guidance for Q3 and full-year 2021. For the full year, we expect 2021 operational revenue growth to be in a range of 18.5% to 19.5% versus 2020, which includes an approximate net 50 basis point headwind from the divestiture of our intrauterine health franchise and Specialty Pharmaceuticals, partially offset by the acquisition of Preventice. Excluding the impact of acquisitions and divestitures, we expect organic revenue growth to be in the range of 19% to 20% versus 2020, and 6% to 7% versus 2019.

For the organic comparison to 2019, full year 2019 sales exclude $50 million in sales of our embolic beads portfolio and intrauterine health franchise, as well as $81 million in Specialty Pharmaceutical sales; and at the midpoint of guidance, 2021 sales exclude approximately $490 million in sales from recent acquisitions, including Vertiflex through May, BTG Interventional Medicines through mid-August, and Preventice as of March, as well as $13 million of Specialty Pharmaceutical sales prior to divestiture.

For Q3 2021, we expect operational revenue growth to be in a range of 11% to 13% versus 2020, which includes an approximate net 100 basis point headwind from the divestiture of Specialty Pharmaceuticals, partially offset by the acquisition of Preventice. Excluding the impact of acquisitions and divestitures, we expect organic revenue growth to be in a range of 12% to 14% versus 2020, and 5% to 7% growth versus 2019, which includes a 300 basis point sequential comp headwind from Q2 to Q3 2019. Therefore, the midpoint of guidance assumes results in line with Q2 with a continued manageable level of COVID impact.

For the Q3 organic comparison to 2019, 2019 sales exclude $35 million in sales of our embolic beads portfolio, intrauterine health franchise and Specialty Pharmaceuticals and at the midpoint of guidance, 2021 sales exclude approximately $110 million in sales from the acquisitions of BTG Interventional Medicines through mid-August and Preventice.

For adjusted operating margin, we continue to target an average of 26% in the back half of the year while simultaneously investing to more normalized operating expense levels as the first half of 2021 remained below what we would expect for a near-term run rate. We continue to forecast our full year 2021 operational tax rate to be approximately 11% and our all-in tax rate to be approximately 10%.

We continue to expect adjusted below-the-line expenses, which include interest payments, dilution from our venture capital portfolio, and costs associated with our hedging program, to be approximately $400 million to $425 million for the year. We expect fully diluted weighted-average share count of approximately 1.437 billion shares for Q3 2021 and 1.435 billion shares for full-year 2021.

We are raising full year 2021 adjusted EPS guidance to a range of $1.58 to $1.62, which includes our update to sales guidance and considers Q2 results, which removed additional uncertainty from our previously wider range. For the third quarter, adjusted EPS is expected to be in a range of $0.39 to $0.41.

Please check our investor relations website for Q2 2021 Financial and Operational Highlights, which outlines more detailed Q2 results.

With that, I'll turn it back to Lauren, our newly appointed Vice President of Investor Relations. Congratulations, Lauren, very well deserved, who will moderate the Q&A.

Lauren Tengler -- Investor Relations

Thank you, Dan. Andrew, let's open it up for questions for the next 35 minutes or so. In order to enable us to take as many questions as possible, please limit yourself to one question and one related follow-up. Andrew, please go ahead.

Questions and Answers:

Operator

[Operator Instructions] The first question comes from Bob Hopkins of Bank of America. Please go ahead.

Bob Hopkins -- Bank of America -- Analyst

Great. And good morning. Can you hear me OK?

Michael F. Mahoney -- Chairman and Chief Executive Officer

Yeah. Good morning, Bob.

Daniel J. Brennan -- Executive Vice President and Chief Financial Officer

Very fine, Bob. Good morning.

Bob Hopkins -- Bank of America -- Analyst

Excellent strong quarter. And congrats Lauren. So first question for Mike and Dan is, just wondering if you could talk a little bit more about your back half 2021 assumptions. You mentioned that you assume a manageable level of COVID. I'm wondering if you could help us understand what that means. Does that mean, specifically that you assume things get a little worse from what you're seeing today, or do you assume things stay about the same?

Daniel J. Brennan -- Executive Vice President and Chief Financial Officer

I think if you look at the numbers, Bob, and I think a lot of it has to do with the comps, right. If you look at our comps from 2019 quarter-by-quarter, they're 6%, 6%, 9%, 7%. And so we put up effectively a 9% in Q2 versus a 6% in 2019. If you look at our guidance for Q3, it's 5% to 7%. So to take the midpoint at 6%, that's against the comp of a 6%, which of a 9%, which is 300 basis points harder. So in theory, the 6% effectively becomes a 9% when you adjust for comps, which is kind of what we did in Q2. And I won't go through the whole process, but the implied Q4 ends up in a similar range.

So I think what you're hearing, I'd say is that, Q2 the impact of COVID was manageable. You heard Mike's comments that the recovery was very strong, particularly in the U.S. And what our guidance would imply is that for the most part continues in the back half. So manageable COVID impact would be a quarter similar to what you saw in Q2.

Bob Hopkins -- Bank of America -- Analyst

Okay. So sounds like you think -- sorry, go ahead, Mike.

Michael F. Mahoney -- Chairman and Chief Executive Officer

No, does that track and make sense for you.

Bob Hopkins -- Bank of America -- Analyst

Yeah, it sounds like you're assuming that things have basically stayed the same, they don't get worse from what you just said, which...

Michael F. Mahoney -- Chairman and Chief Executive Officer

Correct. That's correct.

Bob Hopkins -- Bank of America -- Analyst

Okay, great. And then just a quick, quick follow-up on the question is, I was wondering if you could talk just a little bit more about WATCHMAN trends in the quarter. It sounds like things went really well, but just curious if you maybe could provide a growth rate over 2019. Just curious for kind of flushing out the experience with WATCHMAN in the quarter a little bit more and if you can quantify it at all, that would be helpful. Thank you.

Michael F. Mahoney -- Chairman and Chief Executive Officer

Yeah, sure. Yeah, we won't be providing a growth rate on '19, but overall the plans with WATCHMAN FLX has gone exceedingly well. As we mentioned, the U.S. has really been fully converted at this point, which happened ahead of schedule and we enrolled the OPTION trial ahead of schedule. But the big benefit we're seeing is with the ease of use and the safety profile of FLX, the utilization of WATCHMAN FLX in the U.S. accounts in particular continues to increase. So we do have some small new incremental account openings, but far in a way the bulk of the growth in U.S. is being driven by increasing physician utilization and penetration rates.

And we recently have some approval in Japan. And so, you're starting to get some minor impact from Japan, which we'll get more so in the second half and as well as in 2022. But it's really being driven by the utilization rates, safety profile, physician comfort with the device and training new physicians at existing facilities. So current doctors are doing more WATCHMAN and new doctors at the same facilities are being trained on WATCHMAN. And the referral base to physician community is becoming more and more comfortable and aware as are patients with this treatment. So we've pegged this growth of this segment to be likely plus 30% growth. And we continue to expect to do well in it. But it's exciting platform for us.

Bob Hopkins -- Bank of America -- Analyst

Great. Thank you.

Operator

The next question comes from Robbie Marcus with J.P. Morgan. Please go ahead.

Robbie Marcus -- J.P. Morgan -- Analyst

Great. I'll add my congratulations on a really nice quarter. Two from me. First, it looks like you had great growth in the U.S. with 12% organic over 2019. I was wondering maybe you could just give us an overview of where you're seeing the recovery. Are you seeing any lagging trends from Delta variant and is there any discrepancy in inpatient versus outpatient. You're one of the first to report here with such a global covering and diverse offering, I think it would be really instructful as we think about the rest of the year in the guidance.

Michael F. Mahoney -- Chairman and Chief Executive Officer

Yeah, so just broadly, we saw terrific results in the U.S., very strong results in Europe despite the lockdowns in Europe and I should say more COVID impact in Europe. That business grew 9% organic. And we had the most significant COVID impacts in Asia and ASEAN countries and Japan in particular with Korea, Australia, doing well as with China.

So we saw more COVID impact broadly in Asia-Pac and the strong recovery in the U.S. And then in terms of the U.S. for your question there, we really had with the exception of EP, we think every business globally and the U.S. grew double-digit organically versus '19 and likely gained share in the respective markets with the exception of potentially EP and CRM. But EP grew share international markets.

And in the -- if you break down -- if you look at Uro and Endo particularly Alpha PI where we have a more substantial ASC business and outpatient business, you saw 16% growth in Uro, 15% in Endo and 10% organic in PI with a strong growth from Therasphere. So I would say in the U.S., we saw a nice rebound, both in the hospital setting, which I think has been verified by many of the public company hospital chains reporting prior to us. And we saw strong growth in the outpatient ASC center as well.

Robbie Marcus -- J.P. Morgan -- Analyst

Great. And maybe a follow-up for Dan and a suggestion. Dan, I think some of us had a little trouble hearing the nuance guidance you gave. If you guys want to send out your prepared remarks, I think that would be really helpful for all the investors. But maybe just as a quick follow-up, you mentioned higher input costs in COGS. So improving in second half versus first half, but maybe not all the way quite up to 2019, you know, how are you thinking about the company's ability to absorb and pass on some of those costs? And do you think that's going to be an issue going into 2022 as we exit the year here, because you did have great expense control down the P&L, just thinking about the cost component. Thanks.

Daniel J. Brennan -- Executive Vice President and Chief Financial Officer

Sure. Thanks, Robbie. Relative to gross margin, so we average 69.8 in the first half and I think we feel comfortable that we'll improve upon that here in the second half of '21. Specific to what's going on in gross margin, we will have the tailwind of the COVID-related variances that we put on the balance sheet during 2020, those are amortized over your inventory turns. And so effectively as of 6/30 this year, the end of Q2, those are gone, so that's good news.

We do still have some COVID specific lingering costs of running plants in a COVID environment. So COVID is not completely done obviously as you know. And so, we do have those and those are adding cost. And then as I mentioned in the prepared remarks, not unique to us, we do have some pockets of inflation and particularly with freight where we just need more commercial airliners to be flying than are flying today, we have wage pressure in certain locations. And then direct materials, particularly precious metals and things like that we're seeing inflation there.

So we do have some headwinds. But overall as we look at the back half of '21, we would assume we would improve versus that 69.8 average in the first half. And then as it relates to '22 and beyond, I would envision we'll give you more detailed review of that in Investor Day on the 22nd of September.

Robbie Marcus -- J.P. Morgan -- Analyst

Great. Appreciate it. Thanks a lot.

Daniel J. Brennan -- Executive Vice President and Chief Financial Officer

Yes, thanks, Robbie.

Operator

The next question comes from Larry Biegelsen with Wells Fargo. Please go ahead.

Larry Biegelsen -- Wells Fargo -- Analyst

Good morning. Thanks for taking the questions and congrats on the quarter and congrats to Lauren. Just one follow-up on the investor meeting in September. Maybe Dan or Mike just level set us kind of what we should expect, should -- will you provide an update to your financial goals and pipeline? And any reason to think the algorithm of 6% to 8% sales and 50 basis points to 100 basis points margin improvement with double-digit EPS growth has changed and I have one follow-up.

Michael F. Mahoney -- Chairman and Chief Executive Officer

Oh my gosh, if we give you all this, you're not going to show up.

Larry Biegelsen -- Wells Fargo -- Analyst

We'll be there, Mike.

Michael F. Mahoney -- Chairman and Chief Executive Officer

No, we expect to -- as we've done in previous years, provide an update on our portfolio across the company, give some visibility to the loan rate strategy and financial goals, similar to what we've done historically. So we would like to provide some more updated three year sales guidance, what we think margin approval will look like. But more importantly, you'll hear from the business unit Presidents on the portfolio and innovation across the company.

Larry Biegelsen -- Wells Fargo -- Analyst

Got it. And just for my follow up, Mike on Lumenis and Farapulse, why was this the right time to acquire both? What's the outlook for Lumenis, since that $200 million you said for sales in 2021, is that net after your distribution agreement? Thanks for taking the questions.

Michael F. Mahoney -- Chairman and Chief Executive Officer

Yes, I have to verify that number. Will get the number in the past in terms of the Lumenis net numbers. So we will -- let's circle back on that one. But the timing just strategically makes perfect sense. I think that the group is aware of this. We had distribution agreement Lumenis in the U.S., distribution agreement in China, which was effective, therefore we weren't getting the same level of gross margin benefits that we wanted nor could we innovate on the platform. And I guess tie it more comprehensively into our StoneSmart platform.

So by owning that we obviously improve our gross margins. We can drive a more robust product roadmap within our StoneSmart ecosystem. And then we can expand our direct coverage in Europe, and especially in China, we'll have a very big business. So that makes sense. And what do we say here, Lauren?

Lauren Tengler -- Investor Relations

We only disclosed the full year growth number of $200 million for 2021, we did not disclose the net, Larry.

Larry Biegelsen -- Wells Fargo -- Analyst

Got it. And Farapulse, Mike?

Michael F. Mahoney -- Chairman and Chief Executive Officer

So Farapulse, we expect that to close pretty soon here, early in the third quarter. I won't go too far on it. We're really excited about, certainly approved platform in Europe in the pulsed field ablation field. And they are enrolling ahead of schedule in our U.S. clinical trial, the physician community and Dr. Stein is on the phone, he can comment on it. I don't know Ken if you -- Dr. Stein, if you're on the phone, maybe you want to provide a quick update on Farapulse.

Ken Stein -- Chief Medical Officer

Yes, absolutely, Mike. Yeah, and I think the pulsed field ablation, and particularly the Farapulse approach to pulse field ablation is the most exciting thing to come along in ablation really since ablation. What Farapulse has demonstrated in a wealth of clinical data to date over 100 patients in clinical trials that have been reported out publicly is a very high expectation that this is going to be safer than others thermal approaches to ablation. And because of the safety, it's much more straightforward procedure for physicians. It's a quicker procedure for physicians and is that again likely to be at least as effective and probably more effective than other technologies.

So given that we are extremely excited and optimistic about their approach. And as Mike said, given that they are the only approved technology in Europe, given that they're executing so well on their clinical trials, by exercising the option now and again hopefully closing in the near future, we have the opportunity to now to help them scale up distribution, production and again the ability to help them and continue to execute their clinical trials and get to U.S. approval in a timely fashion.

Larry Biegelsen -- Wells Fargo -- Analyst

Thank you.

Michael F. Mahoney -- Chairman and Chief Executive Officer

You're welcome.

Operator

The next question comes from Vijay Kumar with Evercore ISI. Please go ahead.

Vijay Kumar -- Evercore ISI -- Analyst

Hi, Mike. Congrats on the quarter here. Thanks for taking my question. One on a high level. If I just look at the 2Q performance in the back half implied guide, we did 9% in Q2 versus pre-pandemic 2019. Back half implied is 7% and 9%. I mean, we're already running, if I look at the 2Q to 4Q of performance, we're already running well north of 8%, Preventice, Lumenis, once these deals become organic, they should be incremental, plus you have these pipelines. I guess that when I look at that LRP of 6% to 8%, shouldn't these results provide a high degree of confidence in upper end of that LRP on the top line going forward?

Daniel J. Brennan -- Executive Vice President and Chief Financial Officer

Yes, I mean, I think we're not going to comment specifically within the range of 6% to 8%. Obviously, we'll, as Mike said, probably tee that up for an Investor Day conversation relative to the portfolio and the overall results. So I don't think it would serve us well to comment relative to the specifics in there. But the strength of the portfolio in the pipeline is what's given us the confidence to put up the numbers that we put up in the past and obviously, looking forward, give us the confidence in the revenue growth trajectory for the future. So -- but specific to where in the range, I don't think I'll go there.

Vijay Kumar -- Evercore ISI -- Analyst

Understood, Dan. Just one on margins maybe. When should gross margins get back to pre-pandemic levels or perhaps on operating margins, just given the commentary around freight in inflationary pressures? Should point to operating margins be at 2019 levels?

Daniel J. Brennan -- Executive Vice President and Chief Financial Officer

Yes, I mean, if you think of the back half of this year, that's what we're calling for Vijay. So we're calling for an average in the back half of '21 to be at our full year 2019 level, which was call it rounded 26%. So the goal is to do that in the back half of '21 and set us up for '22 and beyond. Gross margin, as we said, it was 69.8 in the first half. It'll be improving on that in the second half. So when does that get back to specific 2019 levels, we'll -- again, we'll give more details in Investor Day. But if you think of at the overall operating margin level, the thing that we've proven time and time again, over history is that we make the effective trade-offs through the P&L.

So if you think back four, five, six years ago, gross margin was growing very nicely, and as a percentage of sales. And we were investing in places like the emerging markets and other areas. So SG&A was in sometimes actually increasing as a percentage of sales, but still delivered very solid operating margin progression through that timeframe. So it may shift a little bit as we go forward, maybe gross margin doesn't pay as many of the bills so to speak. But SG&A potentially with lower travel spend and other trade-offs that will make in addition to more efficient R&D spend. The goal is always to have operating margins increase year-over-year and I think our track record speaks for itself on that.

Vijay Kumar -- Evercore ISI -- Analyst

Thanks, Dan.

Daniel J. Brennan -- Executive Vice President and Chief Financial Officer

Thanks, Vijay.

Operator

The next question comes from Cecilia Furlong with Morgan Stanley. Please go ahead.

Cecilia Furlong -- Morgan Stanley -- Analyst

Great. Good morning and thanks for taking our questions. I wanted to ask about SCS trialing trends, and really just what you've seen from a relative recovery versus other more elective procedures in the quarter? And then kind of tying in also just Vertiflex, what type of traction you've seen recently?

Michael F. Mahoney -- Chairman and Chief Executive Officer

Sure. We haven't had all the competitors report in that field. So we're not exactly sure how we grew versus the competitive set, but we had a strong acceleration in 2Q. U.S -- overall in the quarter. And I think part of it is a combination of the unique portfolio that we have with the new launches, the new fast algorithms, and I detailed in the script that may have had a difficult hearing. We're going to send them out to people. But combination of the new fast algorithms as well as the clinical work that we're doing, so SCS overall improved versus first quarter.

And then it was augmented, as you mentioned, with Vertiflex growth in the quarter as well as continued growth in our RF portfolio. The RF portfolio although a bit smaller continues to exceed expectations. And then the other really big growth driver for neuromod in the quarter was our Deep Brain Stimulation business. And it's really impressive what that group has done. They continue to gain market share. Really the number one de novo player in Europe, and close to that now in the U.S., and they continue to accelerate market share gains through the innovation of that business. So the DBS probably had the largest snapback of any business in the second quarter with a COVID impact win in the U.S.

But overall, the SCS market and the pain side did quite well as well. But we'll see how the other competitors report, but we're impressed with the sequential growth that we saw.

Daniel J. Brennan -- Executive Vice President and Chief Financial Officer

And happy overall with the 14% growth versus 2019 for all of that neuromod business that Mike just detailed.

Cecilia Furlong -- Morgan Stanley -- Analyst

Great. And you also called out Rezum in your prepared remarks. Could you just comment a bit more, just what you've seen from recent procedure trends and procedure recovery trajectory coming out of COVID? Thank you.

Michael F. Mahoney -- Chairman and Chief Executive Officer

Yes, so I think with our Rezum business, we continue to drive increased growth there. The overall Uro business had a big bounce back in the quarter growing 16%. And the big things that we're focusing on with the Rezum is we're continuing to drive improved reimbursement rates, with some of the specific payers which is helping. But it's also the long-term durability data and that's giving physicians more confidence in the product that's driving the growth.

And we've also expanding our international footprint with Rezum, particularly in Europe, and also some additional DTP, direct-to-patient and direct-to-physician marketing campaigns to drive more awareness. So it's really a combination of all those things that's improving the growth profile of Rezum.

Cecilia Furlong -- Morgan Stanley -- Analyst

Okay. Thank you and congrats on the quarter.

Michael F. Mahoney -- Chairman and Chief Executive Officer

Thank you.

Operator

The next question comes from -- excuse me -- Pito Chickering with Deutsche Bank. Please go ahead.

Pito Chickering -- Deutsche Bank -- Analyst

Hey. Good morning, guys. Thanks for taking my questions. Congrats on a nice quarter and also congrats to Lauren. To follow-up on Bob's question, I understand the comps versus 2018 for 3Q is challenging at 9%. But we also heard in the public hospitals that June was the best month of the quarter and strong June trends continue into July. So just curious, as you look at your third quarter guidance, are you seeing normal 3Q seasonality? Or are you simply assuming that you'll see at some point during the quarter?

Michael F. Mahoney -- Chairman and Chief Executive Officer

Yes, I appreciate the question. We're just not going to comment, kind of intra quarter as we sit here in the third quarter. I think the answer to Bob's question in a -- and the short answer is we're expecting the trends that we saw in the second quarter to continue. We're not going to parse it month-by-month. We're expecting the overall trend of that growth rate to continue comp adjusted in the back half of '21. But specific to month versus month, we're not going to get into that -- those specifics.

Pito Chickering -- Deutsche Bank -- Analyst

Okay, fair enough. A Quick question on EXALT D. I understand the markets have been very dynamic for the last years due to COVID. So two questions. How many accounts are you selling EXALT D into at this point? And into the accounts, what is the market share and reorder rate of those accounts? And as you watch EXALT D, how much revenue contributions do we assume in the back half of the year? Thanks so much.

Michael F. Mahoney -- Chairman and Chief Executive Officer

Yeah, we're probably frustrating to you. We're not prepared to share that information with you. On EXALT D just as you've heard in previous quarterly updates, the team continues to make progress. As COVID impact is improving, although hopefully, Delta variant isn't too much, but has improved in the U.S., we have seen more of an uptick and traction with EXALT D, as physicians are becoming more comfortable with it, the training and the capital placements have gone well, so you're seeing a uptick in EXALT D usage.

And then in the second half of '21, you'll see enhancements in next release, or next-generation release, if you will, of EXALT D to further improve the platform. So we expect to see continued momentum with that. The big news for us is the recent approval of EXALT D in some sites that tried it for the first time in Europe. And we're really bullish on that platform, let's say, an established market with a few competitors, but we think we have some differentiated capabilities with EXALT D. And so in second half of '21, and much more so in '22, you'll see the impact of that platform as well. So it's all going to plan, but we're seeing some improved momentum with EXALT D in the U.S as COVID is improving.

Pito Chickering -- Deutsche Bank -- Analyst

Right. Thanks so much.

Michael F. Mahoney -- Chairman and Chief Executive Officer

Yes.

Operator

The next question comes from Joanne Wuensch with Citi. Please...

Joanne Wuensch -- Citi -- Analyst

Hi, can you hear me OK?

Michael F. Mahoney -- Chairman and Chief Executive Officer

We can. Good morning, Joanne.

Daniel J. Brennan -- Executive Vice President and Chief Financial Officer

Hey. Hi, Joanne. Good morning, Joanne.

Joanne Wuensch -- Citi -- Analyst

Excellent. Good morning and thank you for taking the question. It looks to us like when we compared the delivery versus consensus, there's two areas that might be lagging a little bit or EP and CRM. But I also remember that there are a number of key products in those sections. Can you highlight one or two that might bring you back into sort of the market taker or gain position?

Michael F. Mahoney -- Chairman and Chief Executive Officer

Yeah. Well, you nailed it. We take each every one of our businesses with exception, while EP grew double digits versus '19, but likely globally that's below market. And CRM, we think we're a little bit below market. With the exception of those two, we think every other one grew faster than markets. And EP, I think you'll see a similar trend likely for the next couple of years. And that we expect our EP results in the international markets to exceed market growth, which we think they did in second quarter.

On the heels of our cryo platform, we are with this -- now the only competitor to the established player in cryo and we're taking share there. And then our stable point, which is our forceps and catheters approved in Europe. And as previous question we'll be closing the Farapulse deal in early third quarter, and they are commercial in Europe. So the three distinct technologies that are quite differentiated will be our IRE platform with Farapulse. Upon closure, our cryo and STABLEPOINT in Europe. And we also expect to see benefit of cryo in Japan toward the second -- toward the end of '21 and full year '22.

So our international business, which is now bigger than our U.S. business in EP will grow faster the market. And our U.S business will likely lag market until we get those products approved. And all those products are in clinical trial right now. And thankfully, as COVID has improved, the clinical trial run rates of those platforms have increased significantly over the past 100 days. So that will be the balance in EP. Really strong outside the U.S., less so in the U.S likely for the coming earnings calls.

And CRM, we think our performance in the second half of this year will improve versus what you saw in second quarter. And the primary reason for that is the S-ICD advisory that we had, which caused sales to lag a bit in S-ICD -- in the S-ICD segment for us, which is a big segment for us globally. And now we have a new lead that is being implanted now across in Europe and the U.S. And we expect our third quarter and fourth quarter S-ICD results to improve quite a bit versus second quarter, which will improve the overall growth rate of our CRM business and likely take us closer to market growth rates for all of CRM.

Joanne Wuensch -- Citi -- Analyst

Thank you. And my second question also is product related. If I had to say to you, what are the three products you want us to focus on over the next six to 12 months. What would your answer be?

Michael F. Mahoney -- Chairman and Chief Executive Officer

If only I picked three. I think WATCHMAN, is number one given the scale of it. The growth profile we see and this enthusiasm. I would say within PI, the BTG acquisition has gone -- exceeded expectations and the TheraSphere segment within -- in particular in Varithena doing extremely well. Then if you give me a third one, there's lots of different areas to speak to, I think -- yes, I think just overall in the -- I know it's super early.

We're very bullish on the combination of cryo and Farapulse. Although not in the U.S yet, that market is so large and the growth profile of EP is so good. That will be the only company that will have IRE and cryo and force-sensing. So all those smaller dollars now an exciting opportunity for us.

Joanne Wuensch -- Citi -- Analyst

Thank you so much.

Michael F. Mahoney -- Chairman and Chief Executive Officer

You bet.

Operator

The next question comes from Travis Steed with Barclays. Please go ahead.

Michael F. Mahoney -- Chairman and Chief Executive Officer

Are you there, Travis?

Operator

Excuse me, Mr. Steed, your line is open.

Travis Steed -- Barclays -- Analyst

Hi, good morning. Thanks for the question. I appreciate some of the longer-term comments you gave on operating margins, just curious what the base we should be using for that 50% or 50 basis points of margin expansion per year if we should think about that 26% in the back half here. So thinking about the street somewhere in 26.5% next year would be a reasonable place to be at this point?

Daniel J. Brennan -- Executive Vice President and Chief Financial Officer

Yes, I wouldn't comment on '22. But for '21, I think the reasonable basis as a starting point would be that 26%, that's we're kind of resetting to here in the back half. It's where we were in 2019 and it should be a nice jumping off point for 2022. Yes, I would agree with you there, Travis.

Travis Steed -- Barclays -- Analyst

Okay, great. And then I just wanted to make sure the message was clear on the full year guidance and the guidance raise. So you're going from 2% to 5% for the full year versus 2019 to 6% to 7%. Is that all coming from the Q2 beat and so basically the back half expectations are staying the same? Or are you actually seeing more confidence here in the back half versus your original expectations?

Daniel J. Brennan -- Executive Vice President and Chief Financial Officer

No, I think if you go back to the original guidance back in February, and for the most part reiterated in April, it was COVID impact in Q1, less COVID impact in Q2, and then a more of -- return to more normalized procedure of volumes in Q3 and Q4. I think we got a little bit of that early as our results would point to versus our guidance ranges for Q2. And then if you take what we were saying about the back half, which we say is the same type of COVID impact and pretty much the same type of results in Q3 and Q4 as in Q2. It's a broad base story of Q2, Q3, Q4. It's not just Q2.

Travis Steed -- Barclays -- Analyst

Okay, great. Thank you.

Daniel J. Brennan -- Executive Vice President and Chief Financial Officer

Okay.

Lauren Tengler -- Investor Relations

With that...

Operator

The next question...

Lauren Tengler -- Investor Relations

No, Andrew, with that we would like to conclude the call. Since it was difficult to hear some of the prepared remarks, we will be posting the transcript or prepared remarks to our Investor Relations website. Before you disconnect, Andrew will give you all the pertinent details for the replay.

Operator

Please note recording will be available one hour -- in one hour by dialing either 1877-344-7529 or 1412-317-008 using access code 10156890. Again 10156890 until August 3, 2021 at 11:59 PM Eastern Time.

[Operator Closing Remarks]

Duration: 56 minutes

Call participants:

Lauren Tengler -- Investor Relations

Michael F. Mahoney -- Chairman and Chief Executive Officer

Daniel J. Brennan -- Executive Vice President and Chief Financial Officer

Ken Stein -- Chief Medical Officer

Bob Hopkins -- Bank of America -- Analyst

Robbie Marcus -- J.P. Morgan -- Analyst

Larry Biegelsen -- Wells Fargo -- Analyst

Vijay Kumar -- Evercore ISI -- Analyst

Cecilia Furlong -- Morgan Stanley -- Analyst

Pito Chickering -- Deutsche Bank -- Analyst

Joanne Wuensch -- Citi -- Analyst

Travis Steed -- Barclays -- Analyst

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