Q4 2022 Boston Scientific Corp Earnings Call
Good morning, and welcome to the Boston Scientific fourth quarter 2022 earnings call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions to ask.
The question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Lori <unk> Vice President.
<unk> Investor Relations. Please go ahead.
Thank you drew and welcome everyone and thanks for joining US today with me on today's call are Mike Mahoney, Chairman and Chief Executive Officer, and Dan Brennan Executive Vice President and Chief Financial Officer, We issued a press release earlier. This morning announcing our Q4 and full year 'twenty. Two result, which include reconciliations of the non-GAAP measures used in the release, we have posted a.
Copy of that release as long 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 morning's call will be approximately one hour Mike.
And Dan will provide comments on Q4 and full year performance as well as the outlook for our business, including 2023 guidance and then we'll take your questions. During today's Q&A session, Mike and Dan will be joined by our Chief Medical Officer, Dr. Ian Meredith and Dr. Ken Stein before we begin I'd like to remind everyone that on the call operational revenue growth excludes the impact of foreign currency.
See fluctuations in organic revenue growth further exclude acquisitions and divestitures for which there are less than a full period of comparable net sales relevant acquisitions excluded for organic growth our preventive surplus alumina surgical which closed in March August and September of 2021, respectively as long as they always medical which closed on February 14th 2022.
Divestitures include the BTG specialty pharmaceuticals business, which closed on March one 2021 guidance excludes the previously announced agreements to purchase a majority stake in Ni Tech and Alphatec as long as the acquisition of Apollo Endo surgery, which are all expected to close in the first half of 2023 for more information please refer to our <unk>.
Financial and operating highlights decks, which may be found on our Investor Relations website on this call all references to sales and revenue unless otherwise specified are organic this call contains forward looking statements within the meanings of the federal Securities laws, which may be identified by words like anticipate expect may believe estimate and other similar words.
They include among other things statements about our growth and market share new anticipated product approvals and launches acquisitions clinical trials cost savings and growth opportunities our cash flow unexpected youth.
Financial performance.
<unk> sales margins and earnings as well as our tax rates R&D spend and other expenses.
Our underlying assumptions turned out to be incorrect, our certain risks or uncertainties materialize actual results could vary materially from the expectations and projections expressed or implied by our forward looking statements 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. Thanks, Laura and thank you to everyone for joining us today 22022, representing a return to more durable and consistent procedural growth within the markets, we serve which provided a stronger base for our innovative portfolio.
I'm very proud of the resiliency and winning spirit of our global team delivered on our sales and EPS goals, despite the ongoing macroeconomic and supply chain challenges.
Importantly, we delivered strong performance across all geographic regions and believe that most all of our business units gained or maintained market share throughout the year.
In the fourth quarter 22, total company operational sales grew 9% and organic sales grew 7% versus fourth quarter 'twenty, one which was the low end of our guidance range. However, it's very important to note that these results include an unplanned sales reserve of $60 million.
<unk> for an Italian government pay back provision, which resulted in a headwind of approximately 200 basis points for the quarter.
The underlying fourth quarter performance was strong in both sales and operating margin increases in earnings per share.
And without the impact of the Italian sales reserve, we would have achieved the high end of our organic sales guidance range of seven to nine.
Full year 22 operational sales grew 11% versus 21, well again ex sales grew 9% in line with our guidance of approximately nine.
Fourth quarter adjusted EPS of 45 cents declined minus 2% versus 21 and full year adjusted EPS of $1 71. It grew 5% versus 21, both achieving the low end of the guidance range. Once again without the impact of the Italian sales reserve, we would have achieved the high end of the guidance range for <unk>.
For the fourth quarter and full year of $1 71 to $1 74.
We generated full year free cash flow of $950 million and adjusted free cash flow of $2 1 billion in line with our expectations.
Now for our outlook for 2023.
We are guiding to organic growth of six eight for both the first quarter 'twenty three and full year 'twenty three.
Which excludes the acquisition of Apollo into surgery, and the majority of stake investments in Mitek and Echo Tech all of which are expected to close in the first half of 2023.
Our first quarter 'twenty three adjusted EPS estimate is 42 to 44.
And we expect our full year adjusted EPS to be dollar 86 to $1 93.
And despite the ongoing macroeconomic pressures and supply chain headwinds we.
We remain committed to our goal of plus 50 basis points of operating margin expansion and double digit adjusted EPS growth in 2023.
Dan will provide more details on our 22 performance the Italian sales reserve and our 'twenty three outlook I'll now provide some additional highlights on 22 results along with comments on our 'twenty three outlook.
Originally on an operational basis, the U S grew 10% versus fourth quarter 21 full.
Full year 'twenty, two grew 11% inclusive of a 300 basis point tailwind from acquisitions with particular strength in our watchman <unk> and urology business unit.
Europe Middle East and Africa grew 11% on an operational basis versus fourth quarter, 'twenty, one and 12% on a full year basis. This above market growth is supported by ongoing investments in emerging markets, new and ongoing product launches across the portfolio pricing discipline and strong commercial execution.
We're excited about the year ahead, it was ongoing momentum across the region.
Particularly with our innovative portfolio and further opportunity with balas and the access solutions franchise.
Asia Pacific grew 10% operationally versus fourth quarter, 'twenty, one and 12% for the full year.
On a full year basis six out of the business units grew double digits supported by ongoing innovation across the region.
Full year, Japan growth was driven by new products, including polar Ax, which is approximately 50% share in open accounts.
We look forward to 'twenty to 'twenty three with ongoing momentum from both new products and are excited about our recent approval and reimbursement received for agent D. C. B, which is a coronary drug coated balloon for instant restenosis and small vessels.
On a full year basis, China grew more than 20% fueled by 13, new product launches.
Portfolio diversification and the team's resiliency and execution risk.
We continue to expand our presence in the China market with our recently announced acquisition of a majority stake in <unk>.
This investment can create strategic value for both companies with opportunities to collaborate in R&D manufacturing and commercial strategies.
We also continue to expect China to be a double digit grower twenty-three despite ongoing D. B P pressure and potential impact of procedure volumes in Q1 from Covid.
In Latin America, the momentum continue with operational sales growth of 16% versus fourth quarter, 'twenty, one and full year growth of 28% with all business units growing double digits for 'twenty one.
On the business units, starting with urology urology sales grew 12%, both operationally inorganically versus fourth quarter 'twenty, one and on a full year basis, they grew 15% operationally and 10% organically versus 21.
Within the quarter, all franchises grew double digits fueled by new and ongoing product launches and continued global expansion.
On a full year basis global growth was driven by key products, such as lithium you resume in space or as well as the acquisition of the luminous Moser laser technology further complementing the urology portfolio.
And as can be sales grew 7% organically in the quarter and on a full year basis grew 8% organically versus 'twenty one.
And 'twenty two we had global success with innovative products, such as access and single use imaging, both growing over 20% and supporting strong growth across the globe.
In the fourth quarter, we announced our intent to acquire Apollo into surgery, which will add a complementary and innovative and aluminum surgery portfolio.
We look forward to closing this acquisition as well as our previously announced majority stake in <unk>, which includes the innovative.
Wow.
<unk> in the first half of 'twenty three.
Neuromodulation sales grew 5% organically versus fourth quarter 'twenty, one and then a full year basis grew 3% organically versus 21 <unk>.
Globally, our spinal cord stimulation business grew 4% in the fourth quarter with continued physician enthusiasm for wave rider Alpha and fast.
We continue to invest in clinical evidence to expand indications and presented three month data from our nonsurgical back studies Solus at Dan's earlier this year.
The study comparing <unk> to a conventional medical management met its primary endpoint and we anticipate FDA approval for nonsurgical back indication by the end of 'twenty three.
Our brain franchise grew double digits in the quarter and low double digits on a full year basis. This strong performance was aided by continued momentum from new product launches in 'twenty two.
Well as the recent launch of the precise two in one lead extension.
Peripheral interventions sales grew 9% organically versus both fourth quarter 'twenty, one and full year 'twenty one.
Within arterial we're pleased with the performance of our drug Eluting portfolio growing strong double digits for the full year and achieving the number one global position I'm sorry, the number one position within the SFA in the U S.
On a full year basis, our venous franchise was flat versus prior year, where the verifying that our market, leading varicose vein offering growing over 20% in 2022.
Our interventional oncology franchise performed well in 22 growing low double digits led by our portfolio of innovative cancer therapies and suite of embolization tools.
We continue to invest in expanding the potential applications of their sphere and enrolled our first patient in our early feasibility study frontier.
A diode in the image of safe safety of image guided intra arterial delivery.
Their spirit G B M and patients with the reoccurring glioblastoma.
Cardiology delivered another excellent quarter with operational sales growing 13% on organic sales growing 10 versus fourth quarter 'twenty one on.
On a full year basis sales grew up 14% operationally and 10% organically.
Our newly aligned Cardiology group delivered strong growth across the four businesses.
Businesses.
As we continue to invest into higher growth segments and differentiated offerings for our customers that address the areas of greatest cardiac need for patients.
Within cardiology interventional cardiology therapy sales grew 5% organically in the fourth quarter and a full year basis grew 8% organically for 'twenty one.
On a full year basis, the coronary therapies franchise, which includes both the drug Eluting stents and complex PCI grew 7% driven by strong performance in our international regions and our imaging franchise.
Our structural heart valves franchise grew double digits in both fourth quarter and a full year basis outpacing the market in Europe with our accurate neo to aortic valve ongoing clinical evidence in support of growth throughout 'twenty, two and in the fourth quarter.
Data from the accurate Neo two P. M. CF study was presented as a late breaker at PCR, London valves, demonstrating positive safety and 30 day outcomes with low PDL rates and best in class pacemaker implant implantation rates.
Additionally, we enrolled our first patient in the accurate prime XL nested registry.
Testing the safety and efficacy of the accurate prime aortic valve XL to treat patients with severe aortic stenosis, who need a larger valve size for the <unk> procedure.
Watchman sales grew 22% organically versus fourth quarter 'twenty, one and then a full year basis grew 24% organically versus 'twenty one.
Q4 finished with record sales strong utilization in the U S supported by the adapt the label expansion.
Importantly, we completed enrollment of our champion AF trial way ahead of schedule.
This head to head trial versus novel oral anti coagulation has the potential to more than triple the number of patients who are indicated for watchman flex in 2027 and beyond we remain excited about this outlook for this business and expect double digit growth in 2023 fueled by innovation ongoing clinical evidence and strong commercial execution.
<unk>.
CRM sales grew 6%, both operationally and organically versus fourth quarter 'twenty one.
And on a full year basis grew 8% operationally and 7% organically.
Our diagnostics franchise had a strong year growing double digits for 'twenty one.
In core CRM and a full year basis, our high voltage business grew low single digits and our low voltage business grew mid single digits and we expect that all the major markets were in line or slightly above the market.
Oh, let's say physiology sales grew 76% operationally and 25% organically versus fourth quarter, 'twenty, one and unemployed your basis grew 69% operationally and 18% organically versus 'twenty one.
Importantly, our international E&P business continues to outpace the market growing over 40% organically versus fourth quarter 'twenty one.
Polaris continues to perform well in both Europe , and Japan has now been treated to treat over 25000 patients since launch momentum and fair pulse continues with another strong quarter of growth in Europe , and we're continuing to invest in clinical evidence and look forward to the readout of the randomized add that U S. IDE trial in the second half of 'twenty three.
Planning to initiate our advantaged AF trial studying the use of fair upholstery or patients with persistent afib imminently.
We've been very pleased with the performance of our Balas acquisition and the innovative versa Cross platform, which grew two times faster than the market in 'twenty two.
We launched our virtual cross connect in 'twenty, two improving efficiencies in our watchman procedure.
Earlier this year, we shared our strategy consistent with years past, we continued to position ourselves to win in the markets, we play through meaningful innovation.
<unk> on our financial commitments and then 'twenty, two we announced four acquisitions invested 10.
10% of ourselves and internal R&D.
And sustainable growth in advanced patient care.
We're extremely excited about the year ahead and remain focused on our people and sustaining a culture that is motivated to drive differentiated performance and achieve our long term goals continuing to grow sales faster than markets continuing to expand operating margins and delivering double digit adjusted EPS growth and strong adjusted free cash flow generation. So.
Before I turn it over to Dan I want to share that with the retirement of Dr. Ian Meredith, It's actually Ken Stein will assume some of the global responsibility.
Possibilities that previously it fell under in <unk>.
Including total company Investor engagement. In addition to a CRM EP and watchman Rolls. Please join me in congratulating, Ken and thanking him for his many contributions with that I'll pass it off to Dan to provide more details on the financials. Thanks, Mike fourth quarter consolidated revenue of $3 billion at $242 million represents a three.
<unk>, 7% reported revenue growth versus the fourth quarter of 2021 and reflects a $158 million headwind from foreign exchange slightly favorable to our expectations as the U S. Dollar weakened throughout the quarter. Excluding this 500 basis point headwind from foreign exchange operational revenue growth was eight.
7% in the quarter sales from the acquisition of Balas contributed 160 basis points, resulting in seven 1% organic revenue growth at the low end of our guidance range of 7% to 9% growth versus 2021, including an approximate 200 basis point impact associated with an.
Land sales reserve related to an Italian government payback provision, which was recorded in the fourth quarter of 2022.
With the goal of recovering spending above the government's medical device budget. This payback provision requires companies that have supplied medical devices to public hospitals in Italy to payback a portion of these overrun amounts, while we and others in our industry have appeal and we will continue to challenge the enforceability of the law.
Through the Italian Court system, we established a sales reserve of $60 million in the fourth quarter, representing our best estimates of amounts we could be required to take back.
Without the reserve we would have achieved the high end of the organic revenue growth guidance range.
Flow through on the Italian sales reserve.
Resulted in Q4 adjusted earnings per share of 45.
At the low end of our range, representing a decline of 2% versus 2021 without the reserve we would have achieved the high end of our range for the quarter.
Full year 2022 consolidated revenue of $12 billion $682 million represents six 7% reported revenue growth versus full year 2021, and reflects a $524 million headwind from foreign exchange.
Excluding this 440 basis point headwind from foreign exchange operational revenue growth was 11, 1% for the year.
Sales from closed acquisitions contributed 240 basis points, resulting in eight 7% organic revenue growth in line with expectations and inclusive of a 50 basis point impact associated with the Italian sales reserve.
Full year 2022, adjusted earnings per share of $1 71.
Represents four 8% growth versus 2021, achieving the low end of our guidance range of $1 71 to $1.74.
Without the unplanned Italian sales reserve, we would have been at the high end of our full year guidance range.
Adjusted gross margin for the fourth quarter was 75%, resulting in full year 2022, adjusted gross margin also up 75%.
In line with our expectations full year adjusted gross margin improved versus 2021, driven by an FX tailwind of approximately 100 basis points related to our hedging contracts, partially offset by continued macroeconomic headwinds. These headwinds were approximately $375 million versus 2019 and our.
<unk> from increased freight costs and unfavorable manufacturing variances, primarily related to direct material cost and availability.
Our 2023 guidance assumes macroeconomic and supply chain headwinds will be similar to 2022 different from prior years. We expect first half 2023 gross margin to be higher than the second half largely due to the timing of foreign exchange movements that occurred during 2022 four.
Quarter adjusted operating margin was 25, 7%, resulting in full year 2022, adjusted operating margin of 25, 6%, improving 30 basis points versus 2021 inclusive of a 30 basis point negative impact from the unplanned Italian sales reserve.
As we look to 2023, we continue to focus on our goal of annual operating margin expansion and despite our expectation of continued macroeconomic headwinds. Our goal is to achieve approximately 26, 4% adjusted operating margin for the full year 2023, representing 80 basis points of improvement versus the 2020.
<unk> adjusted operating margin of 25, 6% and importantly, 50 basis points of expansion compared to the full year 2022, adjusted operating margin without the impact of the Italian sales reserve.
On a GAAP basis for the fourth quarter operating margin was 12, 4%, including $131 million in litigation related expenses, which I will provide detail on in a moment moving to below the line.
Fourth quarter adjusted interest and other expense totaled $88 million, resulting in full year adjusted interest and other expense of $362 million slightly higher than our expectations driven in part by an FX loss from certain unhedged currencies.
On an adjusted basis, our tax rate for the fourth quarter was 11, 9% and 12, 7% for the full year 2022, including discrete tax items and the benefit from stock compensation accounting, our operational tax rate was 12% for the fourth quarter and 13, 5% for the full year slightly.
The favorable to our expectations of approximately 14%.
Fully diluted weighted average shares outstanding ended at $1.442 billion in Q4, and $1 billion $440 million for the full year 2022.
Adjusted free cash flow for the quarter was $776 million and free cash flow was $597 million with $807 million from operating activities less $210 million of net capital expenditures for.
Full year 2022, adjusted free cash flow was $2 1 billion inline with expectations and free cash flow was $949 million with $1 5 billion from operating activities less $576 million of net capital expenditures for 2023, we expect adjusted <unk>.
Free cash flow in excess of $2 $3 billion.
As of December 31, 2022, we had cash on hand of $928 million. We continue to expect to close the acquisition of Apollo into surgery, and the majority stake investments in high Tech and <unk> with cash on hand or available credit lines in the first half of 2023.
Top priority for capital allocation remains high quality tuck in M&A, and we will continue to assess opportunities in conjunction with our financial goals.
As of December 31, our leverage was 257 times in line with our expectations and we were pleased to be upgraded to triple B plus with a stable outlook at both Fitch and standard and poors within the quarter.
Our legal reserve was $443 million as of December 31, an increase of $139 million from the prior quarter, primarily related to our mesh litigation.
While our U S case count has remained materially the same over the past three years, we've increased our reserve to account for our latest estimates of the time and cost to resolve these claims as well as remaining probable and estimable global claims.
I'll now walk through guidance for Q1, and the full year 2023, and as a reminder guidance excludes any acquisitions that have not yet closed.
We expect full year 2023 reported revenue growth to be in a range of 5% to 7% versus 2022.
Excluding an approximate 100 basis point headwind from foreign exchange based on current rates and a 20 basis point contribution from closed acquisitions. We expect full year 2023 organic revenue growth to be in a range of 6% to 8% versus 2022.
We expect first quarter 2023 reported revenue growth to be in a range of 3% to 5% versus Q1 2022, excluding an approximate 350 basis point headwind from foreign exchange based on current rates and a 70 basis point contribution from closed acquisitions we.
<unk> first quarter 2023 organic revenue growth to be in a range of 6% to 8%.
We expect our full year 2023, adjusted below the line expenses to be approximately $340 million under current legislation and forecasted geographic mix of sales we forecast a full year 2023 operational tax rate of approximately 14%.
With an adjusted tax rate of approximately 13%, including the benefit of the accounting for stock compensation, which we expect will largely be recognized in the first quarter, resulting in a Q1 2023 adjusted tax rate of approximately 12%.
We expect a fully diluted weighted average share count of approximately 1.447 billion shares for Q1, 2023, and $1 464 million shares for full year 2023, which includes the shares we expect to issue on June <unk>. This year.
Related to our May 2020, mandatory convertible preferred stock offering we expect the impact to adjusted earnings per share to be neutral with the preferred stock dividend ending at the time of conversion.
We expect full year adjusted earnings per share to be in a range of $1 86.
To $1 93.
Representing 9% to 13% growth versus 2022 at current rates and existing hedging contracts, we anticipate a neutral impact from FX on full year 2023 adjusted earnings per share.
We expect first quarter adjusted earnings per share to be in a range of 42.
<unk> 44.
For more information information please check our Investor Relations website for Q4, 2022 financial and operational highlights, which outlines more details on Q4 results and 2023 guidance in closing I'm very proud of the results that our global team achieved in 2022 with top tier revenue performance and.
<unk> operating margin expansion, despite a challenging macroeconomic environment and I'm looking forward to continued momentum during 2023 with that I'll turn it back to Lawrence who will moderate the Q&A.
Thanks, Dan drew let's open it up to questions for the next 30 minutes or so in order for us to take as many questions as possible. Please limit yourself to one question drew please go ahead.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please.
Press Star then two.
At this time, we will pause momentarily.
Assemble our roster.
The first question comes from Rick Wise with Stifel. Please go ahead.
Good morning, everybody great to see another excellent year from Boston Scientific I guess to focus on one question I'll start with your your 2023 guidance, obviously, the 6% to 8% guide is right in line with your long term philosophy.
But you're starting to take place in 'twenty two you obviously excuse me.
Italy issue finished above 9% organically.
Why again stick with the six to eight is this conservatism respect for lingering macro macro pressures.
Both and maybe just as part of that why model macro headwinds similar to 'twenty two.
The large cap companies reporting.
Date, Theyre, not Boston scientific, but theyre, all in some way shape or form highlighting the improving.
Less pressures.
From macro as they as they finished the year at start 23, Thank you very much.
Hey, good morning.
Mike.
Thanks for the compliments.
Some of your points I guess, we're really happy with fourth quarter, excluding that one time.
Italy Reserve grew plus 9%.
The high end of sales high end of EPS.
And as Dan said really pleased that deliver top tier revenue growth and I think one of the few companies that actually improve margins as well and in 'twenty. Two so we have a lot of momentum.
And we're excited very bullish on 23 in the future here on guidance.
You don't win the day and and February here. So we think the 6% to 8% guidance for four years is appropriate.
The full year, we're coming off a 9% growth comp in 2022.
And.
Obviously, our plan to grow.
<unk> grow as fast as we possibly can while I continue invest in the company now there are a couple of things that will be there are pluses and minus we're very bullish on the EP business, our momentum with our watchman with her a pulse is a couple of tail or headwinds we do believe in the CRM side, we grew.
Six or 7% against last year's 7% in a market that's low single digits.
When you include diagnostics, so we expect a little bit of a headwind there based on comps.
China performed terrific for us in 'twenty, two and we expect them to deliver again excellent double digit growth with potentially not quite as fast as they did in 'twenty two.
Also the underlying markets, we compete in at about 6%. So we think coming off a 9% comp.
6% to 8%.
Full year estimates.
At this time of year is the smart prudent guidance to give and we're going to push like heck to.
To beat it.
<unk> to the macro economic environment Rick.
We kind of reiterated that 375 that we saw in 2022 as being a similar.
Headwind in <unk> and.
2023.
As you saw through 2022, we have a pretty high performing global supply chain organization that has been on top of this all through it and which is the reason that we've been giving the updates at the level of specificity that we have so as you would imagine as we went through our annual operating plan process and guidance preparation process, they really dug in.
That added at a detailed level to try and understand what 2023 could bring there are some elements that look better I freight does look better you see fuel prices and oil prices coming down. So we're optimistic freight costs will be less and less.
The supply of materials and the cost of materials is still a bit uncertain and choppy and that direct labor piece that we have that.
And in 2022, you got to annualize annualize that in 2023, so I think that the prudent case right here is a prudent course for for guidance in February is to assume that.
That we don't get a lot of macroeconomic health in 2023, I'd love to be surprised as we go through the year that we get that helped but I think as we sit here in February prudent to assume a similar headwind to what we saw last year.
Thank you so much.
Thanks, Rick.
The next question comes from Robbie Marcus with Jpmorgan. Please go ahead.
Oh, great. Thanks for taking the questions and congrats on a nice quarter.
Charlie.
Maybe to start.
Mike at our conference last month, you were really bullish on Sarah pulse.
And we saw a nice beat in the quarter, particularly outside the U S, where you have power pulse and pulse Rx.
Rx going now.
Maybe you could talk about your expectations or what you saw in the quarter for <unk>, specifically and your expectations for it in 2023, especially.
After we get the data later in the back half of the year, assuming it looks good.
Sure Yeah, you know our EP business in the quarter grew 25%.
And it grew what was it.
<unk> 40, or 50, I think 40 international 40% internationally and poorer.
Poorly in the U S. Because we don't have these products approved in the U S. So that really drove the growth down to 25, but I really look at the outside the U S growth is the key.
Barometer for us and we're continuing to see great pickup with both our cryo platform and care pulse Cryo EM is a platform that is competing against a product that hasn't changed in a decade and so physicians like the ease of use and the features of the cryo platform that we have in Japan and in Europe .
So that's doing quite well and we're hope hopefully have approval for that second half of 'twenty three in the U S. Here and then fair policies is doing extremely well for both cryo users who have adapted for a pulse and point to point RF users doctor signs in the phone. So we can make some comments.
But the utilization enthusiasm for care of pulse is extremely high.
And we're very bullish.
As we look at 2023 in terms of our performance and outlook, especially in Europe , and Japan, and if we can get some.
The approval of the cryo platform in the second half of the U S will perform quite well as well and then we expect to see a big impact from for a pulse in 24, so the future of our EP business is very bright we know it's a competitive field. We believe we have a unique platform and both Vera pulse and cryo that are differentiated and is showing that cliff.
<unk>, where they're launched and we have an excellent commercial team ready to bring these to the U S. So we don't give specific guidance for EEP, but it's clearly.
It's a critical growth driver for us in 'twenty, three and well beyond that.
So the Doctor side, if you have any other comments.
Yeah absolutely.
Thanks, Mike Thanks, Robby again just.
We do believe that Farrah pulse is.
<unk> relative to other PFA technologies out there I think it's important to reiterate that all PSA is not created equal.
It's a field effect.
Results that youre going to see with any of the technologies are highly dependent on.
On the way actual catheter.
Design and surplus is the only system and evaluation right now that was designed from the ground up to deliver PSA dependant on the wave form that's delivered independent on the dosing strategy and.
As you said, we are really looking forward to presenting the results of a randomized <unk> trial advent in the second half of this year as well as to initiate our persistent AF trial advantage eh.
Imminently and the only thing I'd add to what Mike said is I also think as you think about E. P. I think it's really important.
To consider the really extraordinary momentum that we've got with our transcept of access solutions.
From Dallas, and you know continue to see above market growth with that and continue to see increased use of.
The Dallas Transcept of access solutions, the energy needle and adverse across access both in ablation procedures and in watchman and other structural heart procedures.
Great. Thanks for the color and maybe just a quick follow up China. It's been an important growth driver for Boston scientific grew 22% in the year, even even with the difficult operating environment. So how should we be thinking about China coming out of the reopening here into first quarter and what's your expectation.
For the year going forward. Thanks.
That team had a terrific 22, despite all the challenges of Covid and all the different pricing tenders that occur over there so for China in 'twenty three we're very bullish again, we do expect double digit growth out of the China team for the full year there'll likely be some pressure in first quarter given the.
You know the challenges that they've had in China with Covid. So we expect potentially some.
Sales drove challenges in Q1, but we do expect strong double digit for the full year likely not at the same level as the 22% that we delivered in 'twenty, two but strong double digits. Nonetheless.
Thanks, a lot.
The next question comes from Larry Nicholson with Wells Fargo. Please go ahead.
Good morning, Thanks for taking the question and congratulations on a strong into the year here.
I wanted to ask a two part question also unfair apples.
So maybe for Doctor side.
Talked about your.
Excitement for the <unk> trial later this year.
Can you help put the manifest PFF data into context, how does that compare to prior RF and cryo studies.
What would be a win for you and advent.
For Ferro pulse and we're going to see the second part as we're going to see the Medtronic pulse select data at ACC. The J&J inspire data Boston AF I guess this weekend.
You talked about how thorough pulses differentiator what should we be looking for in those studies that would support your comments earlier, thanks for taking the questions.
Yes, Thanks, Larry.
Let me just sort of begin by reiterating what I said to Robyn.
As we look at the data ever.
Everyone just needs to Darrin mind that every PSA technology really needs to be evaluated on its own it's very much. Unlike RF ablation.
When youre doing RF ablation, it's about the same size RF catheter chip and you've got the same back patch and the same power that you're putting through it you get the same lesion.
PSA is very different again, because its an electric field effect.
What happens is just intimately related to actually the catheter designed that tells you the shape of the field that you're generating.
The wave form, which which tells.
Tells you very much what kind of impact you're going to have from that field and then your dosing strategy how many.
Applications of energy do you put in and and and and and where do you put them in.
Very confident.
Federer pulse is industry leader in this again based on having a chatter that was designed from the ground up to deliver PSA based on a decade of preclinical and then really high quality clinical data validating the wave form and validating a dosing strategy with remap studies to Cree.
<unk> durable isolation and.
And the proof of the putting it in the eating.
Really excited and looking forward to seeing the results of a randomized.
Trial.
I'm glad that you mentioned manifest again.
Gives us.
The high degree of confidence in where we're going right so manifest as a.
Registry study of the earliest commercial cases.
Following our CE Mark approval in Europe .
This is people's first experience climbing the learning curve.
And Dirk ready as reported out.
Published initially on the first 1700 cases, and then some limited follow up in about 1400 of those patients.
And really what what those data show.
Really proves the advantages of using a system like Sarah pulse certainly in 1700 patients' safety promise of Sarah Pulse was realized no cases of soft gel injury, no cases of persistent phrenic nerve injuries, no cases of pulmonary vein stenosis, so certainly being able to.
To avoid most feared complications of AF ablation seeing efficacy results.
For paroxysmal afib or at least as good.
Whats reported in.
In high quality trials with conventional thermal ablation and seeing remarkable procedure efficiency now.
In commercial clinical use now sort of routinely seeing these cases being done.
On the order of 30 minutes.
<unk>.
That kind of procedural efficiency is it's good for the system as a whole right. There are a lot of patients who needs to be treated.
With staffing issues et cetera, et cetera, anything we can do an increased throughput is good it's good for patients to the less times you are undergoing a procedure.
A number of things that can go wrong honesty.
And so basically to sum right. The manifest data validates what we see is all of the differentiated advantages of samples a safer procedure avoiding the worst complications.
A procedure that is at least as effective as what you see with thermal ablation, and a really efficient procedure, which benefits physicians hospitals and patients.
Thank you.
The next question comes from Joanne Wuensch with Citibank. Please go ahead.
Thank you very much for taking my question and good morning.
In just a minute or two on urology and pelvic health.
I mean that was that another 12% this quarter 12, 7%.
Organically last quarter one.
What is driving that and should we think of this more as a solid double digit grower as they look forward.
And my follow up question I'm going to just put it out there now are 50 basis points of operating margin expansion or at least 50 basis points. This year, where is that coming from thank you.
Great Mike Thanks for asking the Endo Euro you Didnt ask about endo, but I'll throw it in there.
Cause.
Continue just to really outperform.
And I are getting quite sizeable within our portfolio.
And both are accretive nicely to margins and growth rate.
The urology results I mentioned in the prepared words.
It's really a excuse me.
Strong global performance around the World. This business had been predominantly a U S oriented business.
That debt.
Rose faster than the U S accretive to Boston scientific outside the U S. It's been very Underpenetrated.
But now with all the investments that we've made commercial and through R&D and through acquisitions strengthening our outside the U S business and urology extensively and the combination that global performance and a I would say a highly differentiated portfolio, we talk about category leadership.
Within a service line and we really have that with urology and with endoscopy. So they have a very differentiated portfolio that's very comprehensive.
Our competitive set.
And contracting capabilities with customers, who want to work with us and so urology continues to do quite well and we expect similar results.
Over the next few years here.
And the integration of alumina as well so that's a terrific business and I would say along the same lines. Most of the same words with endoscopy as well in terms of margin improvement that you want to hit that one I can do that yeah. So.
The commentary again was 50 basis points on top of the 2022 results excluding <unk>.
Galleon sales reserves, so that would be more like $25. Six was the actual and then there was a 30 basis point impact. So then add 50 basis points to that is where you get the 26th floor just to give you the.
The math there.
Where does it come from the short answer is we believe all lines of the P&L. So gross margin will have a slight headwind from FX. This year again, we said neutral to the EPS line neutral to adjusted EPS for the year, but at the gross margin line, we're largely hedged for the year of 2023 and with what we see with where rates are today, we think will have a slight headwind.
FX in gross margin, but we still think gross margin itself can go north through a lot of the good activities that we have.
From a global supply chain team in terms of reducing cost and.
And other volume of proven programs and then.
Tightly managing our discretionary spend.
Within SG&A to ensure it is helping us achieve our strategic plan and as we've always talked about just really focused on R&D efficiencies and leverage it all starts with a healthy topline, we think that 6% to 8% guidance versus that nine comp last year was a good solid healthy top line that gives us leverage opportunities throughout the whole P&L and.
And we think each line of the P&L has the opportunity to contribute towards the goal in 2023.
Thank you.
The next question comes from Vijay Kumar with Evercore ISI. Please go ahead.
Hey, guys. Thanks for taking my question.
Just some clean up questions here on the guidance assumptions.
Mike the 68% organic.
It is what it is but can you just remind us.
What are the incremental.
<unk> positive tailwind here in 'twenty two.
And any incremental headwinds versus 'twenty, two that's something that I can think of massaro close becomes organic maybe China is a little bit of a headwind.
But can you just go through some of those drivers.
And then on.
Share count up $20 million that seems egregious just given how we've seen share count progress throughout the year I'm curious why.
What's behind your share count assumption for the year.
Yes sure on the share count just take that clean up quickly and then Mike can take all your revenue question.
The simple math of the of the converts that we have.
In.
During the year. So the increase is from the share count that will increase when we convert the mandatory preferred recall, we then lose the.
Preferred dividends, so it's neutral to EPS, but the share count increases as those preferred holders.
We will get.
Common shares.
That makes sense to me Jay.
That's helpful. Yes, right yes.
Takeaway should be neutral EPS impact from share count related to the <unk>.
Mandatory confer mandatory preferred conversion this year.
Sure.
Headwind and tailwind maybe just some of the headwinds.
We like the fact, we did 9% growth in 'twenty, two but that's a bit of a bit of a tighter tougher comp.
The normal.
So that's one I had mentioned the China would be expect double digit growth, but likely not at the same growth was 22.
And then also CRM coming off of a really exceedingly market growth quite a bit in 'twenty two likely to grow more in line with the market in 'twenty three so those are a couple of the.
Headwinds clearly a bunch of tailwind as you know the company performed continues to perform extremely well across the globe Europe .
Latam Asia Pac and U S. You saw really impressive growth across the company watchman growing 24 for the year, our cardiology as a whole grouping grow 10 Pi grew nine endo eight euro 10. So we have just very strong momentum across the businesses, which is obviously a bit of a tailwind given the.
Momentum, we have commercially and we have incremental incrementally to that.
Some of the questions today on EP, we expect to have a very strong year in EP in an outside in Europe in the EU and in Japan potential tailwind would be dependent on when cryo gets approved in the U S. So unsure how much of an impact that will have in the U S depends on approval date there.
Other products like Watchman continues to do extremely well really proud we actually think we gained share in fourth quarter.
With watchman.
And ended the year just over 90% market share. So that business continues to do really well and the one that gets very little discussion by analysts, but lots internally and by physicians as accurate here too. We now have a large size that business is doing extremely well in Europe actually building momentum each quarter and we're anxious to finish.
That U S trial shortly.
That's extremely helpful. Thanks, guys.
P J.
The next question comes from Travis Steed with Bank of America. Please go ahead.
Hey, good morning, everybody and thanks for taking the question I guess I'll ask a question on the Italy impact just curious why we're only hearing about this from Boston.
You're taking a more conservative approach and taken a reserve and it seemed like a big number I don't know it seemed like Italy wouldn't be that big of a country. So maybe it's calculate them more than a yourselves and just want to confirm no impact on 2023.
Then I'll ask my follow up now as well, which is an op margins I think you mentioned gross margin first half higher lower in the second half on currency and just want to make sure. If there's any puts and takes to consider on the op margin side first half versus second half. Thank you.
So I'll take the Italy, one first can't speak for other companies I can speak for on behalf of Boston scientific.
It's been a evolving situation, particularly over the last few weeks here because what you have is the Italian government passed a provision back in 2015.
With with regard to what I mentioned to trying to claw back.
Some excess spending over the allocated budgets within the public hospitals in Italy, but for the last seven plus years Theres really been its been dormant theres been limited implementation guidance, theres really been little or no activity around that.
That changed again over the last few weeks with some.
Events that.
Put a little more teeth into their desire to collect those monies and so we booked that incremental reserve we had a reserve on the books, we booked an incremental reserve.
To cover what we believe will be the amount that we'll always part of that we're obviously challenging it vehemently through the Italian court system as our other industry participants we disagree with it.
But.
That outcome will be uncertain, but we picked up our reserve that we think is a as a reasonable reserve given the given the time frame.
He also mentioned that you've seen issue in 'twenty three with more of a reserve 'twenty to 'twenty. Three amounts are included in guidance. So the amount of the reserve relates to prior periods 2015 to 2022.
That's 2023 and beyond is included in guidance.
With respect to op margin actually I'm glad you asked that question because it's a bit of a juxtaposition with gross margin right. So I mentioned that gross margin will be higher in the first half and lower in the second half, which is a bit of a box. The trend. We normally have a which I wanted to make sure I got that for that point out there relative to opera.
Waiting margin, though I think youll see a similar trend where it builds throughout the year. So you. So the gross margin higher in the first half lower in the second half, but through the rest of the P&L in <unk>.
Netting down to operating margin I would expect you'd see a very similar trend starting in Q1 and building to higher amounts as you go first half second half so hopefully that's clear Travis.
Thank you.
The next question comes from Cecilia furlong with Morgan Stanley . Please go ahead.
Hey, good morning, and thank you for taking the question I wanted to ask on watchman I, specifically, what's underlying that the double digit growth outlook that you called out for 'twenty. Three how are you thinking about market growth is probably Japan and China contributions and then just a quick follow up on accident year, two but that's fine.
Oh registering how are you thinking about approval timelines at this point anyway.
Yeah.
Sure.
We had terrific year and 'twenty two.
As I said, maintaining call it 90% share or potentially slightly above that.
<unk> grew 24% for the full year, it's a very healthy market.
And where do we stand in the market.
25 minutes or so call it 25% growth we expect.
In 'twenty three.
Q2 companies in the marketplace today.
Similar to previous comments the success of Watson joining many fold.
The safety.
Consistency and proven effectiveness through clinical trial in everyday practice of watchman.
Physicians are extremely comfortable in using the device theyre very comfortable with the support team they have from Boston in the lab with them and the referring physician community as seen such strong benefits from the L. A procedure that is helping to drive that market growth. So it's an excellent market.
It's also a product that's.
Procedure, that's profitable for hospitals and the procedure time today continues to improve.
Which is really important cross, but also the overall market context is very good we have the leading platform and we have a new product a new scalable. She is coming this year and the Nextgen, Washington platform coming in about a year from now so we have a differentiated pipeline as well.
<unk> is.
It's doing extremely well in Europe .
<unk> launched or just having some implementation of our XL valve that's part of the U S trial. There was I think some a bit of an accurate reporting on that one.
We do not expect that XL to slow down the approval process for the U S. So that does not have an impact.
U S approval and that XL valve is important because it's about a third of the procedures are you using that size valve in Europe . So we're doing quite well growing fast with the market in Europe without that eventually we will be adding that to approval. So we're excited about that acronym too we expect it to be approved in 2024 in the year.
The us.
Thank you for taking the questions.
And the next question currently I have as Josh Jennings with Cowen.
Please go ahead.
Hi, good morning, Thanks for taking the questions.
I was hoping to start off with just your Apollo acquisition.
It gets you into the diabetes.
That's great.
Obesity segment and just wanted to hear about your outlook for that portfolio, but also just the.
Device based intervention opportunities in obesity from a higher level and whether this portfolio could become a long term growth driver for you announced refranchising and the <unk>.
Follow up is just on the Neuromodulation business congratulations on the solace trial results.
C III the big competitors in the space have a peripheral diabetic neuropathy indication now with different levels of evidence, but I was hoping you could just review Boston plan to generate clinical evidence for that indication.
Going forward, Thanks, a lot.
Yes.
Apollo into surgery overall, it's really consistent with our overall strategy of category leadership.
Which is.
Driving above market growth and continuing to advance new therapies.
We can be the leader when we look at and alumina surgery. We think that is really the next frontier.
For our Endo business.
And you see terrific uptake of <unk>, most surgery I would say outside the U S, particularly in Japan, and a bit more so in Europe and less so in U S and so we think.
And aluminum surgery will really continue to build momentum over the next coming years and Apollo is the platform. That's most used.
By physicians picky outside the U S.
These procedures with a product called overstitch and ex Tac.
No.
We think the addition of Apollo into our current platform.
Obviously, it make us the number one the strongest and aluminum surgery portfolio, but also put us in a position as Dr. Dunkin, let's say to help train the field. Because these are procedures that require significant physician training to get great outcomes, and we'll be able to do that with the Apollo platform.
And I know he asked about silhouette.
And solus.
With Ses.
Again, we did see some improvement in that overall SCS business in the fourth quarter growing 4% and.
In the quarter solar as well.
Pleased with the three months results that we expected.
We expect indication approval for nonsurgical back by the year end of 2023.
We're in early clinical work for PD and right now I and haven't announced any timeline, but we'll look to continue to invest in that.
Yeah.
Great. Thanks.
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