Good morning, and thank you for standing by. Welcome to Abbott's Fourth Quarter 2022 Earnings Conference Call. This call is being recorded by Abbott. With the exception of any participants' questions asked during the question-and-answer session, the entire call, including the question-and-answer session, is material copyrighted by Abbott. It cannot be recorded or rebroadcast without Abbott's expressed written permission. I would now like to introduce Mr. Scott Leinenweber, Vice President, Investor Relations, Licensing and Acquisitions.

Good morning, and thank you for joining us. With me today are Robert Ford, Chairman and Chief Executive Officer; and Bob Funck, Executive Vice President, Finance and Chief Financial Officer. Robert and Bob will provide opening remarks. Following their comments, we'll take your questions. Before we get started, some statements made today may be forward-looking for purposes of the Private Securities Litigation Reform Act of 1995, including the expected financial results for 2023. Abbott cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. Economic, competitive, governmental, technological and other factors that may affect Abbott's operations are discussed in Item 1A, Risk Factors, to our annual report on Form 10-K for the year ended December 31, 2021. Abbott undertakes no obligation to release publicly any revisions to forward-looking statements as a result of subsequent events or developments, except as required by law. On today's conference call, as in the past, non-GAAP financial measures will be used to help investors understand Abbott's ongoing business performance. These non-GAAP financial measures are reconciled with the comparable GAAP financial in our earnings news release and regulatory filings from today, which are available on our website at abbott.com. Note that Abbott has not provided the GAAP financial measure for organic sales growth excluding COVID testing sales on a forward-looking basis because the company is unable to predict future changes in foreign exchange rates, which could impact reported sales growth. Unless otherwise noted, our commentary on sales growth refers to organic sales growth, which excludes the impact of foreign exchange. With that, I will now turn the call over to Robert.

Thanks, Scott. Good morning, everyone, and thank you for joining us. Today, I'll discuss our 2022 results as well as our outlook for this year. For the full year 2022, we achieved ongoing earnings per share of $5.34, which is well above the original EPS guidance we set at the beginning of the year. As you know, macro business conditions have been highly dynamic and challenging over the last few years, particularly for U.S.-based multinational companies. The COVID-19 pandemic played a big role in this, of course. We saw the U.S. dollar strengthen significantly and inflation reached new heights last year. Supply chains continue to face challenges, and our healthcare customers have been navigating staffing challenges that are negatively impacting certain medical device procedure trends and routine diagnostic testing volumes. As we start the new year, however, while all these factors remain headwinds, I'm cautiously optimistic that we're starting to see them peak and, in some cases, ease a bit. Over the past few months, the impact of COVID-19 on society has lessened, and economies around the world are increasingly reopening. In the U.S., the U.S. dollar weakened a bit, and inflation has eased somewhat, and hospital-based procedures and routine testing trends continue to steadily improve in many areas. As you know, COVID testing has been a big part of our story these past couple of years, and I'm proud of what our team has built: a full suite of tests across several platforms, and the intentionality in how we established a leading role in the world's response to the pandemic. In total, we've delivered nearly 3 billion COVID tests globally since the start of the pandemic. Going forward, we expect COVID-19 to transition to more of an endemic seasonal type of respiratory virus. And with that, COVID testing, while still important, is expected to decline significantly. We expect variants will continue to emerge, and therefore, our tests will remain an important part of our leading respiratory testing portfolio, along with flu, RSV, and Strep, which we offer across multiple testing platforms, including lab-based systems in hospitals, small desktop devices in urgent care centers and physician offices, as well as at-home tests. As we reflect back on the impact of COVID testing efforts over the last few years, it's clear that our success in this area will have a positive, long-lasting impact for the company. It strengthened our strategic position in diagnostics through the expansion of our installed base of instruments, including ID NOW, our rapid point-of-care molecular testing platform, and through the opening of new testing channels, such as physician offices and at-home testing. It enabled us to increase investments in priority growth areas across the company, including R&D and commercial initiatives in support of several recent and upcoming new product launches, while at the same time, increasing returns to our shareholders in the form of dividend growth and share repurchase. And lastly, it further strengthened our overall financial health and balance sheet, which will provide significant strategic flexibility as we look to build and grow the company even further. I'm proud of the role we played in fighting COVID in the last few years. It reinforced our purpose, had a meaningful impact on society, and enhanced our long-term strategic position going forward. Turning now to our outlook for 2023. As we announced this morning, we forecast ongoing earnings per share of $4.30 to $4.50. We forecast organic sales growth, excluding COVID testing sales, in the high single digits, and we forecast around $2 billion of COVID testing sales for the full year 2023. I'll now provide more details on our results by business area before turning the call over to Bob. And I'll start with Nutrition, where sales declined around 6% in both the fourth quarter and full year as a result of manufacturing disruptions at one of our U.S. infant formula facilities last year. Production at the facility is up and running. And as we've mentioned previously, our initial supply priority was to the WIC, Women, Infants, and Children federal food assistance program to ensure underserved participants have access to infant formula. As our manufacturing capacity has continued to recover, we've been able to increase production of our non-WIC brands, focusing on serving the broader infant formula market and building back inventory levels on retail shelves. Turning to Diagnostics, as expected, sales growth in the fourth quarter was negatively impacted by a year-over-year decline in COVID-19 test sales. COVID testing sales were $1.1 billion in the fourth quarter, with rapid testing platforms, including BinaxNOW in the U.S., Panbio internationally, and ID NOW globally comprising approximately 95% of these sales. Excluding COVID testing sales, worldwide diagnostics grew over 11% in the fourth quarter. Growth in the quarter was led by rapid diagnostics where, excluding COVID-19 tests, sales increased 30% compared to the prior year. As I mentioned earlier, during the pandemic, we significantly expanded the installed base of ID NOW and opened new testing channels. This expanded footprint drove strong growth and supported testing needs when flu and other respiratory infections surged late last year. During this past year, we continued the rollout of Alinity, our innovative suite of diagnostic instruments, and expanded test menus across our platforms for immunoassay, clinical chemistry, and molecular testing. Moving to Established Pharmaceuticals or EPD, sales increased 8% in the fourth quarter and over 10% for the full year. EPD continues to perform at a high level, having carved out an attractive growth space in the global pharmaceutical market, specifically in our geographic focus on fast-growing emerging markets with a broad portfolio targeting attractive therapeutic areas. Strong performance in the quarter was led by double-digit growth across several geographies, including India, China, Brazil, and Mexico. I'll wrap up with medical devices, where sales grew 7.5% in the fourth quarter and 8% for the full year. Growth in both the quarter and full year was led by double-digit growth in Electrophysiology, Structural Heart, and Diabetes Care in the U.S. Internationally, sales growth was negatively impacted by COVID surges in China during the fourth quarter, as well as lingering supply challenges in a couple of areas. In Diabetes Care, fourth-quarter sales of FreeStyle Libre, our market-leading continuous glucose monitoring system, grew over 40% in the U.S., and global Libre sales reached $4.3 billion for the full year 2022. We continue to strengthen our medical device portfolio with numerous pipeline advancements and launches, including recent U.S. regulatory approvals of Aveir, our highly innovative leadless pacemaker used to treat people with slow heart rhythms; Eterna, the smallest implantable, rechargeable spinal cord stimulation system currently available in the market for the treatment of chronic pain; FreeStyle Libre 3, which provides continuous glucose readings in the world's smallest and most accurate wearable sensor. Libre was recently named the best medical technology of the last 50 years by the Galien Foundation. And finally, Navitor, our latest generation transcatheter aortic heart valve replacement system. So, in summary, 2022 was another highly successful year for Abbott. We're optimistic about the early signs we're seeing of an improving operating environment and excited about the growth opportunities that lie ahead for all of our businesses, and we continue to strengthen our overall strategic position with a steady cadence of innovative technologies that are either in the early stages of launching or expected to launch over the course of this year. I'll now turn over the call to Bob. Bob?

Thanks, Robert. As Scott mentioned earlier, please note that all references to sales growth rates, unless otherwise noted, are on an organic basis, which excludes the impact of foreign exchange. Turning to our results. Sales decreased 6.1% on an organic basis in the quarter. COVID testing-related sales were $1.1 billion in the quarter, which, while stronger than the forecast provided back in October, reflect a year-over-year decline versus sales in the fourth quarter of the prior year. Excluding both COVID testing-related sales and U.S. infant formula sales that were impacted by manufacturing disruptions last year in our Nutrition business, total Abbott sales increased 7.1% on an organic basis in the fourth quarter and 7.4% for the full year 2022. Foreign exchange had an unfavorable year-over-year impact of 5.9% on fourth-quarter sales, which resulted in a somewhat favorable impact on sales compared to exchange rates at the time of our earnings call in October as we saw the dollar weaken a bit late last year. Regarding other aspects of the P&L for the quarter, the adjusted gross margin ratio was 55.6% of sales, which reflects the impact of the nutrition manufacturing disruptions and inflation we've experienced on certain manufacturing and distribution costs across our businesses. Adjusted R&D investment was 6.5% of sales and adjusted SG&A expense was 28% of sales in the fourth quarter. Turning to our outlook for the full year 2023. Today, we issued guidance for full-year ongoing earnings per share of $4.30 to $4.50. For the year, we forecast organic sales growth excluding the impact of COVID testing-related sales to be in the high single digits. We forecast COVID testing-related sales of around $2 billion with around $750 million forecasted in the first quarter. Based on current rates, we would expect exchange to have an unfavorable impact of approximately 1% on our reported full-year sales, which includes an expected unfavorable impact of approximately 3% on our first-quarter reported sales. We forecast an adjusted gross margin ratio for the full year of approximately 56% of sales. Also, for the year, we forecast R&D investment of around $2.5 billion and SG&A investment of around $11 billion, which reflects investments to support several ongoing and upcoming new product launches and strategic growth initiatives. We forecast net interest expense of around $300 million, non-operating income of around $450 million, and a full-year adjusted tax rate of approximately 14% for the year. As Robert mentioned, the strength and resiliency of our business, particularly since the start of the pandemic, has allowed us to concurrently invest in our strategic priorities, provide strong returns to our shareholders, and further strengthen our financial health, which provides a strong base on which to grow the company going forward.

And our first question will come from Robbie Marcus from JPMorgan.

Robert, maybe to kick it off, I appreciate the guidance, but there's a lot of moving parts through the different business lines with macro involved with a lot of new product launches involved. Maybe you could just build up how we should be thinking about how you came up with the guidance range on both the top and bottom lines given all the moving parts?

Sure. I mean, there's obviously a macro environment here that's been complex, and you've mentioned it. And as I said in my remarks, I think they've gotten significantly better versus where we were in October on our last earnings call. So I think that we've factored some of that improvement and some of that stabilization in there. I don't necessarily think that we've got too many moving parts here. I mean, obviously, the company has got a lot of business and business segments. But if you look at really the two areas I would say, Robbie, that kind of have had this effect of maybe sometimes distorting the results a little bit, is our COVID testing business and the impact of the recall products last year. So from a COVID perspective in 2022, we actually sold more tests than we sold in 2021, and then obviously, the impact of recall products, that was a negative. Both of those flip next year. So if you take those out of the equation, you go back to what we were growing pre-pandemic, which was top-tier, high single digits, 7% to 8% growth. That's what we grew in 2022, again excluding COVID and the impact of the recall products. And if you take that comp out on the recall product side this year as we return to market and look at the base business, obviously, without the COVID testing, we're going to be growing high single digits, probably at a higher end of that pre-pandemic rate, probably 8-plus percent. So I think it starts with the top line. And that's probably the number one part of our guidance is obviously making sure that we feel that our top line is taking advantage of all the good parts, all the good product launches, etc., that we have. From that perspective, I think a lot of what we're doing kind of supports that ongoing high single-digit growth rate. If you look at our device portfolio, we'll be looking at high single-digit growth rate, low double-digit growth rate, a combination of both of recovery and the steady recovery procedures that we're seeing combined with all these product launches that we've got lined up that will ultimately have a full year impact, whether it's Libre 3, Amulet, Aveir, Navitor, CardioMEMS, Eterna on the neuromodulation side, or our mapping system in EP, we're going to launch a new ablation catheter. So the device portfolio is well set up to be able to drive those high single, sorry, high single-digit, low double-digit growth rate. I think we're going to continue to see strong performance in EPD. I think as the world continues to reopen, those emerging markets continue to be a great opportunity for us. We've strengthened our position in diagnostics throughout these years, and we'll see continued successful rollout of Alinity in our core molecular diagnostics and recovery and infant formula too. So I think you put all that in place, our core business, Abbott that we knew pre-pandemic is actually stronger than we were pre-pandemic with the investments that we made. And I think that's the other part of, I guess, in the P&L. If you look at what we've been able to do this year is because of COVID and the investments that we made during COVID in these growth areas, we're able to drive this high single-digit growth across the company with a fairly flat investment line, whether it's R&D and SG&A. So really getting the leverage across the businesses. So I mean, I think it really starts with our top line and the confidence we have and the products we're launching, the pipeline, the position we have. And then COVID, we forecast about $2 billion next year, and I think that's the right number right now. Obviously, we see kind of society transitioning here. We've got a strong installed base. We've got manufacturing capacity. We haven't factored in any kind of real surge, but if that happens, we do have the capacity to be able to do that. So I'd say those are some of the moving pieces there. But fundamentally, we're in a really strong position in terms of our long-term growth opportunities, leading positions in these attractive growth areas, strong pipeline, which I'm sure we'll get into some of them, and a strong balance sheet. So that's how this has been constructed, and I think that we're in a good position here.

Great. Really helpful. Maybe one for Bob. You gave us the full year guide and you gave some commentary down the P&L, which is really helpful. But how should we be thinking about some of the quarterly cadence here? How FX flows, what is FX on the bottom line? And how did that compare to '22? And any just things we should be thinking about first half versus second half on the P&L?

Yes. When considering the cadence of our business for 2023, it begins with the top line and some points that Robert mentioned. We have numerous new product launches, particularly in our medical device sector. Some products launched last year, and others will be introduced this year, which we will discuss during the call. The effects of these launches will gradually contribute to the top line throughout the year. Additionally, we are noticing a consistent improvement in procedure trends in both the U.S. and Europe, which we expect to continue as the year progresses. In our Nutrition business, we anticipate growth as we enhance market supply, especially in the non-WIC segment of the U.S. infant formula market, allowing us to regain market share. For China, we expect a slower start in Q1 due to certain conditions at the beginning of the year, but we foresee improvement throughout the year. All these changes will influence the top line as they develop year-round, positively affecting earnings, as Robert stated we will gain leverage in the middle. For the first quarter, we estimate earnings to be around $1, and we expect to build from there. Regarding foreign exchange, while rates have recently improved slightly, they still pose a challenge, particularly for earnings. At the current rates, foreign exchange represents roughly a 1% headwind on sales. In terms of EPS, it's slightly over a $0.30 headwind for us in 2023. The fluctuations we've experienced over the past year are complex. Translation is only one part of this impact. Although improvements have occurred since a few months ago, it remains a challenge. A significant factor contributing to this is our hedging program. Last year, we realized substantial hedging gains, which will not be replicated this year, significantly impacting our 2022 results. There was a notable exchange headwind on sales last year, exceeding 5% or $2.1 billion, but only a minor effect on earnings, less than $0.10. This was primarily due to the advantages from hedging gains last year that we won't see in 2023. This situation is not unique to us; other multinational companies are experiencing similar dynamics.

And our next question will come from Larry Biegelsen from Wells Fargo.

Robert, I feel compelled to ask about Libre again, just given how important it is. So maybe I'd like to hear from you the outlook for 2023. How should we think about worldwide growth? Can it exceed 20% this year? And can you talk about international, where you've been negatively impacted by the supply issues and the transition to Libre 3 in Germany, when do you expect those issues to be resolved? And just the growth drivers like basal and the vitamin C resolution, what are some of the growth drivers to look forward to this year for Libre? And I had one follow-up.

Sure, Larry. I believe Libre had an impressive year, achieving over 21% growth overall, with strong growth of over 42% in the U.S. and mid-teens growth internationally. We experienced some impact from back orders, particularly with our earlier generation products, like Libre 1. However, we saw significant improvement in this area during Q4. I anticipate it will take another month or two before we fully resolve that issue, but there has been notable progress in our international performance. A key factor on the international side has been some supply chain challenges related to chips, which are mostly behind us now. Additionally, we are navigating an accelerated upgrade cycle. When upgrading from Libre 1 to Libre 2, the transition was quite gradual and took about one and a half to two years. For Libre 3, we've pursued a more aggressive upgrade approach in key markets, which has shifted our sales team's focus from fostering new demand to managing the necessary upgrades. While this process is still ongoing, I estimate it to be about 80% to 85% complete, allowing us to begin driving new acquisitions internationally in 2023. I expect continued growth in the U.S., particularly with market expansion and opportunities related to basal products, which I believe will also extend internationally. With the supply chain issues largely behind us and the upgrade cycle nearing completion, we can strategically forecast our demand generation for new users. Therefore, I am confident we can achieve another 20% growth in 2023, given the numerous opportunities ahead, including the significant potential in basal expansion. We’ve been proactive in generating the clinical data required for reimbursement, which I expect to begin in the U.S., though I foresee it also expanding globally. In the U.S., there are about 4 million type 2 basal patients, one-third of whom are Medicare recipients. Considering reasonable market penetration and varying annual utilization rates compared to type 1 and MDI or pump users, the initial opportunity starts at $1 billion and could grow from there based on uptake speed. Regarding the vitamin C issue, we’ve submitted our response and are collaborating with the FDA, but I cannot predict the timing of any approval. Once we receive approval, we will connect the product to ID pump systems. We have already launched a connected AID system in Europe, and the early feedback on this combined product has been very positive, suggesting it could be a significant growth driver for us in 2023. Another important activity for us is running our trial for the combined glucose-ketone sensor with the FDA to gather data that supports a dual sensor. This capability is aimed at helping pump users by providing both glucose and ketone measurements for algorithm integration, and it remains a major focus for us. Outside of Libre, our Lingo platform represents another growth driver. We’re working on expanding the Libre platform beyond diabetes for broader applications and have a dedicated team on this. We plan to launch two Lingo products this year in Europe, the first likely during the first half and the second in the latter half. I have mentioned that Libre has the potential to become a $10 billion product by 2028, which implies a 15% annual growth rate. I believe we will outperform this in the coming year, and I am confident in our ability to drive significant revenue growth for this product. Overall, we are executing strongly across these areas.

That's very helpful. Just a brief follow-up. You mentioned your excitement about the TriClip opportunity at JPMorgan, which was about a month ago. I understand there are limitations on what you can share since you are presenting the TRILUMINATE data at ACC. However, how are you viewing that opportunity in relation to mitral? Do you still anticipate approval in the U.S. by the end of 2023?

I think it's a great opportunity for us, and I think that we've shown that we're definitely here one of the leaders when it comes to the clip-based heart valve repair market. Do I think it could be bigger than mitral? I'm not sure I would go that far yet. But I would say that the uptake of the tricuspid repair market, I think, will be faster than the uptake for the mitral just because I think when Mitra was launched, it was the first repair system, and now you have a large group of implanting physicians that are familiar with the clip technology and are familiar with mapping that clip technology and the procedure. We did make some changes to the delivery device for the clip; it's a little different anatomy, a little bit more challenging to get there with the clip in the tricuspid area. But I think that it's a great opportunity. I mean, I think there's 3 million people today who suffer from tricuspid regurgitation. There's not a lot of really good options available for treatment, which is why we invested in the trial here in the U.S. to bring products to the trial. Like you said, we're going to be presenting that in a couple of months. And I think it's a great opportunity for us. We've already seen real nice traction of that in Europe. We launched that in 2021. The team wanted to launch it right in COVID. And I must say at the beginning, I was somewhat against that, but they proved me wrong and the product's done really well in Europe. So I think this is another great opportunity for us here in the U.S., too. So we're not ignoring MitraClip; it's part of our entire portfolio. And I think the combination of those two products in the implanting physician will be very powerful for Abbott.

And our next question will come from Josh Jennings from Cowen.

Robert, I wanted to follow up on Larry's question about Libre, specifically considering the $10 billion target you've established. You mentioned everything for 2023, which probably holds true for the next five years. Can you reaffirm your confidence in reaching that $10 billion target? Also, do you anticipate consolidation between pump and CGM companies? It would be helpful to understand the strategic rationale behind whether a combined pump-CGM offering would be beneficial for Abbott or another company. My second question is about Navitor and its launch in the United States. What would signify a win for Abbott regarding U.S. market share gains? Which segment is the easiest to target given the current label? Are we looking at elderly patients with limited life expectancy who are at high or even intermediate risk? Lastly, how do you foresee the Navitor launch impacting overall device growth in 2023?

Sure. To reach $10 billion by 2028 with Libre, we aim for a 15% growth rate. The key areas to focus on include maintaining a strong presence in the heavy insulin user segment, particularly among non-pump users in both the U.S. and globally. We need to shift our attention to the pumper segment and improve connectivity. We believe we can catch up with Libre 2 in terms of market offerings and then advance with a combined glucose-ketone sensor once we receive the necessary approval. This product is crucial for the pumper segment, as noted by key opinion leaders. The second area is expanding our basal reach by analyzing the global basal population and its utilization rates, which should contribute significantly to our growth. Lastly, we are looking to broaden the use of Libre beyond diabetes by developing the Lingo platform. Implementing these strategies is essential for us to achieve and maintain the 15% growth target over the next five years. Regarding pumps, we see it as an important market that benefits from a combined system, and we are increasing our focus here. The market has indicated that pump users prefer choices in sensor-pump combinations. Our goal is to provide the best sensors compatible with existing pump systems. On the Navitor launch, we are excited about entering a large U.S. market, valued at about $3 billion, where we currently hold a 50% share in the high-risk patient segment. We have a strong clinical profile and have already shared some data comparing it with other valve systems. While there are two established players in the U.S. market, we believe we can be a viable option offering differentiated benefits. In Europe, where we have launched, we hold a high single-digit share across about half of the market. In the centers where we are active, our share is in the mid-teens. We expect gradual growth with our sales force in place and aim to achieve a double-digit share increase over the next few years.

And our next question will come from Joanne Wuensch from Citibank.

I have two. The first one has to do with Nutrition. And if you could outline where the company is in terms of the recovery and when do you think it will return to growth? And then the second question has to do with the use of cash, what are your thoughts on it, and where you are on share repurchases?

Sure. Well, on Nutrition, as I said in the opening statements, production at Sturgis is up and running. The team is working around-the-clock, nonstop, very hard. The number one focus here, as I said, was to serve the customers and get product back on shelves. We started with WIC. The inventory levels on our WIC contracts are very good as we entered into Q4, and we then started to focus on our non-WIC brands, and that's progressed very well in the fourth quarter. And as we go into this year, looking very good. So I would say, if you look at our growth rate, obviously, you've got this year-over-year comp. You're going to see the growth already in Q1, Joanne, right, because we were impacted last year in February. But I guess the right way to look at this is, okay, strip away the comp, strip away where this year-over-year effect of coming back on the market, etc., I expect our overall nutrition business to be growing at that pre-pandemic level between 4% and 6%. Our market shares in WIC have largely recovered, and we're seeing a nice cadence of recovery in the non-WIC share here in the U.S. So I think you'll start to see that growth rate already on the print in Q1, obviously, in Q2 and Q3. But the important thing here is we're looking at our share, and the share recovery is very much in line with our forecast that we've set for the full year. I'd like to see our market share get back to pre-pandemic levels by the end of the year. I'm sorry, what was your other question?

What is your position on share repurchases?

Sure. Regarding our cash usage, I've mentioned that we are adopting a balanced approach. In terms of priorities, our top focus is to grow a strong and increasing dividend, which was raised by about 9% last year. The second priority is to ensure that our new product launches are well-supported in terms of manufacturing and capital expenditures. Last year, we executed around $3 billion in buybacks during the first nine months, mainly to address dilution while working to reduce our leverage after the acquisition. Going forward, we'll consider buybacks primarily to counteract any dilution we might experience this year. Another significant cash use this year will be addressing our upcoming debt obligations, which we will not be renegotiating due to interest rates; we want to reduce those liabilities. On the M&A front, we continue to explore opportunities, particularly in diagnostics and devices, as valuations have somewhat decreased and need to stabilize a bit. Our intent is to pursue acquisitions that make financial sense for our shareholders, align with our strategic goals, and allow us to create value, whether through accelerating sales or enhancing our R&D efforts. Our history demonstrates that this approach has generally yielded positive results for our shareholders.

And our next question will come from Vijay Kumar from Evercore ISI.

Robert. Maybe my first question on your organic growth assumptions here. I think I heard 8-plus is a reasonable number for '23. What is that assuming for any impact from China supply chain, any VBP impact? If you could just give us some assumptions around those macro factors that would be helpful.

Well, I'll let Bob talk a little bit about some of the potentially other macro factors. But the ones you've just mentioned here. I mean, China, it's an important market for us, Vijay. It's an important growth market, and it's good that it's moved to a more kind of reopening play. I think that has not only a big impact for us in China, where we've got a strong position, but I'm not overly reliant. I'd say it's about less than 5% of our total sales. But nonetheless, it's an important kind of growth market for us. And I think the reopening in China is going to have a real positive spillover effect in other areas of the world. And I would say, predominantly in Asia, Southeast Asia, where we've got a strong position in our EPD and in our Nutrition business and some device areas too. So I think the overall opening of China is good. Like Bob said, there's going to be some choppiness in the first quarter because we're seeing a lot of cases, hospitalizations, etc. But I think as that starts to move down, I think we'll see a pretty strong rebound in our growth prospects over there. So the VBP that you mentioned, yes, I mean, that does have an impact. It's more restricted for 2023 in our electrophysiology business. So we'll feel a little bit of an impact there, but I think that the market opens up for us because of the strategy we took on the VBP side. So I think it's net-net, it's going to be positive for us in the long term here, medium to long term in terms of that being an opportunity for us.

Understood. And then Bob, one for you on the gross margins you're at 56%. That's a step down year-on-year. When I look at pre-pandemic, you guys were at 59%. Is there a simple bridge Bob on how much of this has been inflation, you did spoke for hedging impact. Is that all hitting your gross margin line? And why shouldn't inflationary pressures improve? And when can we start seeing gross margins creep back up to pre-pandemic levels?

Yes. As I mentioned earlier, we expect around 56% for the year, which is a modest increase from last year. In this environment, multinationals are facing various challenges. We do have some headwinds, including inflation impacts and the inventory we built last year that will be sold this year. Additionally, we won't see a repeat of the hedging gains we experienced in '22, which will also be a headwind. On a positive note, the recovery we expect in the U.S. infant nutrition business will have a favorable impact, especially as it progresses throughout the year. We are also implementing gross margin improvement programs across all our businesses to help mitigate some of those challenges. We are also taking price increases in our more consumer-focused divisions. Furthermore, an increase in our medical device business from new product launches will contribute positively to our gross margin, as those products generally have higher margins than the overall company. Regarding your question about our guidance compared to pre-pandemic levels, the main factor affecting us cumulatively has been inflation. This is the key difference between our current guidance and pre-pandemic figures. However, as we see a mix improvement and continue to manage our costs, we expect our gross margin to improve over time.

And our next question will come from Travis Steed from Bank of America.

Just a follow-up to Vijay's question. On the inflation piece, is that still $1 billion baked into the $4.40 guidance? I just want to make sure I understand what's baked in on the gross margin line. And then anything to call out on the 2023 operating margin expansion some of the moving parts to get the op margin expansion there? It looks like 22% is kind of what's implied by the guide?

Yes, on the operating margin, we are around 22%, which is comparable to our levels before the pandemic. We are experiencing high single-digit growth in revenue, excluding COVID testing. We're also seeing leverage down the profit and loss statement, as Robert mentioned, due to our forward investments over the past couple of years. This will provide leverage in our expenses, resulting in approximately a 22% operating margin. Regarding inflation, there will still be a significant carryover impact from last year. However, we have managed to mitigate a substantial portion of that through our gross margin improvement initiatives across our businesses and by adjusting prices where feasible.

Okay. That's helpful. And a couple of product questions on EP. I think you mentioned the new EP catheter mapping system. I know that was new, maybe I missed that in the past. I'm curious how you're thinking about pulsed-filed ablation and the impact on your EP business. And then the other product question was on Libre. The vitamin C, is that on Libre 2 or Libre 3? I just want to understand the pathway to get vitamin C on Libre 3 and the timing there.

Sure. For the Libre 3, the focus will initially be on completing Libre 2 before moving forward to Libre 3. Currently, our attention is on finishing Libre 2. Regarding the EP business, the new catheter we've introduced in Japan, and is launching in Europe, is our TactiFlex. This catheter incorporates contact sports technology along with the flexible tip from our previous model. The feedback on it has been very positive. The combination of our upgraded mapping system with our leading mapping catheter in HD grid, along with TactiFlex, is quite powerful. Concerning PSA, it remains an area of interest for us, and we've made investments in it. We've had two internal programs where we compared them and identified the stronger one, learning from existing market products. Ongoing trials are in progress, but I see it as a growth opportunity. It's still early to determine if the market will fully transition to this technology. It's crucial for us to invest in this area by addressing the deficiencies we've noted in market products, which we're currently developing. This investment in EP has benefited from our earlier investments during COVID. I believe this product will capture a segment of the market, and while cryo was likely the first to gain traction, its long-term impact remains to be seen. Overall, this is a promising area for investment.

We'll take one more question.

And our last question will come from Matt Miksic from Barclays.

I figure maybe just if we can wrap it up with an update on a couple of the pipeline products, the five products, Robert, that you've highlighted in the past, Amulet and CardioMEMS, maybe if you could just talk a little bit about where you are with these launches in terms of size, scale, momentum and maybe what kinds of catalysts we can look for or metrics we can see for these two products this year?

I believe those five products I mentioned on the last call were projected to exit at an annual run rate of $550 million, and they achieved that with approximately 100% growth. I anticipate these products will experience strong growth rates this year, although not necessarily at 100%. As for Amulet, it’s a solid segment. Last year, we introduced the product and expanded our sales team, focusing on ensuring effective implant techniques with physicians. We currently work with about 225 accounts. I expect that as physicians become more familiar with our product and recognize its advantages over competitors, we will gain more market share, which will serve as a growth driver. Additionally, we aim to expand our presence. With a strengthened sales force and clinical team, we feel more equipped to increase our account base. Another important growth catalyst is the trial we are conducting to compare Amulet with novel oral anticoagulants. While this won't yield results in 2023, the ongoing enrollment in the trial is key to our long-term strategy for Amulet. CardioMEMS has performed well, benefiting from an expansion of indications in the U.S. and seeing a notable increase in sales. This product is part of the five driving growth. Moving forward, our focus will also include working on the National Coverage Determination (NCD) to address some regional reimbursement challenges. We plan to leverage the data we've gathered from our trials for this purpose, and I believe these products will perform strongly within that group. I'd like to close up the call here. Just a few remarks. The operating environment still remains challenging, right? But it's not as challenging as we saw back in Q3 of 2022 in October. There are definitely signs here of stability. There are signs of improvement, whether it's in the macroeconomic side or whether it's specifically in the segments that we are competing in. And Abbott is well-positioned. We're well positioned to both capitalize on this improving environment or to navigate if there's any unforeseen volatility over here. That's what our portfolio has been built for. That's what our balance sheet is set up for. It's set up for these kind of situations and these kind of scenarios. We always knew that pandemic-level testing was not a base case. We knew that eventually this would move down to an endemic-like testing. And our view here is that in 2023, we'll start this process of moving to that. So as a result of that, we did do this forward investing into our growth areas, whether it's devices, diagnostics, certain areas in EPD or nutrition. And that's allowed us to grow at the pre-pandemic level, this high single-digit top-tier growth without having to make the OpEx investment that you would expect to be able to sustain that growth. So we're getting that flow through on the P&L and net leverage on our investments. I do recognize the cost pressures. The company recognized those cost pressures. We talked about this now. To Vijay's question, we're going to be working relentlessly on getting our gross margin back to that pre-pandemic level, and it's a combination of working in our cost profiles and our GMI programs, but also as we accelerate the growth in our device business, that mix shift contributes to that. And finally, our balance sheet is strong and provides us the strategic flexibility we need to navigate. And we take this balanced approach where we can provide returns to our shareholders, while at the same time, investing for the long term. So thank you for being on the call. Overall, I think Abbott is very well positioned as we kind of exit this pandemic state and move into more of an endemic state. I think we're well positioned, and now it's all about execution.

Thank you, operator, and thank you for all of your questions. This now concludes Abbott's conference call. A webcast replay of this call will be available after 11 a.m. Central Time today on Abbott's Investor Relations website at abbottinvestor.com. Thank you for joining us today.

Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.