Good morning, and welcome to the Boston Scientific Fourth Quarter 2022 Earnings Call. All participants will be in listen-only mode. Please note, this event is being recorded. I would now like to turn the conference over to Lauren Tengler, Vice President, Investor Relations. Please go ahead.

Thank you, Drew. 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 '22 results, which includes reconciliations of the non-GAAP measures used in the release. We have posted a copy of that release as well as reconciliations of the non-GAAP measures used in today's call to the Investor Relations section of our website under the heading Financials and Filings. The duration of this 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 fluctuations, and organic revenue growth further excludes acquisitions and divestitures for which there are less than a full period of comparable net sales. Relevant acquisitions excluded for organic growth are Preventice, FARAPULSE, and Lumenis Surgical, which closed in March, August, and September of 2021, respectively, as well as Baylis Medical, which closed on February 14, 2022. Divestitures include the BTG Specialty Pharmaceuticals business, which closed on March 1, 2021. Guidance excludes the previously announced agreements to purchase a majority stake in M.I. Tech and Aquatech, as well as the acquisition of Apollo Endosurgery, which are all expected to close in the first half of 2023. For more information, please refer to our financial and operating highlights deck, which may be found on our Investor Relations website. On this call, all references to sales and revenue, unless otherwise specified, are organic. 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 and anticipated product approvals and launches, acquisitions, clinical trials, cost savings and growth opportunities, our cash flow and expected use, our financial performance, including sales, margins, and earnings, as well as our tax rates, R&D spend and other expenses. If our underlying assumptions turn out to be incorrect, or 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, Lauren, and thank you to everyone for joining us today. 2022 represented 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, delivering 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 of our business units gained or maintained market share throughout the year. In the fourth quarter of '22, total company operational sales grew 9% and organic sales grew 7% versus the fourth quarter of '21, which was the low end of the guidance range. However, it's very important to note that these results include an unplanned sales reserve of $60 million established for an Italian government payback provision, which resulted in a headwind of approximately 200 basis points for the quarter. The underlying fourth-quarter performance was strong on both sales, operating margin increases, and earnings per share. Without the impact of the Italian sales reserve, we would have achieved the high end of our organic sales guidance range of 7% to 9%. Full year '22 operational sales grew 11% versus '21, while organic sales grew 9%, in line with our guidance of approximately 9%. Fourth quarter adjusted EPS of $0.45 declined by 2% versus '21, and full year adjusted EPS of $1.71 grew 5% versus '21, both achieved in the low end of the guidance range. Once again, without the impact of the Italian sales reserve, we would achieve the high end of the guidance range for both 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 6% to 8% for both first quarter '23 and full year '23, which excludes the acquisition of Apollo Endosurgery and the majority stake investments in M.I. Tech, all of which are expected to close in the first half of 2023. Our first quarter '23 adjusted EPS estimate is $0.42 to $0.44, and we expect our full year adjusted EPS to be $1.86 to $1.93. Despite the ongoing macroeconomic pressures and supply chain headwinds, we remain committed to our goal of over 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 '23 outlook. I'll now provide some additional highlights on '22 results along with comments on our '23 outlook.

Thanks, Mike. Fourth quarter consolidated revenue of $3.242 billion represents a 3.7% 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 8.7% in the quarter. Sales from the acquisition of Baylis contributed 160 basis points, resulting in 7.1% 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 unplanned 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 budgets, this payback provision requires companies that have supplied medical devices to public hospitals in Italy to pay back a portion of these overrun amounts. While we and others in our industry have appealed and 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 pay 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 $0.45 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 $12.682 billion represents 6.7% 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 8.7% 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 4.8% 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 70.5%, resulting in a full year 2022 adjusted gross margin also of 70.5%, in line with our expectations.

Regionally, on an operational basis, the U.S. grew 10% versus fourth quarter '21. Full year '22 grew 11%, inclusive of a 300 basis point tailwind from acquisitions, with particular strength in our WATCHMAN, Endo, and urology business units. Europe, Middle East, and Africa grew 11% on an operational basis versus fourth quarter '21 and 12% on a full year basis. This above-market growth was 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 with ongoing momentum across the region, particularly with our innovative EP portfolio and further opportunities with Baylis in the Access Solutions franchise. Asia Pacific grew 10% operationally versus fourth quarter '21 and 12% for the full year. On a full year basis, six out of eight business units grew double digits, supported by ongoing innovation across the region. Full year Japan growth was driven by new products, including POLARx, which has approximately 50% share in open accounts. We look forward to 2023 with ongoing momentum from both new products and are excited about our recent approval and reimbursement received for AGENT DCB, which is a coronary drug-coated balloon for restenosis in small vessels. On a full year basis, China grew more than 20%, fueled by 13 new product launches, ongoing portfolio diversification, and the team's resiliency and execution. We continue to expand our presence in the China market with the recently announced acquisition of a majority stake in Acotec. We believe 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 in '23 despite ongoing VBP pressure and potential impacts to procedure volumes in Q1 from COVID. In Latin America, the momentum continued with operational sales growth of 16% versus fourth quarter '21 and full year growth of 28%, with all business units growing double digits versus '21. On the business units, starting with Urology. Urology sales grew 12%, both operationally and organically versus fourth quarter '21, 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 LithoVue, Rezum, and SpaceOAR, as well as the acquisition of the Lumenis Moser laser technology, further complementing the urology portfolio. Endoscopy sales grew 7% organically in the quarter, and on a full year basis grew 8% organically versus '21. In '22, we had global success with innovative products such as AXIOS 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 Endosurgery, which will add a complementary and innovative endoluminal surgery portfolio. We look forward to closing this acquisition as well as our previously announced majority stake in M.I. Tech, which includes the innovative stent in the first half of '23.

Neuromodulation sales grew 5% organically versus fourth quarter '21 and on a full year basis grew 3% organically versus '21. Globally, our spinal cord stimulation business grew 4% in the fourth quarter with continued physician enthusiasm for WaveWriter Alpha and FAST. We continue to invest in clinical evidence to expand indications and present three-month data from our nonsurgical back study, SOLIS, at NANS earlier this year. The study comparing SCS to conventional medical management met its primary endpoints, and we anticipate FDA approval for nonsurgical back indication by the end of '23. Our Brain franchise grew double digits in the quarter and low double digits on a full year basis. This strong performance is aided by continued momentum from new product launches in '22 as well as the recent launch of the Vercise 2-in-1 lead extension.

Peripheral Intervention sales grew 9% organically versus both fourth quarter '21 and full year '21. Within Arterial, we are pleased with the performance of our drug-eluting portfolio, growing strong double digits for the full year and achieving the number one position within SFA in the U.S. On a full year basis, our venous franchise was flat versus the prior year with Varithena, 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 TheraSphere and enrolled our first patient in our early feasibility study, assessing the safety of image-guided intra-arterial delivery of TheraSphere in patients with recurrent glioblastoma. Cardiology delivered another excellent quarter, with operational sales growing 13% and organic sales growing 10% versus fourth quarter '21. On a full year basis, sales grew 14% operationally and 10% organically. Our newly aligned cardiology group delivered strong growth across its four businesses as we continue to invest in the 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 on a full year basis grew 8% organically versus '21. On a full year basis, the Coronary Therapies' franchise, which includes both 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 the full year basis, outpacing the market in Europe with our ACURATE neo2 aortic valve. Ongoing clinical evidence to support growth throughout '22 and in the fourth quarter. Data from the ACURATE neo2 PMCF study was presented as a late breaker at PCR London Valves, demonstrating positive safety and 30-day outcomes with low PVL rates and best-in-class pacemaker implantation rates. Additionally, we enrolled our first patient in the ACURATE Prime XL Nested Registry, assessing the safety and efficacy of the ACURATE Prime Aortic Valve XL to treat patients with severe aortic restenosis who need a larger valve size for the TAVR procedure. WATCHMAN sales grew 22% organically versus fourth quarter '21 and on a full year basis grew 24% organically versus '21. Q4 finished with record sales, strong utilization in the U.S. supported by the DAPT label expansion. Importantly, we completed the enrollment of our CHAMPION-AF trial way ahead of schedule. This head-to-head trial versus novel oral anticoagulation has the potential to more than triple the number of patients 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.

CRM sales grew 6%, both operationally and organically versus fourth quarter '21 and on a full year basis grew 8% operationally and 7% organically. Our Diagnostics franchise had a strong year, growing double digits versus '21. In core CRM, on 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 major markets were in line or slightly above the market. Electrophysiology sales grew 76% operationally and 25% organically versus fourth quarter '21 and on a full year basis grew 69% operationally and 18% organically versus '21. Importantly, our international EP business continues to outpace the market, growing over 40% organically versus fourth quarter '21. POLARx continues to perform well in both Europe and Japan, having now treated over patients since launch. Momentum in FARAPULSE continues with another strong quarter of growth in Europe. We continue to invest in clinical evidence and look forward to the readout of the randomized ADVENT U.S. IDE trial in the second half of '23 and are planning to initiate our ADVANTAGE AF trial in patients with persistent AFib imminently. We've been very pleased with the performance of our Baylis acquisition and the innovative platform, which grew two times faster than the market in '22. We launched our VersaCross Connect in '22, improving efficiencies in our WATCHMAN procedure.

Earlier this year, we shared our strategy consistent with years past. We continue to position ourselves to win in the markets we play through meaningful innovation by balancing our financial commitments. In '22, we announced four acquisitions, invested 10% of our sales in internal R&D to fund sustainable growth and advance 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, Dr. Ken Stein will assume some of the global responsibilities that previously fell under Ian, including total company investor engagement, in addition to CRM, EP, and WATCHMAN roles. Please join me in congratulating Ken, and thank Ian 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 $3.242 billion represents a 3.7% reported revenue growth versus the fourth quarter 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 8.7% in the quarter. Sales from the acquisition of Baylis contributed 160 basis points, resulting in 7.1% 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 unplanned 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 budgets, this payback provision requires companies that have supplied medical devices to public hospitals in Italy to pay back a portion of these overrun amounts. While we and others in our industry have appealed and 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 pay 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 $0.45 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.

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.

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 2023 guidance. Obviously, the 6% to 8% guide is right in line with your long-term philosophy. But you started in the same place in '22. You obviously, excluding the Italy issue, finished above 9% organically. Why again stick with the 6% to 8%? Is this conservatism, respect for lingering macro pressures, or both? And maybe just as part of that, why model macro headwinds similar to '22? The large-cap companies reporting to date, they're not Boston Scientific, but they're all in some way, shape, or form highlighting the improving or less pressures from macro as they finish the year and start '23? Thank you very much.

Good morning, Rick. It's Mike. Thank you for your kind words. To recap your points, we are very pleased with the fourth quarter. Excluding the one-time Italy reserve, growth was up 9%, which is at the high end of sales and EPS expectations. As Dan mentioned, we are happy to have achieved top-tier revenue growth, and we believe we are among the few companies that actually improved margins in 2022. We have a lot of momentum and are very optimistic about 2023 and beyond. Regarding guidance, we're not focused on immediate results in February. Therefore, we believe the 6% to 8% guidance for the full year is fitting. This comes after a 9% growth comparison in 2022. We certainly plan to grow as quickly as possible and continue to invest in the company. There will be some positives and negatives. We are very optimistic about our EP business and the momentum with WATCHMAN. However, on the CRM side, we grew around 6% to 7% last year, while the broader market is in low single digits, including diagnostics. We anticipate a bit of a headwind in that area due to comparatives. China performed exceptionally well for us in 2022, and we expect strong double-digit growth again, though perhaps not as rapidly as in 2022. The underlying markets we operate in are growing at about 6%, so we believe that a 6% to 8% full-year estimate, coming off a 9% comparison, is the sensible and cautious guidance to provide, and we will strive to exceed it.

And then relative to the macroeconomic environment, Rick, we've kind of reiterated that $375 million that we saw in 2022 as being a similar headwind in 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, which is the reason that we've been giving the updates at the level of specificity that we have. As you would imagine, as we went through our annual operating plan process and guidance preparation process, they really dug in at a detailed level to try to understand what 2023 could bring. There are some elements that look better, right? Freight does work better, and you see fuel prices and oil prices coming down. So, we're optimistic freight costs will be less. The supply of materials and the cost of materials is still a bit uncertain and choppy, and that direct labor piece that we had that in 2022, you've got to annualize that in 2023. So, I think the prudent case right here, the prudent course for guidance in February is to assume that we don't get a lot of macroeconomic help in 2023. I'd love to be surprised as we go through the year that we get that help, but I think as we sit here in February, it's prudent to assume a similar headwind to what we saw last year.

Thank you so much.

The next question comes from Robbie Marcus with JPMorgan. Please go ahead.

Thanks for taking my question. Congrats on a nice quarter. Maybe to start, Mike, at our conference last month, you were really bullish on FARAPULSE, and we saw EP have a nice beat in the quarter, particularly outside the U.S., where you have FARAPULSE and POLARx going now. Maybe you could talk about your expectations and what you saw in the quarter for FARAPULSE 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. Yes, our EP business in the quarter grew 25%, and it grew 40% or 50% internationally, and 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 as the key barometer for us. We're continuing to see great pickup with both our cryo platform and FARAPULSE. Cryo is a platform that is competing against a product that hasn't changed in a decade. 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 hopeful to have approval for that in the second half of '23 in the U.S. And then FARAPULSE is doing extremely well for both cryo users who have adopted FARAPULSE and point-to-point RF users. Dr. Stein is on the phone, so he can make some comments. The utilization enthusiasm for FARAPULSE is extremely high, and we're very bullish as we look at 2023 in terms of our EP performance and outlook, especially in Europe and Japan. If we can get some numbers, the approval of the cryo platform in the second half, the U.S. will perform quite well as well. We expect to see a big impact from FARAPULSE in '24. So the future of our EP business is very bright. We know it's a competitive field. We believe we have unique platforms in both FARAPULSE and cryo that are differentiated and showing that clinically 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 EP, but it's clearly a critical growth driver for us '23 and well beyond that. Dr. Stein, if you have any other comments?

Yes, absolutely. Thanks, Mike. Thanks, Robbie. Again, just we do believe that FARAPULSE is differentiated relative to other PFA technologies out there. I think it's important to reiterate that all PFA is not created equal, and because it's a field effect, the results that you're going to see with any of the technologies are highly dependent on the actual catheter design, the waveform that's delivered, and the dosing strategy. As you said, we are really looking forward to presenting the results of our randomized FARAPULSE trial, ADVENT, in the second half of this year as well as initiating our persistent AF trial advantage imminently. The only thing I'd add to what Mike said is I also think as you think about, I think it's really important also to consider the really extraordinary momentum that we've got with our Transseptal access solutions from Baylis and continue to see above-market growth with that and continue to see increased use of the Baylis Transseptal access solutions, the energy needle, and Versacross access, both in ablation procedures and in WATCHMAN and other structural heart procedures.

Great. Thanks. And maybe just a quick follow-up. China has been an important growth driver for Boston Scientific, growing 22% in the year even with the difficult operating environment. So how should we be thinking about China coming out of the reopening here into the first quarter? And what's your expectation for the year going forward? Thanks.

Thank you. The team performed exceptionally well in 2022 despite the challenges posed by COVID and various pricing issues in the region. For China in 2023, we remain optimistic and anticipate double-digit growth from the China team for the entire year. There may be some pressure in the first quarter due to the ongoing COVID challenges in China, which could lead to potential sales growth difficulties in Q1. However, we do expect strong double-digit growth for the year, although it may not reach the same level as the 22% we achieved in 2022, but it will still be robust.

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

Good morning. Thank you for taking my question. Congratulations on a strong finish to the year. I have a two-part question regarding FARAPULSE. Dr. Stein, you mentioned your excitement for the ADVENT trial later this year. Could you provide some context for the data? How does it compare to previous RF and cryo studies? What would you consider a win for you in ADVENT for FARAPULSE? Additionally, we’ll be seeing the Medtronic Pulse Select data at ACC and the J&J INSPIRE data at Boston AF this weekend. You mentioned that FARAPULSE is differentiated. What should we focus on in those studies to support your previous comments? Thank you for your time.

Yes. Thanks, Larry. And let me just sort of begin by reiterating what I said to Robbie here. As we look at the data, everyone just needs to bear in mind that every PFA technology really needs to be evaluated on its own. It's very much unlike RF ablation. When you're doing RF ablation, if you've got the same size catheter tip and you've got the same back patch and the same power that you're putting through, you get the same lesion. PFA is very different. Again, because it's an electric field effect, what happens is just intimately related to the catheter design that tells you the shape of the field that you're generating; the waveform, which 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 where do you put them in. We're very confident that FARAPULSE is the industry leader in this. Again, based on having a catheter that was designed from the ground up to deliver PFA, based on a decade of preclinical and then really high-quality clinical data validating the waveform and dosing strategy that creates durable isolation. And I say the proof of the pudding is in the eating, and we're really excited and looking forward to seeing the results of our randomized ADVENT trial. I'm glad that you mentioned MANIFEST; again, it gives us a high degree of confidence in where we're going. So, MANIFEST is 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 is reported out published initially on the first 1,700 cases and then some limited follow-up in about 1,400 of those patients. Those data show really prove the advantages of using a system like FARAPULSE. Certainly, in 1,700 patients, the safety promise of FARAPULSE was realized. No cases of esophageal injury, no cases of persistent phrenic nerve injury, no cases of pulmonary vein stenosis, so certainly being able to avoid most feared complications of AF ablation. Seeing efficacy results that for paroxysmal AFib are at least as good as what's reported in high-quality trials with conventional thermal ablation and seeing remarkable procedure efficiency. Now in commercial clinical use, we are routinely seeing these cases done on the order of 30 minutes. That kind of procedural efficiency is good for the system as a whole, right? There are a lot of patients who need to be treated dealing with staffing issues, etc. The less time you're undergoing a procedure, the less number of things that can go wrong, honestly. To some extent, the MANIFEST data validates what we see as all the differentiated advantages of FARAPULSE: a safer procedure avoiding the worst complications, a procedure that is at least as effective as 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 the question. And good morning. I want to spend just a minute or two on the Urology and Pelvic Prolapse business. I mean, that was up another 12% this quarter, 12.7% organically last quarter. What is driving that? And should we think of this more as a solid double-digit grower as we look forward? And my follow-up question, I'm going to just put it out there now, 50 basis points of operating margin expansion or at least 50 basis points this year, where is that coming from? Thank you.

Great, Mike here. Thanks for asking about endo and urology. You didn't ask about endo, but I'll throw it in there because they continue just to really outperform and are getting quite sizable within our portfolio and both accretive nicely to margins and growth rate. The urology results, I mentioned in the prepared remarks, it's a strong global performance around the world. This business has been predominantly a U.S.-oriented business that grows faster in the U.S. accretive to Boston Scientific. Outside the U.S. has been very under-penetrated. 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 in urology extensively. The combination of that global performance and, I would say, a highly differentiated portfolio, we talked 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 versus our competitive set and contracting capabilities with customers who want to work with us. Urology continues to do quite well, and we expect similar results over the next few years here. The integration of Lumenis has done 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, Dan, do you want to hit that one?

I can do that. Yes, so the commentary again was 50 basis points on top of the 2022 results, excluding the Italian sales reserve. That would be more like 25.6%, which 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 26.4 just to give you the math there. And where does it come from? The short answer is we believe all lines of the P&L. 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 2023. With what we see with where rates are today, we think we'll have a slight headwind from FX in gross margin. But we still think gross margin itself can go north through a lot of the good activities we have from our global supply chain team in terms of reducing costs and other volume improvement programs. Then tightly managing our discretionary spend within SG&A to ensure it's helping us achieve our strategic plan. As we've always talked about, just really focused on R&D efficiencies and leverage. It all starts with a healthy top line. We think that 6% to 8% guidance versus that 9% comp last year is a good, solid, healthy top line, and that gives us leverage opportunities throughout the whole P&L. We think each line of the P&L has the opportunity to contribute towards the goal in 2023.

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

Thank you for taking my question. I have a few follow-up questions regarding the guidance assumptions. Mike, the 6% to 8% organic growth outlook is understood, but could you please remind us of the positive tailwinds we can expect in 2023 and any additional challenges compared to 2022? For instance, I believe FARAPULSE may now be contributing to organic growth, while there could be some challenges related to China. Could you elaborate on these factors? Additionally, I'm curious about the share count, which is projected to increase by 20 million; this seems significant given the trends we've observed in share count over the year. What is the reasoning behind the share count assumption for this year?

Yes, sure. On the share count, just to take that cleanup quickly and then Mike can take your revenue question. It's just a simple math of the converts that we have during the year. So the increase is from the share count that will increase when we convert the mandatory preferreds. Recall, we then lose the preferred dividend. So it's neutral to EPS but the share count increases as those preferred holders will get common shares. That makes sense, Vijay? Sure. Regarding the challenges and advantages, we achieved 9% growth in 2022, which presents a tougher comparison than usual. We're optimistic about double-digit growth in China, but it may not match the growth of 2022. The growth in CRM, which had exceptional market expansion in 2022, is expected to align more closely with market trends in 2023. Those are a few of the challenges we face, but we also have several advantages. The company is performing exceptionally well worldwide, including in Europe, Latin America, Asia-Pacific, and the U.S. We observed impressive growth across the board, with WATCHMAN increasing by 24% for the year, the Cardiology sector growing by 10%, PI by 9%, Endo by 8%, and Urology by 10%. We have strong momentum across our businesses, which serves as a positive factor given our commercial success. We're aiming for a robust year in electrophysiology, especially in Europe and Japan. The timing of the U.S. approval for cryo will influence its potential as an advantage, depending on when that approval occurs. Products like WATCHMAN continue to perform excellently, and we believe we gained market share in the fourth quarter, ending the year with over 90% market share. Additionally, ACURATE neo2, a product that doesn’t get much attention from analysts but is discussed extensively internally and by physicians, is doing extremely well in Europe and is gaining momentum each quarter. We are eager to conclude the U.S. trial soon.

That’s helpful. Thanks, guys.

The next question comes from Travis Steed with Bank of America. Please go ahead.

Hi, good morning, everyone. Thank you for taking my question. I would like to ask about the impact from Italy. I'm curious why we're only hearing about this from Boston. It seems like you might be taking a more cautious approach in setting aside reserves, which appears to be a substantial amount. I understand Italy isn't a large country, so perhaps the calculations are based on more than just a year of sales. Can you confirm that there’s no impact on 2023? Also, regarding operating margins, I recall you mentioning that gross margins were higher in the first half of the year and expected to dip in the second half due to currency fluctuations. I want to clarify if there are any factors to consider regarding operating margins for the first half compared to the second half? Thank you.

Sure, Travis. I'll address the situation in Italy first. I can't comment on other companies, but I can talk about Boston Scientific. This has been a developing issue, especially in the past few weeks, due to a provision passed by the Italian government in 2015 aimed at reclaiming excess spending beyond allocated budgets in public hospitals. For over seven years, this provision has been largely inactive, with minimal implementation guidance and no significant actions taken. Recently, however, circumstances have changed, prompting the government to intensify efforts to recover those funds. We established an additional reserve to cover what we anticipate we will owe as a result. We're actively challenging this decision through the Italian courts, alongside other industry players, as we disagree with it. The outcome remains uncertain, but we have set what we consider a reasonable reserve based on the current timeline. The '23 amounts are included in guidance. So the amount of the reserve relates to prior periods, 2015 to 2022. Anything 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. I mentioned that gross margin will be higher in the first half and lower in the second half, which is a bit of a buck the trend we normally have, which I wanted to make sure I got that point out there. Relative to operating margin, though, I think you'll see a similar trend where it builds throughout the year. So, the gross margin higher in the first half, lower in the second half, but through the rest of the P&L and netting down to operating margin, I would expect you'll 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.

Yes. Thank you.

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

Good morning. Thank you for taking the question. I wanted to ask on WATCHMAN, specifically what's underlying the double-digit growth outlook that you called out for '23? How you're thinking about market growth as well as Japan and China contributions? And then just a quick follow-up on ACURATE neo2 with the Prime XL registry. How are you thinking about approval timelines at this point in the U.S.?

On WATCHMAN, we had a great year in 2022. We maintained around 90% market share and experienced a full-year growth of 24%. We anticipate about 25% growth in 2023 as the market remains very healthy. Currently, there are two companies in the market. The success of WATCHMAN stems from its safety, consistency, and proven effectiveness demonstrated in clinical trials and everyday use. Physicians feel very comfortable using the device and have strong support from Boston. Moreover, the referring physician community is recognizing the significant benefits of the LAA procedure, contributing to market growth. The procedure is also profitable for hospitals and we are seeing improvements in procedure time, which is crucial. The overall market situation is very positive. We lead the market and will soon introduce a new product and a new steerable sheath this year, along with the next-generation WATCHMAN platform expected around next year. We have a differentiated pipeline. The Neo2 is performing exceptionally well in Europe, and we are implementing our XL valves as part of the U.S. trial. Recent reports regarding the XL valve were inaccurate, and it will not slow down the U.S. approval process. This valve is significant as it accounts for about a third of the procedures using that size in Europe. We are growing faster than the market in Europe without it, and it will eventually be part of our U.S. offerings. We are looking forward to the approval of ACURATE neo2 in the U.S. in 2024.

And the next question, currently, I have is from Josh Jennings with Cowen. Please go ahead.

Hi, good morning. Thanks for taking the question. I was hoping to start off with just your Apollo acquisition and get into the obesity segment. I just wanted to hear about your outlook for that portfolio but also just device-based intervention opportunities in obesity from a higher level and whether this portfolio could become a long-term growth driver for the endoscopy franchise? And then the follow-up is just on your neuromodulation business. Congratulations on SOLIS trial results. I think three of the big competitors in the space have a peripheral diabetic neuropathy indication now with different levels of evidence. I was hoping you could just review Boston's plan to generate clinical evidence for that indication going forward. Thanks a lot.

Yes. So on Apollo Endosurgery overall, it's really consistent with our overall strategy of category leadership, which is driving above-market growth and continuing to advance new therapies where we can be the leader. When we look at endoluminal surgery, we think that is really the next frontier for our endo business. We see a terrific uptake of endoluminal surgery, I would say, outside the U.S., particularly in Japan, a bit more so in Europe and less so in the U.S. We think endoluminal surgery will really continue to build momentum over the next coming years and Apollo is a platform that's most used by physicians outside the U.S. to perform these procedures with a product called OverStitch and xTAC. We think the addition of Apollo into our current platform will obviously make us the number one strongest endoluminal surgery portfolio, but also put us in a position, as Dr. Duncan would say, to help train the field. These are procedures that require significant physician training to get great outcomes, and we'll be able to do that with the Apollo platform. On SOLIS with SCS, again, we did see some improvement in that overall SCS business in the fourth quarter, growing 4% in the quarter. We're pleased with the three-month results that we expected, and we expect indication and approval for nonsurgical back by the year-end of 2023. We're in early clinical work for PDN right now and haven't announced any timelines, but we'll look to invest in that space.

And that concludes our call for today. So thank you for joining us. We appreciate your interest in Boston Scientific. If we were unable to get to your question or if you have any follow-ups, please don't hesitate to reach out to the Investor Relations team. Before you disconnect, Drew will give you all of the pertinent details for the replay. Drew?

Please note a recording will be available in one hour by dialing either 1-877-344-7529 or 1-412-317-0088 using replay code 7345419 until February 8, 2023, at 11:59 p.m. Eastern Time. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.