Operator:

Good morning, and welcome to the Boston Scientific Second Quarter 2024 Earnings Call. All participants will be in listen-only mode. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Jon Monson, Senior Vice President, Investor Relations. Please go ahead.

Michael F. Mahoney:

Thanks, Jon and thank you everyone for joining us today. Our second quarter results exceeded our expectations, led by the strength of our differentiated global cardiovascular portfolio, particularly the execution in AF Solutions and the winning spirit of our global team. In second quarter, total company operational sales grew 16, organic sales grew 15, exceeding the high end of our guidance range of 10 to 12. Our top tier growth continues to be fueled by innovation, clinical evidence generation, and our strategy of category leadership. Consistent with prior quarters, most of our businesses and regions grew well above market. Second quarter adjusted EPS of $0.62 grew 15% versus 2023, exceeding the high end of our guidance range of $0.57 to $0.59. Second quarter adjusted operating margin was 27.2% and as a result of our first half margin performance and revenue upside versus previous expectations, we now expect to expand adjusted operating margin 50 to 70 basis points for the full year. Turning to the third quarter and full year 2024 outlook, we're guiding to organic growth of 13% to 15% for third quarter and raising our full year guidance from 10% to 12% to 13% to 14%, reflecting momentum across our broad portfolio, particularly in our EP business unit. Our third quarter adjusted EPS guidance is $0.57 to $0.59 and we expect our full year adjusted EPS to be $2.38 to $2.42, representing growth of 16% to 18%. Dan will provide more details on our financials and I'll provide some additional color on the quarter and the outlook for the second half of 2024. Regionally and on an operational basis, the U.S. grew 17% in second quarter with exceptional growth in EP, fueled by the continuous success of the FARAPULSE launch, as well as Watchman, coronary imaging, and strengthen our med-surg businesses. Europe grew 16% on an operational basis versus second quarter 2023. This impressive performance was driven by double-digit growth in seven of our eight business units, led by robust growth in EP and strength across our growth and emerging markets. Second quarter was also a record quarter in the region for our structural heart business, following positive data presented on ACURATE Neo2 at the recent Euro PCR Conference. We expect this momentum to continue, supported by the launch of the largest size ACURATE prime valve in late 2024. Asia-Pac grew 13% operationally versus a difficult comp in second quarter 2023, with excellent performance in China, growing high teens, and Japan growing double digits. We also recently received approval in China for FARAPULSE and AGENT Drug-Coated Balloon, and continue to expect approval for FARAPULSE in Japan in the second half of this year. We expect the contribution from these launches will ramp over 2025. Within the quarter, pricing actions in key geographies went into effect with a China VBP on coronary imaging, and Japan reimbursement cuts in June. We do expect Asia-Pac to grow low double digits in the second half of the year, including the full impact of these pricing actions. Some additional commentary on the business units. Our urology business grew 9% organically in the quarter with double digit growth in stone management and prosthetic urology, supported by our direct-to-patient efforts, driving patient awareness, and early contribution from the limited market release of the Tenacio Pump. International growth of 14% was driven by laser therapies and Rezum. We look forward to closing this previously announced acquisition of Axonics, which we are continuing to expect in the second half of this year. Endoscopy sales grew 8% both operationally and organically in second quarter. Second quarter results were driven by above market growth in our Biliary franchise, led by high teens growth in AXIOS, and the high teens growth in our Endoluminal Surgery franchise. We continue to expect Endo sales to go faster than the market throughout 2024, enabled by our innovative portfolio. Neuromodulation sales grew 16% operationally and 4% organically in the quarter. Our Brain franchise grew low single digits with some impact from competitive product launches. We expect this business to strengthen in the second half of the year, driven by our portfolio of differentiated technologies. In second quarter, our pain franchise grew strong double digits operationally and mid single digits on an organic basis. Our spinal cord stem business saw improved U.S. trialing cadence in the quarter and we expect that our U.S. SCS franchise will improve in the second half of the year. The relieving business continues to perform extremely well with more than 30,000 patients treated with the Intracept System to date. Peripheral Intervention sales grew 12% operationally and 9% organically versus second quarter. High single digit growth in Arterial was driven by continued momentum in our drug-eluting portfolio, with double digit growth in the quarter. Mid single digit growth in Venous was driven by momentum of EKOS supported by the real PE data set and continued double digit growth in Varithena. Our Interventional Oncology franchise grew double digits in second quarter, driven by our broad offering across embolization and cancer therapies. Looking forward, we continue to expect to close the previously announced acquisition of Silk Road Medical in the second half of this year. Cardiology; cardiology delivered another excellent quarter with organic sales growing 22% versus second quarter 2023. Within cardiology, interventional cardiology therapy sales grew 9%. Growth in coronary therapies was driven by continued strength in our global imaging franchise and APAC calcium franchise. Within the quarter we initiated a limited launch of AGENT DCB in the U.S., which has received positive initial physician feedback. Our structural heart valves franchise grew strong double digits in the second quarter, led by ACURATE Neo2, which continues to see growth from both new and existing accounts in Europe and Latin America. At the end of the quarter, we also completed follow-up of the full 1,500 patient cohort and the U.S. ACURATE IDE trial. We now expect to present this data in the first half of 2025 likely at the Annual ACC Meeting. Watchman had another excellent quarter growing 20% organically with strong contribution from the ongoing launch of Watchman FLX Pro in the U.S. and Japan. The U.S. grew 20% led by further penetration into the existing indicated patient population enabled by our innovation, clinical evidence, and patient awareness efforts. Cardiac Rhythm Management sales grew 3% organically in the quarter. In second quarter, our Diagnostics franchise grew double digits. This above-market growth was driven by our broad cardiac diagnostics portfolio. In Core CRM, our high and low voltage business grew low single digits with strong international growth partially offset by slightly below market growth in the U.S. At the recent HRS Meeting, data was presented from the MODULAR ATP Trial of the MODULAR CRM System, which is comprised of the EMPOWER Leadless Pacemaker and EMBLEM SICD, which met all pre-specified six-month endpoints and a high rate of ATP success with no patient requests for deactivation of pacing due to pain or discomfort. Turning to EP. EP sales grew an impressive 125% organically versus second quarter 2023, driven by the rapid and sustained adoption of the transformative FARAPULSE PFA System. Second quarter sales were driven by outstanding commercial execution, robust supply, and positive real-world outcomes, as well as increased AF ablation volumes, supported by the efficiency of the FARAPULSE workflow. Our Baylis Access Solutions business also continues to see strong double-digit growth in the U.S. with utilization in approximately 80% of PFA procedures and approximately 85% of Watchman procedures. Internationally, we saw continued FARAPULSE account openings and robust utilization in Europe and launched APAC markets. Importantly, evidence of more than 20,000 patients treated with FARAPULSE has been published or presented at medical conferences, demonstrating the safety, efficacy, and reproducibility of the system. And within the quarter, we completed an enrollment in the NAVIGATE-PF study of the FARAVIEW software module and FARAWAVE Nav-enabled catheter, both of which are expected to launch in the U.S. during the second half of the year. At the recent HRS meeting, outcomes from a sub-analysis of the ADVENT trial were presented. This is the very first randomized data for a PFA system demonstrating superior efficacy versus thermal modalities, with significantly more patients having achieved an arterial arrhythmic burden of less than 0.1% with FARAPULSE compared to RF and Cryo. We plan to continue a steady cadence of clinical evidence generation to maintain our PFA leadership, including Rematch-AF, a planned trial designed to study the FARAPOINT and FARAWAVE catheter in patients who need a redo ablation, which we expect to begin enrolling early in 2025. In closing, I'm very grateful to our global team for the commitment and winning spirit, enabling us to deliver life-changing technologies to millions of patients. We're in the most exciting chapters as a company with a track record of executing or exceeding our financial goals while delivering meaningful innovation. With that, I'll hand it over to Dan.

Jon Monson:

Thanks, Dan. Drew, let's open it up for questions for the next 40 minutes or so. In order for us to take as many questions as possible, please limit yourself to one question. Drew, please go ahead.

Robert Marcus:

Oh, thank you and congratulations on another fantastic quarter here.

Daniel J. Brennan:

Thanks, Robbie.

Michael F. Mahoney:

Sure, Rob. I'll take a shot at. We're not going to give 2025 guidance here but at our Investor Day, we said our goal was to be the highest performing med tech company in terms of sales and EPS growth, which we believe we did in 2023. Our aim is to do that in 2024 and our aim is to do that for many years to come. And I think one is the primary drivers of you've seen the decade-long portfolio shift into faster-growth markets for the company, where weighted average market growth rate is probably closer to 7% to 8% versus what it used to be kind of flat. So one, we enjoy because of our portfolio choices, faster growing markets. Secondly, we have strong growth across the world. You're seeing Europe double digits, Asia Pac double digits where FARAPULSE is not yet launched. And obviously, the U.S. doing quite well as well. And then I think you just have to look at the durability of other businesses. We'll likely talk about FARAPULSE and WATCHMAN a lot on the call, but you see continued strong growth, 8% to 9%-ish through the first half within our MedSurg businesses. So that kind of gets diminished because of the strength of some other areas, but that's pretty good. And then the cardiovascular portfolio is just getting stronger and stronger. With our EP franchise, Baylis, what we're doing with coronary with Drug-Coated Balloon, you saw the results with ACURATE in Europe, and also potentially some benefits with concomitant reimbursement in the future. And who knows, maybe these procedures may move over time to an ASC center and EP, which also, we think would benefit Boston Scientific given our solution. So we had a tough comp in 2023 with a 12%. Our guidance for the full year is now 13% to 14%. We won't give 2025 guidance, but our goal is to be really distinguish ourselves from the peer group in terms of revenue growth and EPS, and we have the portfolio and the team to do it.

Operator:

The next question comes from Joanne Wuensch with Citibank. Please go ahead.

Michael F. Mahoney:

Yes. I think it's -- thanks, Joanne. I think it's similar to some of the themes I just highlighted. We have -- we're in a higher weighted average market growth rate markets to start. We see consistent procedure volume around the world. We are in a pricing environment where we used to be a price giver, pretty significantly. Now it's getting closer to negative 1 to 0. We also expect on the margin front, we took our margin goals up for the year. We expect gross margin to improve over time. Right now, we're getting more margin benefit from SG&A primarily, which is good leverage. We would expect to get more gross margin upside over the LRP period and we just have a very strong product cadence in very fast-growing markets. Two of the best markets in all of MEDTECH, obviously are our EP and WATCHMAN and we have strong leadership position in PFA and that market is only growing. And we are going to launch that in Asia. And we have a lot of clinical work going on with WATCHMAN, as you know, to significantly increase the TAM of that market where it'll rival the TAVI market, three to five years from now. So the clinical evidence that we have in fast-growing market is different in the portfolio, and we continue to make and place strong M&A bets with Axonics and Silk and our venture portfolio, which we'll continue to leverage. So the playbook hasn't changed, but it's the execution of the team of continually putting this in better markets and out-executing the competition.

Operator:

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

Michael F. Mahoney:

So I'll start and then Dr. Stein can maybe talk about how we're really leading the field in our clinical evidence and some of the physician comment. We're competing with those companies today in Europe. With J&J, with all the companies that have PFA platforms. And you've heard us talk on many calls now on the differentiation of FARAPULSE in terms of its safety profile, the clinical data and the -- really, the usage of physicians who never considered using Boston Scientific EP prior, many of them have completely converted to using FARAPULSE for their A-fibrillation procedures. But we're still relatively early in our launch in the U.S. It's less than six months of launching in the U.S. and we have yet to launch in China, and we've yet to launch in Japan, and we have a lot more to do in Europe and we have additional indications coming and additional portfolio coming. So we think the short story is the FARAPULSE platform, combined with Baylis, combined with our clinical will be a differentiated growth driver for Boston for many years to come. Now will it grow as it continues to scale up over 100% a quarter, unlikely, but we expect this to be maybe the biggest business of Boston Scientific in the years to come here.

Lawrence Biegelsen:

Thank you.

Jon Monson:

Hey Rick, can you hear us.

Jon Monson:

Yes, we can hear you now.

Kenneth Stein:

Yes. Thanks, Rick. I appreciate the question. Again, we still are projecting approval of both our NAV-enabled FARAWAVE catheter and a completely new software suite on RHYTHMIA that we're calling FARAVIEW to help support that. And we certainly do expect that to help drive more adoption of the use of RHYTHMIA and FARAVIEW to accompany FARAWAVE. Now I want to begin though by saying, FARAPULSE will remain an open system. We want to support workflows that don't involve any use of mapping or navigation, support workflows that involve these competitive systems, but also we'll expect with FARAVIEW and FARAWAVE NAV to provide some major advantages in terms of workflow. I think important for me I think emphasize that existing mapping and navigation systems don't understand PFA at all. They were built around an RF ablation paradigm. And so FARAVIEW is going to be the first software and a mapping system that fundamentally understands what we do with PFA and with FARAPULSE. There are some important features, dynamic visualization of the catheter as it changes shape from basket flower configuration, field tagging specific to PFA energy. I think when you put all of that together it has the potential to minimize the use of fluoroscopy during these procedures, minimize catheter exchanges, and really continue what we've tried to do and I think have accomplished with FARAPULSE to begin, right, which is to create a procedure that is safer, that is at least as effective, and that is far more simple and efficient compared to what people have been doing with legacy systems.

Frederick Wise:

That’s great. Thank you so much.

Vijay Kumar:

Hi guys, thanks for taking my questions and my congratulations on the experience here. I had one question on U.S. PFA, the 220% growth. Can you parse what was capital contribution versus catheter contribution in the U.S. number. And I think you mentioned a TPT for -- in the U.S., in the outpatient setting, any update on has Boston submitted its TPT? thank you.

Kenneth Stein:

Yes, Vijay. So we have submitted for TPT. Again, I think important to recognize there are some very strict criteria for eligibility for TPT. And I think just to reiterate what Mike said, which is, right now, we are not seeing pricing as a barrier to the rapid and sustained adoption of FARAPULSE.

David Roman:

Thank you and good morning. I want to keep going a little bit on the EP side. But also, could you talk a little bit more about both the technology and commercial strategy and as you think about the technology side, right now, the bulk of your business right now sits in the ablation side. You talked a little bit about the importance of mapping and access. But how should we think about the portfolio evolving and how that unlocks new opportunities for you, whether that's in the non-AF side of the ablation market, be it with FARAPOINT or some of the other products? And then on the commercial side, where are the opportunities for pull-through here, so for example, are you training your mappers on generator replacements and ICDs and how should we think about the overall benefit to the portfolio?

Kenneth Stein:

Yes. Thanks, Mike. So David, let me start with the clinical strategy and then maybe say a little more about where we're going from a technology standpoint as well because I think it's important, right. That all the other stuff we're doing doesn't just get lost in the excitement around FARAPULSE as exciting as FARAPULSE is. From clinical trial standpoint, to begin with our ADVANTAGE clinical trial, which is aimed to get labeling for FARAPULSE persistent Afib has completed enrollment. We expect to present those results late this year, early next year. We are well underway in a trial called AVANT GUARD , which is aimed to prove that FARAPULSE used as first-line therapy for patients with persistent atrial fibrillation. We've announced the intent to run a trial called REMATCH, which will look at FARAPULSE for redo ablations. From a technology standpoint, we've already talked about the FARAWAVE NAV catheter. In addition to that, we have a point catheter, FARAPOINT that's through its clinical trial. And then down the road, I think more sophisticated catheters for both mapping and ablation catheter called FARAFLEX. And I think as you can imagine, we are interested in the use of this for many arrhythmias beyond atrial fibrillation, atrial tachycardia, and ventricular tachycardia, that pretty much you name it. But I don't want some of the other technology innovations to get lost. And so right, the EP performance was not only a FARAPULSE story, fantastic performance from our Access Solutions portfolio. And in terms of pull-through, right, see very good synergy between FARAPULSE and the Access solution products, likewise, in really good synergy between the WATCHMAN and the Access Solution products. Again, I think in terms of the pull-through question, with the most obvious opportunity, as Mike mentioned, is the opportunity now to have reimbursement in the U.S. for concomitant FARAPULSE ablation and WATCHMAN procedures, which we expect will be a growth driver and hope to see that finalized before the end of this year by CMS. Again, Dan mentioned our acquisition of SoundCath, so an ICE product to support EP procedures and potentially also WATCHMAN procedures, probably just a very long-winded way of saying we love FARAPULSE, but it is far from the only story.

Patrick Wood:

Fabulous, thank you. And on that note, I might flip the script if that's alright with everybody. And maybe switch to something a little different. Obviously, you guys announced Silk and appreciate that hasn't closed yet, but I'd love if you could unpack what was so exciting for you guys in TCAR and that asset overall and the ability to flip WALLSTENT into the package and how meaningful that is relative to just the capacity to plug it into Boston overall and drive sales? Anything around that would be great.

Patrick Wood:

Brilliant, thanks Mike.

Travis Steed:

Hey, thanks for taking the question. I wanted to ask, given the strong margin guide raise and EPS guide raise here, where you're at kind of on the FARAPULSE getting those to full margins and the scale there. Are you halfway there, kind of more or less and your willingness to kind of continue to let that flow through? And I also wanted to ask about TAVR. It felt like a little bit of a time change and tone change on TAVR, so I just wanted to make sure we didn't miss anything on the TAVR update?

Michael F. Mahoney:

On TAVI, the European team has done really an outstanding quarter and outstanding quarters back to back with ACURATE Neo2, over 20% growth. Importantly, we expect to launch in fourth quarter or maybe first quarter 2025 Prime, which is our next-generation ACURATE Neo2 that has all risk indications and the full-size matrix, which has been the challenge for us to date with an optimized delivery in the valve frame. On the -- just to reiterate on the U.S. timing, we did complete enrollment of the 1,500 patient cohort. And we do expect to present the data in the first half of 2025 likely at the ACC meeting. I think it's important to note that this is the largest randomized trial that's been done in TAVI really based on the timing of the last patient follow-up and the size of the trial and the multiple risk and mixed control groups that we have in it. It's an extensive trial and we believe that the first half 2025 and likely at ACC is the appropriate timing.

Travis Steed:

Great, very helpful. Thanks a lot.

Joshua Jennings:

Good morning. Thanks a lot for taking the questions and congrats on the stellar results. Wanted to just follow up on Travis' two questions. I guess, first on TAVR, could we see top line data before the ACC presentation next year and could Boston file before that presentation? And then just the other follow-up is just on the profitability you guys you're seeing in a lot of profitability flow through on the outperformance on the top line. I wanted to just get a sense of taking some of that profitability and reinvesting that, where could we see -- where some of those dollars going and just some high-level commentary on that reinvestment driving -- supporting this sustainability of top-tier revenue growth in the med tech space? Thanks for taking the questions.

Daniel J. Brennan:

And the second part of your question relative to the balance between reinvesting the sales upside and dropping some through. I think you're seeing the evidence of that here in our guidance raise for the 50 to 70. So I think we've struck a really good balance on that. So we've had sales upside during the year and the realization that we closed the first half a little bit ahead of expectations. So we're giving some of that back. So we're taking the 30 to 50 to the 50 to 70. So that's great. At the same time, we are reinvesting in the business, primarily in the commercial facing functions. We're leveraging the back office and the administrative areas, which makes sense. We don't need to grow those when you're growing the revenue at the rate that we're at. So we've got significant leverage opportunities there. And then as Mike said, this isn't just reinvesting in FARAPULSE. This is reinvesting across the whole portfolio, the broad portfolio that we have. So we picked the right spots to reinvest to be able to continue to deliver that top line performance for the long term. And I think we're striking a nice balance there.

Danielle Antalffy:

Hey, good morning everyone. Thanks so much for taking the question. And I'll be a broken record here. Congrats on the really awesome quarter. Mike, I wanted to go in a different direction here away from PFA for a second and talk about how we should think, just on this theme of sustainability of growth into 2025, appreciating we'll give guidance here. But if we think about AGENT DCB launching back half of this year and Modular in the back half or, I guess, is that launching this year as well. So how do we think about those contributing maybe elevating CRM growth above the market in next year as well as the Interventional Cardiology portfolio? Thanks so much.

Danielle Antalffy:

Thank you.

Matthew O’Brien:

Great, thanks so much. From Piper Sandler. Just maybe on just sticking with kind of where Danielle is going outside of PFA. Just on the WATCHMAN business, 20% growth is a little bit of a tick up versus Q1. Your competitor said they grew 45% in the quarter. So are you losing a little bit of share to those guys or is the market starting to accelerate for some reason, I don't know if it's in front of this concomitant reimbursement, just maybe talk a little bit about that? And then maybe for Dr. Stein specifically, if you get this concomitant reimbursement, can you just talk about the workflow for the clinician in terms of doing a PFA case plus a WATCHMAN case at the same time. I mean how much more challenging is that you have to bring in an ICE sometimes and other times not bringing ICE and to do the WATCHMAN part of the case, just maybe talk a little bit about that opportunity going forward? Thank you.

Kenneth Stein:

Yes. And then in terms of just workflow and concomitant, this is one of the areas where I think in between, right, the safety and efficiency advantages of WATCHMAN FLX and FLX Pro combined with the efficiency and safety advantages of FARAPULSE could create a real advantage for us as a unified ecosystem. The beauty of doing these two procedures together, right, is they both involve transseptal access into the left atrium. They both involve the catheter manipulation inside the left atrium. So there's a huge benefit to patients to be able to have it all done at one sitting as opposed to having to have one procedure and then go through many of the same risks of the first procedure go and have it done as a second procedure. And just to reiterate, when you think of doing it as a concomitant procedure what you want our technologies that enable you to do it safely and we do it reproducibly and enable you to do it efficiently. So you're spending as little time as possible, right, mucking about inside someone's left atrium. And FARAPULSE and WATCHMAN FLX Pro together are unmatched in giving you those advantages.

Michael F. Mahoney:

Yes, please.

Matthew Taylor:

Hi, good morning guys, thank you for taking the questions. Congrats on a great quarter. I did want to ask a follow-up question on FARAPULSE just to help with thinking about the modeling and the opportunity there. Could you give us any kind of update or parameters on how many centers you're in, how many boxes you've placed, and maybe talk about whether the early experience has changed your views on how the market could evolve like you laid out at the Analyst Day several months ago?

Matthew O’Brien:

That’s okay, alright.

Operator:

Thank you. 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 2312308 until July 31, 2024 at 11:59 P.M. Eastern Time. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator:

Good morning, and welcome to the Boston Scientific First Quarter 2024 Earnings Call. [Operator Instructions] Please note, this event is being recorded.

Jonathan Monson:

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.

Michael Mahoney:

Thanks, Jon. Thank you to everyone for joining us today. Our first quarter results surpassed our expectations, fueled by our innovative portfolio, including the nearly 90 new products we launched globally in 2023, the execution of our category leadership strategy and the winning spirit of our global team.

Daniel Brennan:

Thanks, Mike. First quarter 2024 consolidated revenue of $3.856 billion represents 13.8% reported growth versus first quarter 2023 and includes a 120 basis point headwind from foreign exchange, in line with our expectations. Excluding this $40 million headwind from foreign exchange, operational revenue growth was 15% in the quarter. Sales from the closed acquisitions and divestitures contributed 190 basis points, resulting in 13.1% organic revenue growth, exceeding our first quarter guidance range of 7% to 9%.

Operator:

[Operator Instructions] The first question comes from Robbie Marcus with JPMorgan.

Ken Stein:

Yes. Thanks. Thanks, Mike. Thanks, Robbie. Maybe the one thing I'd add, I'd just -- the caution here is against thinking of PFA in general, that every PFA system is very different and I think everyone really needs to be evaluated on its own. So the results you get with PFA are just completely dependent on catheter design, on waveform and on dosing strategy. And as Mike said, what people see when they use FARAPULSE clinically, when people see the data and we've now got published data including randomized clinical trial data, registry data, total data at well over 18,000 patients have reported at this point, and as Mike said, it just has compelling advantages in terms of safety, in terms of efficacy, in terms of ease of use and in terms of efficiency. And that's what you see driving the rapid uptake, both in the U.S. and globally.

Larry Biegelsen:

I echo Robbie's congratulations on a really strong quarter here. Just with my one question, I feel compelled to ask a big-picture question here. You updated your LRP in September of last year to 8% to 10% organic growth for 2024 to 2026. The assumption at the time was that growth in '25 would accelerate over 2024. You're guiding today to 10% to 12% organic growth.

Michael Mahoney:

Yes. So we outlined at Investor Day the 8% to 10% and our goal to be a very high-performing med tech company. And so we're super pleased with the first quarter results that also led to -- and the business momentum led to the guidance you referred to at 10% to $12. So we're pleased with taking our full year guidance up. We did also receive FARAPULSE earlier than we expected.

Operator:

The next question comes from Rick Wise with Stifel.

Michael Mahoney:

Sure. Thanks, Rick. We're very pleased with the results in Europe. We continue to grow above market in Europe and have excellent adoption across most major countries in Europe. And importantly, as you said, we've invested quite a bit in this portfolio and we're excited about the Prime submission that we just recently did in Europe, which will enhance the valve further and provide additional valve sizes as well. So we expect that to go well in Europe.

Operator:

The next question comes from Joanne Wuensch with Citi.

Daniel Brennan:

No, it was over -- it was -- not to interrupt you, Joanne. It was just over the 3-year period. 2024 to 2026 was 150 basis points.

Daniel Brennan:

Yes. I think over the 3-year period, all lines will contribute. And I think it's really a great part of the history of the company and the kind of the DNA of the margin expansion story is that at any given point in time, all lines can contribute. So gross margin at that 69.8%, I didn't love that this quarter, but I'm optimistic that, that improves through the year.

Vijay Kumar:

Congrats on really solid finish here. Mike, maybe my one question on the EP portfolio. The 70% overall growth, 85% in the U.S., how -- can you give us a little bit of color on was there any stocking dynamic? How much of this was driven by the account openings versus a procedure uptake?

Michael Mahoney:

Yes. So the results in the U.S., 85% as you mentioned, it was really a mid-quarter launch. So the teams moved pretty quickly to have some impact in the first quarter. And we look forward to good results, obviously, in the second quarter and the rest of the year based on momentum.

Michael Mahoney:

I'm sorry.

Travis Steed:

Congrats again on a good quarter. I wanted to ask about the new DRG for ablation and left atrial appendage closure. And then the overall LAC market, is that -- do you think that market can kind of sustain this 20%-plus growth through -- before the indication expansions? Or do you kind of need to see those indication expansions at some point sooner rather than later?

Operator:

The next question comes from Danielle Antalffy with UBS.

Joshua Jennings:

Wanted to ask about the EP business and just opening an update on your view of the diagnostic mapping opportunity. You initiated the NAVIGATE-PF study where the software module is going to be in play.

Michael Mahoney:

Dr. Stein, if you could take that one?

Christopher Pasquale:

How are you thinking about the opportunity for AGENT in the U.S.? And you mentioned you're still working to ramp up manufacturing capacity. When do you expect to be in a position to move into a full launch with that product?

Operator:

The next question comes from Matthew O'Brien with Piper Sandler.

Matthew Taylor:

I actually wanted to follow up on your AGENT commentary. Two small questions. One is, can you talk about the materiality in Japan? And when you mentioned the indication expansions, could you talk about what those could look like and when we could see them in the U.S.?

Operator:

The next question comes from Matt Miksic with Barclays.

Michael Mahoney:

Thanks, Matt. Probably not too much new commentary here. I think in FARAPULSE overall, it's -- we're developing very strong capabilities to install, support and train doctors and really scale that up in the U.S., given the high demand for it. And we're able -- resource-wise, we put a lot of focus on that as we continue to expand that. And there obviously are a lot of strong relationships we have with those EPs given our WATCHMAN experience and our CRM experience. So it's a lot of resource planning and training and executing every day in the field to open up new accounts.

Operator:

And just to verify, is there time for one last question?

Operator:

That will come from Michael Polark with Wolfe Research.

Daniel Brennan:

Sure. Thanks for the question, Mike. We're not going to quantify the inventory charges, but it was much more than we're used to in a given quarter, and that's why we called it out and it has an impact.

Jonathan Monson:

All right. Thanks, everyone, for joining us today. 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.

Operator:

Please note a recording will be available in 1 hour by dialing either 1 (877) 344-7529 or 1 (412) 317-0088, using replay code 8726199 until May 1, 2024, at 11:59 p.m. Eastern Time.

Operator:

Good morning and welcome to the Boston Scientific Fourth Quarter 2023 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Lauren Tengler, Vice President, Investor Relations. Please go ahead.

Michael Mahoney:

Thanks, Lauren, and thank you to everyone for joining us today. 2023 results were excellent, and our global performance represented one of the strongest years in company history, exceeding our financial goals that we set for the year. This performance is fueled by innovation and clinical evidence generation, commercial execution, and the winning spirit of our global teams. In fourth quarter '23, total company operational sales grew 15%. Our organic sales grew 14% versus fourth quarter '22, exceeding the high end of our guidance range of 8% to 10%. Full-year '23 operational sales growth of 13% versus 2022, while organic sales grew 12%, exceeding our guidance of approximately 11% for the full year. Importantly, six of our eight business units grew sales double-digit in the fourth quarter and double-digits for the full year 2023. And all of our regions also grew double-digits in the fourth quarter and double-digits full year 2023. This performance is a testament to our category leadership strategy and our focus on innovation bolstered by commercial excellence. Fourth quarter adjusted EPS at $0.55 grew 24% versus 2022, exceeding the high end of our guidance range of $0.49 to $0.52. Full year adjusted EPS of $2.05, grew 20% versus 2022, also exceeding the high end of our guidance range of $1.99 to $2.02. Q4 adjusted operating margin was 26.6% and full year '23 was 26.3%, which is exciting because it exceeds pre-pandemic levels. We generated a full year cash flow of $1.8 billion and adjusted free cash flow of $2.5 billion in line with our expectations. Now for our 2024 outlook. We expect healthy procedure volumes to continue and our guidance to organic growth of seven to nine for the first quarter of '24, and eight to nine for the full year of 2024. Our Q1'24 adjusted EPS estimate is $0.50 to $0.52. We expect our full year adjusted EPS to be $2.23 to $2.27, representing growth of 9% to 11%. This guidance excludes the acquisition of Axonics, which is expected to close in the first half of '24. Despite pressures on margins in '24 from FX headwinds, as well as investments in manufacturing capacity and selling expenses to fuel our exciting launches, we remain committed to improving operating income margins in 2024 and to our goal of improving adjusted operating margin by 150 basis points in '24 to '26. Now, Dan will provide more details on those financials for both 2023 and 2024. I'll now provide additional highlights on '23 results along with comments on our outlook. Regionally on an operational basis, the US grew 11% for the fourth quarter of '22. Full year 2023 grew 10% with particular strength in our Watchman, EP, Endo and Uro business units. Europe, Middle East and Africa grew 12% on an operational basis versus Q4 '22 and 13% on a full year basis. This above-market growth is supported by new and ongoing product launches across the portfolio, price 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 opportunity in our growth in emerging markets within the EMEA region. Asia Pacific grew 17% operationally versus Q1 in '19 versus the full year 2022 with all major markets growing strong double-digits. Japan had a strong year growing double-digits for '22 with ongoing momentum from new products, most notably AGENT, DCB, Rezūm, POLARx FIT and WATCHMAN FLX. And on a full-year basis, China grew approximately 20% versus 2022. This consistent growth is fueled by the diverse portfolio, focus on innovation and strong commercial execution. Looking ahead, we expect China to be an accretive mid-teens grower over our '24 to '26 LRP. And to achieve over $1 billion in sales in '24, supported by new product launches, supply chain agility and sustained investments in our talents and capabilities. The team Latin America grew 17% operationally versus both Q4 and full year '22, with seven of eight business units growing double-digits on a full year basis. I'll now provide some additional commentary on our BUs. Urology had an excellent quarter, 10% organic growth versus Q4 '22, and on a full year basis grew 11% organically. Full year growth was led by our Stone Management and Prosthetic Urology globally. And in 2023, we re-launched our direct-to-patient campaign driving therapy awareness for erectile dysfunction and supporting double-digit growth within our Prosthetic Urology franchise. We're excited about the opportunities ahead in Urology, including our recently announced agreement to acquire Axonics, a medical technology company that offers innovative devices, treat urinary and bowel dysfunction. We look forward to bringing these complementary portfolios together and expanding access to differentiated technologies for physicians and patients. Endoscopy sales were also excellent in the quarter, growing 12% operationally and 11% organically versus fourth quarter of '22, on a full year basis, growing 12% operationally and 11% organically. Within the quarter, strong results were led by AXIOS and single-use scopes, both growing double-digits. On a full year basis, all regions grew double-digits, supported by the broad and deep portfolio, new product innovation and focus on commercial excellence. Neuromodulation sales grew 7% operationally and 3% organically versus fourth quarter '22, on a full-year basis, 7% operationally and 5% organically versus '22. Our Brain franchise grew double-digits both in the quarter and on a full-year basis, driven by the Vercise Genus portfolio and our innovative Image Guided Programming, which is designed to improve the precision and efficiency of the deep brain stimulation procedure. In the fourth quarter, on an organic basis, our Pain franchise was flat year-over-year, which was in line with our expectations. We expect our performance to improve in 2024 with the recent launch of our US WaveWriter Alpha DPN indication and the strong and real-world data on FAST recently presented at NANS. Furthermore, with the completion of our Relievant Medsystems acquisition in the fourth quarter, we're excited about our ability to offer an expanded Pain portfolio that supports a comprehensive treatment algorithm now included a novel Intracept system for the treatment of chronic low back pain. Peripheral Interventions sales were excellent, also growing 12% operationally and 10% organically versus Q4, on a full-year basis, growing 13% operationally and 11% organically versus '22. Arterial growth was led by the performance of our Drug-Eluting portfolio both in Q4 and on a full year. This market remains underpenetrated with more than half the procedure is still being used with bare-metal devices, underscoring the importance of our ongoing commitment to innovation and clinical evidence. In Venous, Q4 and full year growth was led by Varithena, our market-leading varicose vein technology. Additionally, in fourth quarter, EKOS growth was supported by REAL-PE, the largest real-world and near real-time dataset evaluating advanced therapies for pulmonary embolism patients. Our Interventional Oncology franchise performed extremely well in the fourth quarter and in 2023, growing low double-digits with strength across our portfolio of robust embolization technologies and cancer therapies We continue to look to expand our clinical evidence and are pleased to have commenced enrollment in the ROWAN trial, which will assess the safety and efficacy of using TheraSphere in combination with immunotherapy to treat HCC, the most common type of primary liver cancer. Cardiology delivered tremendous quarter -- delivered tremendous fourth quarter and year with both operational and organic sales growing 14% versus fourth quarter and for the full year 2022. Within Cardiology, Interventional Cardiology Therapies sales grew 10% for the full year and -- for the fourth quarter and full year. On a full-year basis, the Coronary Therapies franchise growth was driven by strong performance in our international regions and our Imaging franchise globally. AGENT Drug-Coated Balloon continues to perform very well in Japan. We now expect approval of AGENT in the US in the first half of 2024. AGENT DCB will be the first coronary drug-eluting balloon in the US indicated for in-stent restenosis, providing physicians and their patients a solution for this unmet clinical need. Our Structural Heart Valves franchise grew double-digits in both fourth quarter and in a full year basis, led by the performance of ACURATE Neo2 in Europe. And we now have treated more than 70,000 patients to date with our ACURATE technology globally. As we look ahead, we anticipate approval of ACURATE Prime in Europe in 2025. However, after reviewing a planned interim analysis of the US ACURATE IDE data, we will now wait for the full one-year data from the RCT cohort of 100 patients to determine our regulatory strategy. Therefore, we no longer anticipate the approval of ACURATE Prime in the US in 2024. Additionally in alignment with the FDA, we are suspending enrollment in the Single-arm Continued Access study, while continuing to enroll in the randomized extended durability cohorts. We expect to have more information in the second half of 2024, following the full data review. WATCHMAN sales grew 23% organically versus fourth quarter '22 and 25% on a full year basis. Q4 finished with record sales and strong utilization in all major markets. We have now treated over 400,000 patients globally with the WATCHMAN technology. US Q4 growth of 23% was supported by the breadth of the portfolio and the initial launch of WATCHMAN FLX Pro, which we expect to move into full launch in the first quarter. We continue to expand the breadth of clinical evidence supporting this technology and are pleased with the pace of enrollment within our post-market HEAL-LAA trial, including our newly added cohort, which is studying WATCHMAN FLX Pro, an underrepresented patient population. We also look forward to initiating our Monotherapy trial, SIMPLIFY trial later this year, which will study WATCHMAN FLX Pro with the simplified post-implant drug regimen. Cardiac Rhythm Management sales grew 5% organically versus Q4 '22, and on a full year basis grew 6% organically versus '22. On a full year basis, our Diagnostics franchise grew double-digits outpacing market growth, driven by broad portfolio and ongoing investments in innovation. In Core CRM, in both fourth quarter and on a full year basis, our high-voltage business grew low-single digits and our low-voltage business grew mid-single-digits. 2023 performance was driven by our differentiated high-voltage portfolio and shock polarity options. As we look ahead, we expect our Core CRM growth to be in line with the market performance in '24. Turning to Electrophysiology, sales grew 43%, both operationally and organically versus fourth quarter '22, and on a full year basis grew 37% operationally and 33% organically versus '22. US fourth quarter sales grew 40% organically, driven by our POLARx launch and ongoing momentum with our Access Solutions portfolio. Our international EP growth accelerated in the fourth quarter, growing 46% organically, fueled by improved FARAPULSE console supply. We now treated over 40,000 patients globally with the FARAPULSE technology to-date. And with the news this morning that we received FDA approval for FARAPULSE, we are thrilled to enter the US market immediately. We continue to invest in ClinicalEVIDENCE to study new indications and support access to our FARAPULSE technology. Late last year, we initiated the AVANT GUARD trial to evaluate the safety and efficacy of the system. It's a first-line treatment for Persistent AF compared to antiarrhythmic drug therapy. Additionally, real-world data was presented at AHA for more than 17,000 patients treated with the FARAPULSE from the MANIFEST-17K registry, which reinforced the real-world safety profile of the FARAPULSE platform with no reports of permanent phrenic nerve palsy or pulmonary vein stenosis or esophageal injury and an overall major adverse rate event rate of less than 1%. We're excited to bring this innovative technology to more markets and expect approval of FARAPULSE in Japan -- China and Japan likely in the second half of this year. In closing, I'm very proud of our global team what we were able to accomplish in '23, resulting in a full year organic sales growth of 12% and adjusted EPS growth of 20%. We're excited about the year ahead and remain focused on our talent, sustaining a culture that's motivated to drive differentiated performance and achieve our long-range plan goals. Those goals, as a reminder, are sales an average of 8% to 10% over the three-year period, while expanding adjusted operating margin by 150 basis points, including double-digit adjusted EPS growth, an improvement of our free cash flow conversion to approximately 70% in 2026. With all of that, I'll pass it over to Dan to provide more details on the financials.

Lauren Tengler:

Thanks so much, 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.

Robert Marcus:

Oh, great. Congrats on a really good quarter and congratulations, Lauren, on the promotion. Wanted to ask on two of the biggest product drivers in 2024, WATCHMAN and FARAPULSE. FARAPULSE got approval today. Wanted to see what's included in guidance for this year and how to think about phasing over the year. How long will it take to get into hospitals and approved on formularies? And then second on WATCHMAN, look, still had a very good quarter and fourth quarter, but growth slowed a little bit. How should we be thinking about the potential for WATCHMAN and 20% plus growth in 2024? Thanks a lot.

Robert Marcus:

Great. Thanks a lot.

Joanne Wuensch:

Thank you and good morning. I don't want to leave FARAPULSE quite yet, and I suspect there'll be a lot of questions on it this call. But if you're looking for China and Japan approval in the second half of '24, could you sort of outline what you think those opportunities maybe? And then can you just give a quick highlight on some of the other sort of higher profile cardiology companies such as POLARx and AGENT? Thank you.

Kenneth Stein:

I mean, I love to comment on FARAPULSE. Again it is a very exciting day. Joanne, in terms of the questions specifically about Japan and China, right. I think we got to realize I mean, AFib is a global disease. I hate to use the word pandemic, but it is pandemic. Now and we're really pleased about the strength of the clinical trial data that we have as well as the commercial experience in Europe with, as Mike said, you know, greater than 40,000 patients already treated to-date. And it's that strength of the clinical data, right, that led us to the really, I think, rapid approval that we got from the FDA, and that has led us to update our anticipated approval times both in Japan and China. Again, I think having said that, you know, we look to those approvals in the second half. So I don't think we're going to expect to really see too much material out of that until we get into 2025. But they are both large and important markets and large and important patient populations that are currently really very much underserved in terms of access to Ablation technology.

Michael Mahoney:

Thanks, Joanne

Larry Biegelsen:

Good morning. Thanks for taking the questions. Congrats on a strong finish here and the approval of FARAPULSE in the US. On FARAPULSE, can you talk about the manufacturing capacity for the catheter and console upon launch? And expectations for the EP business this year? You know you grew 43% in Q4'23. Any reason why growth would be lower in '24? And I have to ask you to please clarify your comments around ACURATE Neo2. It sounds like something happened with Prime, which is the larger size. What are the implications for the other sizes of Neo2 in Europe and the US? Thank you.

Larry Biegelsen:

Thank you, and congrats, Lauren.

Operator:

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

Daniel Brennan:

Sure. So the VBP assumptions are the same as they've always been, really no change there. As you saw, in December, when we issued the press release on AVANT GUARD, we moved up the timing of expected FARAPULSE launch to Q1. So we've been anticipating Q1 launch. And that 8% to 9% full year and the 7% to 9% for the first quarter in terms of revenue growth contemplated a Q1 approval of FARAPULSE, as Mike said, you know, there's probably some contribution in Q1, but more of that contribution comes in Q2 to Q4. So the 8% to 9% has that contemplated in the overall guide. And then pricing, so I would say on pricing is, we were basically flat in 2023 and the goal is to be flat again in 2024. So likely no impact would be the goal in 2024 versus 2023.

Daniel Brennan:

No, all the days -- there's a lot of, obviously, a lot of noise in days around the world through the year. It's all contemplated in the guidance. All in the 8% to 8% for the full year.

Michael Mahoney:

Sure, Vijay. Thanks.

Danielle Antalffy:

Hey, good morning, everyone. Thanks so much for taking the question. Just a follow-up question on ACURATE Neo2, Mike, if I could. So appreciate the comments that you did provide. Just curious, I mean, obviously, you're giving pretty strong guidance here for 2024. I mean, is the right read here that regardless of what happens with ACURATE Neo2 and timing there, you're sticking to your long-term sales growth guidance that you provided back in September. And sort of how do we think about this as a long-term growth contributor now, given this little wrinkle here? And Lauren, we will miss you very much. Thanks so much.

Danielle Antalffy:

But we won't get to see her, so.

Danielle Antalffy:

I'll work my way in.

Danielle Antalffy:

Okay. Great. And also welcome, Jon. Sorry, I didn't mean to leave you out. Thanks so much guys.

Operator:

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

Michael Mahoney:

Janar, Are you able to hear us okay?

Michael Mahoney:

Great. Dr. Sathananthan is our Chief Medical Officer, as you know, for ICT and Structural Heart. Maybe he could comment a bit.

Travis Steed:

Great. Thank you.

Josh Jennings:

Good morning. Thanks for taking the questions and congratulations for a strong end of the year. Wanted to ask about the international cardiac ablation market. Boston, incredible fourth quarter, 40% plus growth. Some of your competitors delivered really strong international growth in their electrophysiology businesses as well. What's going on in the international market? I mean, are we seeing the promise of PFA driving market expansion this early? Or is there any pricing dynamics going on? But I think it's 20% almost market growth in internationally for cardiac ablation this year. Just wanted to get some details there and whether that could translate to PFA launches in the United States, driving market expansion, which I think you guys detailed in your Investor Day. Thanks for taking the question.

Kenneth Stein:

Yes, Josh, and thanks, Mike. I think it's a couple of factors here, and I don't know that I can parse out for you, you know, how much is getting contributed from each. But again, I think we just begin with the fact, right, that atrial fibrillation is an incredibly common arrhythmia. Again, as I said earlier, it is literally pandemic worldwide. I know, for instance, in the US, right, a quarter of adults over the age of 40 will experience Afib at some point in our lives. And ablation, even with legacy thermal technologies, things for us, like stable point or POLARx is incredibly effective. It's more effective than drugs. But on a global scale, it is still really incredibly underpenetrated as a market. And much of the growth that you see, really just reflects, I think, you know, increasing realization in the cardiology community, the referring physician community, about the relative efficacy and safety of all ablation technologies. And then you layer on top of that the promise and the data of FARAPULSE, right? And FARAPULSE, again, it takes a procedure that's already effective. It is at least as effective. It is clearly safer. And it's also much more efficient than thermal ablation. And so that, right, enables docs and medical centers to scale this out much better, right, and start to get into this underpenetratrated population. So maybe a long-winded answer, but the short answer is, right, it's both a dramatically underpenetrated population to begin with, and then on top of that, you have the accelerated impact of FARAPULSE.

Operator:

The next question comes from Richard Newitter with Truist Securities. Please go ahead.

Michael Mahoney:

Thanks.

Kenneth Stein:

Yeah. Just a few clarifying points. Again, in Europe, where we set 70,000 valves and physicians use it routinely on an everyday basis. We continue to grow faster than the market there and have continued to done that for, I don't know, 10 quarters in a row. So we make nice progress. And we're excited about getting the large valve size approved in Europe. I believe in 2025 is the time period. In the US, you know, honestly, first of all, I would state that we've never quoted a market share goal for TAVR in the US. So we never said 20. I'm not sure if that was what you put in your models or not. But based on the results that we've seen in Europe, we've always been confident in our ability to have ACURATE be a meaningful growth driver in the US, as we stated in Investor Day. You know, as a result of this, we are disappointed that, you know, we're not going to have this launched in 2024. As we talked about, based on the data that we just highlighted in the script, and as Janar mentioned, we now need to wait for the full year data, the full one-year follow-up on the 1,500 patients, and then working with the FDA and submitting that and having a data readout by year-end 2024. And we'll take it from there. So we -- as Janar said, the trial is still active. So we do not expect any of this news to alter our 8% to 10% organic growth over the three-year period. We're coming off of 12%. We continue to grow faster than most all of our peers and drop EPS faster than our peer group. And we're still very committed to those financial targets. And we're hopeful that ACURATE will continue to be a big growth driver for us. But a lot of it depends on that data readout in fourth quarter '24.

Daniel Brennan:

Sure, I can take that one. So as you mentioned, Axonics, the most recent deal we did. Super pleased with that. I think that is a classic tuck-in for Boston Scientific. It's one, I think, we -- as you look back, these types of deals, we really do well with and we're super excited to have that close and welcome the Axonics team into the BSE family. As you said, we've been remarkably consistent over a long period of time. Tuck-in M&A is still the number one capital allocation priority for us and will continue to be active. In terms of how active over the near-to medium-term. This is not a major event like a major delevering event that we need to do. This is -- take on a little bit of additional debt over a period of time. And then over a very reasonable period of time, we'll be right back to where we are today relative to our leverage goal. So I look us -- I look for us to continue to be active in the tuck-in M&A space in '24 and beyond.

Michael Mahoney:

Thank you.

Operator:

The next question comes from Patrick Wood with Morgan Stanley. Please go ahead.

Michael Mahoney:

Sure. Well, we haven't closed it yet. We hope to first half this year. You know, the team at Axonics done an amazing job with this platform since starting the company years ago and taking significant share and what is a strong double-digit growth market. The team at Axonics, you know, can't speak too much for them. It hasn't closed yet, has also done a remarkable job in a few areas. One at just the core technology where they gain -- leveraged that to gain share, the clinical data that they have, the commercial excellence that they possess, and also expanding the market through their direct-to-patient marketing and awareness. So this is a significant global opportunity. And the patient awareness of this treatment is still early days. And so that's one reason why we acquired the company was the momentum they have the technology and the long-term market cater that we see based on the global opportunity. The market today is reasonable nearly all US. That's something we'll evaluate more in the future here as to would it make sense for us to bring this to select markets outside the US, given the data that we have? As you mentioned, we have a significant commercial channel in our Urology business through all of our different business units within Urology. So this is an ideal fit. It is an adjacency for us. We don't have any competitive product in this area. So it's a nice adjacency for us that will allow us to compete more comprehensively with Urology customers. But we aim to, you know, take Axonics to the next level, but that team has done a terrific job to date.

Michael Mahoney:

Sure.

Lauren Tengler:

Yes. One last question, please.

Michael Polark:

Good morning. Thanks for sneaking me in. I'll ask a gross margin question. Dan, I heard in the script for '24 flat to maybe slightly down year-on-year in the guide. The world seems to be calmer on price cost, but as we all know, the Middle East is flaring. And so, I'm curious, one, have you built in any cushion for kind of cost-push from those events? And two, in real-time, are you seeing any impact in the field? And if so, what does that look like?

Michael Polark:

Thank you.

Lauren Tengler:

Thanks for joining us today. 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.

Operator:

Good day, and welcome to the Boston Scientific Third Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also 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.

Mike Mahoney:

Well done, Lauren. Thank you, and thank you for joining us today. We're pleased with another quarter of excellent results, with momentum continuing fueled by new product innovation, clinical evidence, and our talented teams across the globe. Q3 ’23, total company sales grew 11% operationally and 10% organically versus Q3 ‘22, which exceeds the high end of our guidance range of 7% to 9%. This performance is a testament to our category leadership strategy, focus on innovation, and strong commercial execution. We believe that most of our global business units grew in line or faster than the respective markets. Q3 adjusted EPS at $0.50 grew 15% versus Q3 ‘22, which exceeds the high end of the guidance range of $0.46 to $0.48. Q3 adjusted operating margin was 26.1%, slightly higher than anticipated. Now, for ‘23 guidance, we're guiding to Q4 ‘23 organic revenue growth of 8% to 10%, and aligning our full-year organic guidance to approximately 11%, the high end of our prior guidance. Our Q4 ‘23 adjusted EPS estimate is $0.49 to $0.52, and we are raising our full-year adjusted EPS range to $1.99 to $2.02. I'll now provide additional highlights on Q3, along with comments on our 2023 outlook, and then Dan will provide more details on the financials. Regionally, on an operational basis, the US grew 9% versus Q3 ’22, driven by strong performance within our WATCHMAN, EP, endo, and urology businesses. Europe, Middle East, and Africa grew 11% on an operational basis versus Q3 ‘22. Performance of the region was broad-based, with double-digit growth in seven out of our eight business units. Within the quarter, we saw strong growth in EP, with ongoing momentum and demand for FARAPULSE and POLARx. Asia Pac grew 19% operationally versus third quarter ’22, led by strength in Japan and China. Japan grew strong double digits in the quarter, with ongoing momentum from new products, most notably AGENT DCB, Rezūm, POLARx FIT, and WATCHMAN FLX. Physician demand for our differentiated AGENT DCB remains high, and we've taken a market leadership position within the quarter after launching earlier this year. Double-digit growth in China was led by our Imaging and Complex PCI portfolio, as well as the commercial execution of the team more broadly. These results were further supported by the performance of the Acotec business, and we continue to expect double-digit growth in China for the full year. I'll now provide some additional commentary on the business units. In the quarter, urology sales grew 11% organically, with international growth of 18%, fueled by new products and globalization efforts, with all regions outside the US growing double digits. Globally, the Stone Management franchise grew double digits, driven by LithoVu and Laser Therapies. Rezūm had another strong quarter of double-digit growth, backed by long-term clinical data supporting international momentum with a leave nothing behind message resonating in Asia. Endoscopy sales grew 11% organically and 12% operationally versus third quarter ’22, broad-based strength across all regions. Our single-use imaging and AXIOS technologies continued to perform well, both doing double digits within the quarter. And earlier this month, we received US marketing authorization for an expanded indication of the AXIOS stent to include gallbladder drainage, increasing access to more patients with this platform. Neuromodulation sales grew 3% organically versus third quarter ‘22. Our Brain franchise grew low double digits in the quarter, with strength from new product launches, including the Vercise Neural Navigator 5 Software, which is our fifth generation DBS programming solution, furthering our leadership in image-guided programming for more streamlined DBS programming in the US. Our pain business grew low single digits, driven by spinal cord stimulation sales, which were slightly below our expectations. We're optimistic about the opportunities ahead of our pain business included in our recent US approval to expand indication of our WaveWriter Alpha SCS system to include DPN, which is expected to launch in early ‘24. We're also excited to add to our portfolio with our recently announced agreement to acquire Relievant Medsystems and its Intracept procedure. Intracept is the only US-cleared system for vertebrogenic pain, expanding our portfolio of pain offerings, which is expected to close in the first half of 2024. Peripheral intervention sales grew 8% organically and 13% operationally, which includes the results of Acotec versus third quarter ’22. Our Arterial franchise delivered another strong quarter, growing low double digits, led by ongoing success globally with our drug-eluting portfolio. in Venous, data from the REAL-PE study was presented earlier this week, demonstrating statistically significant lower major bleeding rates in patients with pulmonary embolism who are treated with EKOS compared to a competitive mechanical thrombectomy device. The REAL-PE study analyzed nearly real-time EHR data for over 2,200 PE patients from 2009 to 2023. This study provides new clinical evidence for providers in determining the optimal modality for each patient's needs. Our Interventional Oncology franchise grew double digits, including ongoing momentum with our Embold Coil, launch as well as strong demand for our cancer therapies. Within the quarter, we received FDA clearance to expand the indication of the Visual ICE Cryoablation System to treat pain associated with tumors that have metastasized to bone in patients who are unable to receive standard radiation therapy. Our cardiology group delivered another excellent quarter, with organic sales growth of 11% versus third quarter ‘22. Within cardiology, interventional cardiology therapy sales grew 7% organically versus third quarter ‘22. Our Structural Heart Valves franchise grew double digits in third quarter, led by ACURATE Neo2 sales performance in Europe. And growth within our Coronary Therapies franchise is fueled by ongoing success of our Imaging technologies. We're pleased to have received clearance for the AVVIGO+ Guidance System. AVVIGO is our next-generation platform that provides high quality fast imaging, with improved physiologic assessment of coronary vessels and lesions. We continue to be pleased with the performance of AGENT DCB in Japan. Importantly, our AGENT IDE trial results were presented yesterday as a late breaker at TCT, with data demonstrating statistical superiority of the AGENT drug-coated balloon versus uncoated balloon angioplasty for the treatment of patients with in-stent restenosis. With our recent regulatory submission to FDA, we anticipate approval of AGENT, the first drug-coated balloon indicated for the coronary arteries within the US in the second half of ’24. WATCHMAN sales grew 23% organically versus third quarter ‘22. We're very pleased with the excellent performance of this franchise, and have now treated more than 350,000 patients globally. Last month, we received FDA approval of the latest generation WATCHMAN FLX Pro, which is designed to improve visualization during device placement to enhance healing post-implant, and treat a broader range of patient anatomies. Additionally, enrollment has commenced in HEAL-LAA, a post-market study of the WATCHMAN FLX Pro device in the US. We continue to expect strong growth from the WATCHMAN, business backed by new technologies and significant investment in clinical evidence. Cardiac rhythm management sales grew 5% organically versus third quarter ’22. And core CRM, our high voltage business, grew low single digits, and our low voltage business grew mid-single digits. Our Diagnostics franchise grew double digits in the quarter, fueled by our diverse portfolio of ambulatory ECGs and ICM. We continue to further innovate in the space, having launched in the US the next-generation LUX-Dx II and the II+ implantable cardiac monitor for long-term monitoring of arrhythmias, providing enhanced diagnostic capabilities and enabling a more efficient workflow. Electrophysiology sales grew 27% organically versus third quarter ‘22. International growth of 33% was driven by excellent performance from our differentiated FARAPULS and POLARx technologies, as well as our Access Solutions franchise and the leading VersaCross Access platform. US growth of 22% was led by our Access Solutions franchise, along with contribution from the early approval - I'm sorry, from the approval of the POLARx Cryoablation System, including POLARx FIT, which enables physicians to adjust and expand the cryo balloon to best fit a patient's individual anatomy. Also, within the quarter, we launched VersaCross Connect for POLARSHEATH, which provides safe and efficient access to the left side of the heart during procedures, expanding our Access Solutions portfolio. Clinical evidence generation remains a key priority, and we're pleased to have completed enrollment in the first phase of the ADVANTAGE AF clinical trial studying FARAPULSE for the treatment of patients with persistent AFib. Additionally, we commenced enrollment and treated our first patient in an extension arm of the ADVANTAGE study to evaluate FARAPOINT, which is a point-by-point PFA focal catheter for CTI ablations used to treat atrial flutter. Finally, within the quarter, we achieved important milestones to bring in our leading PFA technology to the US. Recalled data from our ADVENT IDE trial was presented at ESC at the end of August, comparing FARAPULSE to standard of care thermal modalities meeting the primary endpoints. We've also completed our US regulatory submission and continue to anticipate the approval of FARAPULSE in the US in the second half of ’24. Through the first nine months of this year, we have grown organic sales 12% while growing adjusted EPS 18%, with broad-based growth across all of our business units and regions. This performance is supportive of the goal we laid out last month at our Investor Day, where we aspire to be highest performing large cap med tech company over the next three years. We believe our focus and talent and culture, our relentless pursuit of innovation, while doing the right thing for society and operating responsibly, sets us up to deliver a unique set of financial goals over the 2024 to 2026 long range period. Our LRP goals include growing sales 8% to 10% CAGR over the period, while expanding adjusted rate operating margins by 150 basis points over the three years, with double-digit adjusted EPS growth annually, and improvement of our free cash flow conversion to approximately 70% by 2026. With that, I'll pass off to Dan to provide more details on the financials.

Lauren Tengler:

Thanks, Dan. Costas, 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. Costas, please go ahead.

Robbie Marcus:

Hi, good morning. And congrats on a great quarter. And since many of us are at TCT, I'll add the nice AGENT DCB trial as well. I had two questions, so I'm going to - I'll just go with one here. As we go back to the Analyst Day, you pointed to 8% to 10% growth and 150 basis points of operating margin expansion over the three-year timeframe. And I believe one of the comments was at the beginning of the range, it'll be towards the lower end and accelerate as you have some of your big new product launches coming. So, I'm looking at 2024 here and I see the Street at 8% to 9% organic sales growth and about 50 basis points margin expansion. I just want to make sure we're interpreting the comments you made at t he Analyst Day correctly, and any thoughts you have on directionality for next year. Thanks a lot.

Robbie Marcus:

All right, appreciate it. Thank you.

Joanne Wuensch:

Good morning, and thank you for taking the question. Since many are sitting here at TCT, I think I'm going to focus on that, including, I'd love some feedback on the data that's been presented here, particularly on the AGENT trial. And then I found the WATCH-TAVR Trial also interesting. So, anything you can comment on, that would be wonderful. Thank you.

Dr. Ken Stein:

Yes, thanks, Mike. Let me start again. Hey Joanne. We’re really pleased by all of the data that we saw at TCT. I'll begin with AGENT, and literally could not be happier with the ultimate results of that randomized trial, which again, as I hope everyone recognizes, right, is intended to get approval of the first drug-coated balloon indicated for use in the coronaries in the United States for in-stent restenosis, right? In-stent restenosis accounts for approximately 10% of US coronary interventions today. Having a drug-coated balloon will allow interventionalists to address these stent failures while leaving nothing behind. We've seen how well it's performing where we do have it approved in Japan. And just to reiterate really the incredible results from the trial met endpoint of target lesion failure at 12 months was really marked statistical and clinical superiority to Plano balloon angioplasty, and importantly, both clinically important reductions in target-vessel-MI, and reductions in the need for target lesion revascularization. And then - yes, so that was yesterday. Day before yesterday, we saw the results of WATCH-TAVR. And so, WATCH-TAVR, I think, was an important investigator-initiated trial looking at the combined use of the legacy WATCHMAN 2.5 device at the same time of TAVR in high risk patients with atrial fibrillation undergoing TAVR. And I think on the one hand, we sort of acknowledge that combined use of WATCHMAN with TAVR does face a challenge in reimbursement environment, but also important, the trial validates the safety and the efficacy of the legacy WATCHMAN 2.5 device as compared to control therapy, including the use of NOACs in this population.

Operator:

The next question is from a line of Rick Wise with Stifel. Please go ahead.

Mike Mahoney:

Thanks. Morning, Rick. In the third quarter, as I mentioned, we're proud that most all of our businesses grew, at least, at most likely, most of them grew above market, likely, with the exception of the one that you asked about, neuromod. So, in the neuromod business, we grew roughly 3% in the quarter. I'll just start off, before you - I jumped SCS, the brain business. Our DBS business continues to do well, continues to grow share. And in third quarter, it grew double digits again with the neural navigator. So, that business continues to become a larger part of the overall mix. Global SCS still is the largest piece. That's been under pressure, as you pointed out. The pressure points really come from additional - probably a couple of new competitors to the marketplace, some competitive launches, and our DPN approval, which we're very excited about, which you highlighted, we received in October, but we don't expect to launch our DPN platform until likely first quarter, near the mid first quarter of 2024. So, this will certainly help us with our core SCS business with that additional indication. And also, with the Relievant company that we've signed but not yet closed, we expect to close that in 2024. So, we need the combination of the DPN through our existing SCS base, combining with the Relievant, and also our RF platform gives us a really nice category leadership position to treat pain with a variety of options, which will be differentiated. So, we do expect likely some softness to continue in the fourth quarter, and we obviously aim to improve on those results in 2024 based on what I just highlighted.

Operator:

The next question is from the line of Vijay Kumar with Evercore ISI. Please go ahead.

Dan Brennan:

Sure. So, I’ll hit the gross margin one first. The gross margin in the third quarter was a little bit lower than we expected, and it was predominantly driven by FX, that 70.2%. So, we had been targeting kind of to be approaching 71% for the full year this year. We were 70.5 last year. Just tempering that commentary to say you know what, we might not hit the approaching 71%. We might be - we'll be north of 70.5, but maybe not as high as approaching 71%. So, a bit of a nuance there, but driven by FX. And we had mentioned for - the long range plan at Investor Day for 2024, 2025, and 2026, that there'd be a bit of an FX headwind in gross margin in 2024 that should get better over that timeframe of 2024, 2025, 2026. Relative to 2024 organic revenue growth, no, there's really not much to assume other than we'll let you know on January 31 when we have our call. We have 8% to 10% as the CAGR for the three years. As I mentioned, we'll work through our annual planning process here over the back half of this quarter, and we'll let you know. We do have some nice launches, obviously in 2024, as you mentioned, many in the back half, but we'll let you know on January 31 what we think the range will be for 2024.

Operator:

The next question is from the line of Larry Biegelsen with Wells Fargo. Please go ahead.

Mike Mahoney:

Dr. Stein, you want to give our comment on GLP-1?

Larry Biegelsen:

Thanks, Dr. Stein.

Travis Steed:

Hey, thanks for taking the question. I did want to ask about FARAPULSE. It sounded like the update was expected approval in second half 2024. Just curious when that was filed with the FDA. And maybe talk a little bit about scaling that up in the US and the potential to see pull-through on the ancillary products like mapping.

Dr. Ken Stein:

Yes, sure, Lauren. So, yes, on timing, again, as we said, I think everyone knows, right, our foundational pivotal scale data to submit to the FDA was ADVENT. Presented those results, as Mike said at, ESC, the end of August, with simultaneous publication in New England Journal of Medicine. Hit all of our endpoints, very clean data set. And so, again, as we've said, we've now completed our regulatory submission to the FDA and things are in the regulator's hands. So, continue to expect approval second half of next year. And I think all of the EPs that I've spoken to in the US can't wait to get their hands on it.

Travis Steed:

Great. Thanks a lot for the question. Congrats on the good quarter.

Danielle Antalffy:

Hey, good morning, everyone. Thanks so much for taking the question. And congrats on a great quarter and the data here at TCT. Just a quick question on Q4 topline guide. I imagine there's some conservatism baked in here, but if I'm looking at it correctly, is implying a little bit of a deceleration, and not to be nitpicky here, but just want to make sure we're understanding of what the tailwinds versus headwinds are as we go into Q4 and heading into 2024. Thanks so much.

Danielle Antalffy:

Thank you.

Matt Taylor:

Hi, thanks for taking the question. I actually wanted to ask one on neuromodulation. You talked about results below expectations in light of competitive dynamics. So, I was hoping you could comment on that and whether you expect any improvement in growth now that you have the PDN indication.

Matt Taylor:

Great. Thanks, Mike.

Josh Jennings:

Hi, good morning. Congratulations on the strong results, and wanted to follow up on Travis's question on FARAPULSE. Was hoping to just better understand where your US EP sales force stands today and how you're building that out, your plan to build that out and for the FARAPULSE launch. And then just on top of that, just thinking about the full integration of FARAPULSE and arrhythmia and developing these FARAVIEW capabilities, is there anything of note that we should be thinking about that would provide clinical advantages that could catalyze stronger demand for arrhythmia once that integration is completed, I believe at the year-end of 2024? Thanks for taking the questions.

Dr. Ken Stein:

Yes. Thanks, Josh. And again, we're very excited about FARAPULSE as it stands today. So, we have disclosed, we do have a next generation of FARAWAVE catheter, right, which is the ablation catheter part of the FARAPULSE system that will include an embedded NAV sensor that will work with a novel iteration to the arrhythmia software that we're calling FARAVIEW that we do have targeted for year-end of 2024. And our goal here really, Josh, is, I said, we're never going to compel people to use arrhythmia if they want to use FARAPULSE, but we're going to make the FARAWAVE and FARAVIEW system compelling for physicians to use. And there are really some very novel things that we're able to do with that system combination that we believe is going to improve physician workflow and hopefully lead to even better patient outcomes with the combined system, even on top of the great outcomes that we saw in ADVENT.

Operator:

The next question is from the line of Chris Pasquale with Nephron Research. Please go ahead.

Dr. Ken Stein:

Yes, Chris, I’m not going to get into what our post-approval research strategy is going to look like. I think that there's a lot to be learned when you see how drug-coated balloons are used in Japan and how they're used in Europe today, right? And patients with in-stent restenosis have failed the stent. And fool me once, shame on you. Fool me twice, shame on me. I don't think that there are a lot of physicians who want to be putting additional foreign objects into someone who's already had in-stent restenosis. So, we really believe the results that we saw with AGENT are compelling and compelling enough to move the vast majority of interventionalists to use AGENT in place of either Plano balloon angioplasty or in place of, again, yet another stent in the in-stent restenosis area. I think the only other thing I'll say is, clearly there are a lot of potential indications for the use of the AGENT product beyond in-stent restenosis, and we'll certainly be looking at research into all of those as we get beyond approval and use for the first indication.

Operator:

The next question is from the line of Mike Polark with Wolfe Research. Please go ahead.

Dan Brennan:

Sure, Mike. Happy to. A lot in that question. So, on the pricing, historically, we've been in that kind of very low single-digit decline for many years. We're starting to envision a world where we could be flat. So, that's a goal of ours as we go forward over the LRP to get to flat pricing, which obviously helps revenue and helps all the way down through the rest of the P&L. On the cost side, as you look at the traditional areas that we've talked about that have been impacted over the past couple of years, when you take freight, I'd say that's gotten better, but it's certainly not back to where it was. So, I'd say improving, but still elevated. And obviously, the conflict in the Middle East has us focused on fuel and oil, as that runs the risk of increasing off of that. The inflation impact on our direct material costs, again, I would say, this seems - we're seeing signs of that stabilizing over time, but it's absolutely elevated from where it was. So, we still do see impact there. And then the consistency of supply, it's not fully back to normal again, but it has improved. So, we're optimistic about the future that we see a better macro environment for cost of goods in that category, but we're not there yet, is what I would say. And then relative to inventory, yes, I mean, I would say, we've been building inventory over the last two or three years, right? Our back order has been elevated higher than we have liked. The team's done a great job over the last 12 months of getting that more in line with where you’ve been historically. So, I would not point to EE&O charges from our perspective as a big driver because we're still a bid and catch-up mode and making sure that we have the right amount of inventory to supply. So, I think we're focused on having the right inventory, but we're not at the point where we have too much inventory.

Mike Polark:

Yes. Thank you.

Operator:

The next - our last question comes from the line of Matthew O'Brien with Piper Sandler. Please go ahead.

Mike Mahoney:

Sure. Yes, starting with Europe is really not a - thankfully, it's not a new phenomenon for our team in Europe, which we also were referencing. Middle East, Africa, last year they grew 12%, and they're on track to grow another double digits again in 2023. So, the European team, it's really a combination clearly of share-taking given the markets aren't growing double digits in Europe. And our European team has benefited from the portfolio of having many of the product launches that were talked about for second half of 2024 in the US already in that marketplace. So, they're doing an excellent job of launching our innovative products, taking share in the more developed western European markets, and also building a pretty significant capability in the appropriate emerging markets in Europe. That also grows double digits. So, the team's just done a really nice job of executing and driving our innovation with the launches. Asia Pac had another strong quarter this year. That region also will grow double digits, grew double digits last year and double digits again this year. And I would say, the new news here is really just the strength of Japan is excellent in the quarter, and we expect another strong quarter for them in the fourth quarter. Again, it's all back to our people and our portfolio, and the team in Japan launching POLARx AGENT, AVVIGO will be the next platform to launch in Japan. So, that team's done a really nice job. In China, I was just there for about a week, and that team continues to grow nicely, strong double digits, despite all the challenges that are well known in the marketplace, again, based on the strength of our portfolio, some of the alliances that we're doing, and our team in China is quite strong. So, they continue to - so it's not a new event for us this quarter. Those regions have been delivering that for quite some time.

Operator:

Ladies and gentlemen, please note that a recording will be available in one hour by dialing either 1-877-344-7529, or 1-412-317-0088 using replay code 7607776 until November 2, 2023, at 11:59 p.m. ET. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator:

Welcome to the Boston Scientific Q2 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note, this event is being recorded. I'd now like to turn the conference over to Lauren Tengler, Vice President, Investor Relations. Please go ahead.

Mike Mahoney:

Thanks, Lauren, and thank you to everyone for joining us today. We're very proud of our second quarter results, which exceeded our expectations and demonstrated the strength of our category leadership strategy, commitment to clinical evidence, and the winning spirit of our global team. In second quarter '23, total company sales grew 12%, both operationally and organically versus second quarter '22, exceeding the high end of our organic guidance range of 7% to 9%. We anticipate that most of our business units grew in line or faster than the respective markets, fueled by our innovative portfolio and commercial execution, also supported by healthy procedure demand. Second quarter adjusted EPS of $0.53 grew 21% versus second quarter '22, exceeding the high end of the guidance range of $0.48 to $0.50. And second quarter adjusted operating margin was 26.8%, also slightly higher than anticipated. Through the first half of the year, we have grown their business organic sales rate at 13%, with broad-based durable growth across all of our business units and regions. Importantly, we have also grown our adjusted EPS growth 20% during the first half, while balancing our investments to ensure we achieve our short-term and long-term goals. Now for our 2023 guidance, we're guiding the third quarter '23 organic revenue growth of 7% to 9% and we expect momentum to continue and are raising our full year organic guidance to 10% to 11%. Our third quarter adjusted EPS estimate is $0.46 to $0.48 and we're increasing our full year adjusted EPS range to $1.96 to $2. I'll now provide some additional highlights in the second quarter, along with comments on our '23 outlook, and Dan will provide more details on the financials. Regionally, and on an operational basis, the U.S. grew 9% in second quarter, with notable strength in our WATCHMAN, PI and Endoscopy businesses. Europe, Middle East Africa also grew 9% on an operational basis versus second quarter, with strong performance in the region was broad-based, with double-digit growth in four out of our five major markets in Europe. Across the portfolio, we saw strength in new and ongoing product launches, including FARAPULSE, POLARx, ACURATE neo2 and LUX-DX. Asia Pacific grew 24% operationally versus second quarter, led by strength in China and Japan. Japan growth is fueled by new products, including agent, our drug-coated balloon for the coronary arteries, and resume our minimally invasive BPH technology with device performance and procedures that leave nothing behind is resonating in the market. China delivered excellent growth in the second quarter, led by our innovative portfolio and commercial execution against the COVID impact second quarter '22. We also saw particular strength in our interventional cardiology therapies, WATCHMAN, CRM and PI business units and we continue to expect double-digit growth in China for the full year. I'll now provide some additional commentary on our businesses. Starting with urology. Urology sales grew 8% organically in the second quarter. The stone management franchise grew double-digits, driven by LithoVue and ongoing globalization efforts. Rezum continues to do well globally, growing strong double-digits in the quarter and most recently launching in Brazil. We continue to see ongoing momentum within our prosthetic urology franchise, fueled by patient activation efforts. designed to bring awareness to our erectile restoration and male incontinence interventions. Endoscopy sales were excellent, growing 12% organically and 14% operationally in the second quarter, with notable strength in the U.S., Latin America and Asia-Pac, with new product momentum and healthy procedure demand. Our Apollo integration is progressing well and earlier this month that we received FDA clearance for OverStitch NXT, a suturing system that enables suture placement during advanced endoscopic procedures. This next-generation device brings ease-of-use benefits and improved accessibility when using a single-channel endoscope. Neuromodulation sales grew 3% organically in the second quarter. Spinal cord stimulation sales were flat versus prior year and we expect SCS sales growth to improve in the second half of the year, with strong trialing in the second quarter in support of clinical evidence, which was presented this month at Aspen. Notably, six-month outcome data were reported from the SOLIS trial, which is a randomized controlled trial for non-surgical back pain, which demonstrated superior outcomes for SCS against conventional medical management, also consistent with primary endpoint results. Our brain franchise grew double-digits in the quarter, with continued momentum from new product launches in the U.S. and procedure recovery in Europe. Earlier this month, we received FDA approval for the Vercise Neural Navigator 5 software, which when used with our deep brain stimulation system can help provide clinicians with data for efficient programming in the treatment of Parkinson's disease. Peripheral Interventions sales were very strong growing 13% organically versus second quarter '22. Our arterial franchise grew double-digits, led by our drug eluting portfolio. And earlier this month, after reviewing all available data and analysis, the FDA provided updated information associated with paclitaxel-coated devices used to treat PAD, recognizing the safety of these devices and eliminating the requirement for specific warning language within device-related labeling. We're pleased that the FDA determined that the available data do not support an excess mortality risk and we remain dedicated to helping physicians provide the best care possible for their patients. In Venous, U.S. growth was led by ongoing strength in Varithena, a non-thermal treatment for varicose veins, with international growth driven by our clot management technologies. Our Interventional Oncology franchise grew double-digits with strength across the entire portfolio. And last month, we received clearance for the EMBOLD, Soft and Packing Coils, which along with the EMBOLD fibroid coil, complete our detachable coil system. We also began our limited market release for Obsidio, which is the only conformable gel embolic material that's indicated for the peripheral vasculature, adding to our robust embolization portfolio. Cardiology delivered another excellent quarter with organic sales growth of 13% versus second quarter. Within cardiology, the Interventional Cardiology Therapies business, sales grew 12% organically versus second quarter. Our coronary therapies franchise growth was driven by our innovative imaging technologies as well as the recent launch of our agent drug-coated balloon in Japan, offsetting ongoing price pressure in drug eluting stents. Our structural heart valves franchise grew strong double-digits with another quarter of performance from our ACURATE neo2 in Europe. Market reception remains very high, backed by clinical evidence, ease-of-use benefits and a focus on lifetime patient management. We continue to expect to bring ACURATE neo2 to the U.S. in the second half of 2024. WATCHMAN sales grew 27% organically versus second quarter, also outpacing the market. U.S. demand remains strong and international growth was led by China and Japan. We were pleased to have completed enrollment in the WATCHMAN FLX Pro CT pilot study, which is a single study design using multiple imaging modalities to assess post-procedural healing in the next generation of WATCHMAN FLX Pro. We expect continued momentum within the WATCHMAN franchise further supported by the anticipated approval of our both WATCHMAN FLX Pro and our steerable sheath called Trusteer (ph) by the end of 2023. Cardiac Rhythm Management sales grew 5% organically in the quarter. In core CRM, our high-voltage business grew low-single digits and our low-voltage business grew mid-single digits, and we believe that performance was in line or slightly below market growth as the replacement tailwinds neutralize. Our diagnostic franchise grew double-digits in the quarter on the strength of our broad cardiac diagnostic portfolio and we anticipate momentum will continue, supported by the approval of our next-generation ICM called LUX 2 expected later this year. Electrophysiology sales grew 28% organically in the second quarter. International growth continues to be fueled by strong performance in both FARAPULSE and POLARx across Europe and Asia-Pac. We continue to make progress towards bringing these innovative technologies to the U.S., and we expect POLARx approval in the third quarter. In addition, we are looking forward to the data presentation of the ADVENT trial, our U.S. IDE, at the ESC Conference on August 27. Recall the ADVENT trial is a first of its kind, randomized clinical trial, designed for a non-inferior 12-month primary safety and efficacy endpoints compared to a commercially available RF and cryoablation systems. It is notable for its design and rigor as it seeks to demonstrate the single procedure effectiveness of an intervention without the use of antiarrhythmic drugs and reablations. We continue to anticipate the approval of FARAPULSE in the U.S. in 2024. The Access Solutions franchise grew strong double-digits in the second quarter with continued momentum in the U.S. and Japan with a differentiated VersaCross Transseptal platform. We're also proud of the performance of our global teams and are confident in our future. We remain committed to sustainable innovation and our financial goals, consistently growing sales faster than our underlying markets, expanding operating margins and delivered strong double-digit adjusted EPS growth with a strong adjusted free cash flow generation. We're looking forward to our September 20 Investor Day, where our leadership team will provide more insight into our innovative pipeline today, the opportunities ahead and our long-term financial goals. So before I pass it along to Dan, I want to announce that we also have some movement within our business unit leadership team. And after nearly 20 years at Boston Scientific, Maulik Nanavaty has announced his plan to retire in August. Jim Cassidy will now lead the neuromodulation business, where he previously spent eight years prior before moving over to lead the WATCHMAN franchise five years ago. Lastly, Angelo DeRosa will now lead our WATCHMAN business. Angelo has spent the last 10 years of Boston Scientific in Europe, most recently leading the European CRM and EP business. Congratulations to Jim and Angelo and we appreciate Maulik for his many contributions to Neuromodulation in Boston Scientific throughout his career. With that, I'll pass it over to Dan to provide more details on the financials.

Lauren Tengler:

Thanks, Dan. Kyle, let's open it up for questions for the next 35 minutes or so. In order for us to take as many questions as possible, please limit their self to one question. Kyle, please go ahead.

Robert Marcus:

Good morning and congrats on a really nice quarter.

Robert Marcus:

Maybe with my one question. It looks like you guys beat pretty much across the board with the exception of neuromodulation. It looks like it was a really strong geographically as well, split across the regions. We've heard from some public statements from managed care companies that outpatients saw kind of a bolus in utilization, but it looks like it was global as well. So I'd love to get the read from you on what you're seeing, what's underlying demand, what is maybe onetime upside, and what you're seeing in the different regions around the world? And if there's any difference inpatient, outpatient, cardio versus non-cardio? Thanks a lot.

Robert Marcus:

Thanks a lot.

Operator:

Our next question comes from Joanne Wuensch with Citi. Please go ahead.

Mike Mahoney:

Sure. I'll -- maybe Dr. Stein comment and I'll see if I need to comment further afterwards.

Mike Mahoney:

Yeah. To make additional comment on FARAPULSE in the quarter, really pleased to see the increased utilization in Europe. We still have been supply chain constrained with our councils in Europe. So the demand for the platform far exceeds our ability to supply thus far, which we've reported out for a number of quarters in a row. But what's exciting, we just recently received GMED approval for a manufacturing approval to actually manufacture this in Minnesota, where we are here. And so we do anticipate, with the capabilities of the European team and the materials work by the supply chain, that we expect a significant increase in availability of new accounts in the fourth quarter of 2023 and that continuing on in 2024 well in advance of the launch in the U.S. So really proud of the supply chain team in this environment to build this capability internally to meet the demand. And you should expect a number of new centers opening in the fourth quarter, but the utilization is what surprised me. The utilization growth within the served centers in Europe continues to be impressive, which speaks to the performance of the platform.

Joanne Wuensch:

Thank you very much.

Frederick Wise:

Good morning, Mike. Hi, Dan. Maybe focusing on the excellent margin performance. Operating margins were particularly stand out and the divisional performance, I mean, MedSurg up 410 basis points, cardiovascular up 240 basis points. Help us understand maybe a little more detail the drivers. Is it volume, is it mix? And to what extent did price play a role? And I'm not quite sure I'm understanding your commentary, Dan, about second half margins as well? Thanks so much.

Frederick Wise:

Appreciate that Dan. Thanks.

Operator:

Next question comes from Larry Bison with Wells Fargo. Please go ahead.

Kenneth Stein:

Yeah. Sure, Larry. There's a lot there. Let me start right, again, reinforce to everyone. The definition of "success" is very different across a lot of the trials. And Advent, I think, has the most rigorous definition of what constitutes success, frankly, compared to any trial that's ever been done in this space, whether it's PFA or whether it's thermal ablation. And so specifically, right, ADVENT is a randomized trial and that requires patients to have success to have no arrhythmia recurrence, cannot continue taking antiarrhythmic drugs even at doses that had previously failed and cannot be reablated during the so-called three month blanking period after the index ablation. It also includes a very rigorous screening for asymptomatic arrhythmias, including three days of periodic Holter monitoring throughout the of course of the one-year follow-up in the study. I think because of that, there's really no way to make apples-to-apples comparisons across the trials. And the other thing, I'd do in terms of expectation, we'd refer everyone back to the design manuscript for the ADVENT study, which is now published online in Heart Rhythm. And this study was designed around to achieve optimal power around an assumed success rate using this definition of 65% in both the thermal and the FARAPULSE arms. And again, to remind everyone, the studies were powered for non-inferiority. And from our standpoint, then success would constitute a demonstration of non-inferiority both for safety and for efficacy.

Operator:

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

Mike Mahoney:

Yeah. We're obviously very bullish. WATCHMAN has been a pretty amazing product launch as well. Sometimes it gets drowned out in some of these would be continued momentum in that category and the growth of that market. But FARAPULSE is very exciting for us. We've been investing for quite a while post-acquisition to build up manufacturing capabilities, which is the most important thing we could do to meet the demand that we're seeing in Europe and in certain countries in Asia-Pac. So we're very pleased with that milestone. And as I commented earlier, expect to drive a number of new installs in the fourth quarter. I also mentioned just the ongoing increase in utilization. So the physicians who are using that in Europe and selected markets in Asia continue to drive more usage of it, which really is a terrific sign, very similar to what we saw with WATCHMAN throughout that progress. We also have a very strong clinical trial cadence with our persistent trial advantage, which is enrolling very quickly in other trials that we've announced as well as ongoing enhancements of the portfolio. So we have the R&D to continue to strengthen the portfolio, the clinical science studies to continue to advance it, and it's the fastest growing -- one of the fastest-growing fields along with WATCHMAN in MedTech, where we have a very low share. We know it's a very competitive market, but we feel we have many advantages with FARAPULSE and really driving the clinical data in this field and we also have the commercial infrastructure to exploit the opportunity. So we're very bullish on it, and we're looking forward to the ADVENT release.

Danielle Antalffy:

Good morning, everyone. Thanks so much for taking the question and congrats to Maulik. He was always a pleasure to work with, if you could pass along my best to him. I'd appreciate it. Thank you so much. And my question is really around just thinking about the back half of the year top line growth guidance. It does organically move higher. And I just want to make sure I understand all the puts and takes there. Obviously, back half of the year does get a little bit tougher from a comp perspective on an organic basis, but does reflect some deceleration. I want to basically understand how much of this is just prudent conservatism on your part, which you guys tend to do versus some real product driven or business driven things we need to consider when looking at the back half? Thanks so much.

Danielle Antalffy:

Great. Thanks so much, Dan.

Operator:

Our next question comes from Matt Taylor with Jefferies. Please go ahead.

Dan Brennan:

Sure. I'll start at the kind of the overall operating margin level. So if you say that we achieved the 26.4% adjusted operating margin goal for this year, the good news is there's still a long runway of margin expansion journey for us, well beyond that 26.4%. We've said publicly many times that we believe that 30% plus is a very reasonable target for the company. There's nothing structurally that prevents us from getting there. And to the extent that you have a durably, consistently growing top line, it just gives you a number of leverage opportunities to continue to grow that. So you have that kind of as a backdrop. Specific to areas of the P&L, I think the inflation piece is largely hitting gross margin. And we said that we had the $375 million of impact in '22 versus 2019 in gross margin and, in this year, it's basically stayed relatively consistent. So it's not a headwind or a tailwind versus last year, but obviously, a headwind versus that 72.4% margin that we were in 2019. So specific to your question around what happens going forward, I don't think we'll see a lot of inflationary abatement in '23. I think the guidance that we've given assumes we're kind of in -- we are where we are for the year. But as we look forward to '24 and beyond, yes, I mean, this year, the full year gross margin is -- will be kind of approaching 71% for the year. So that's a gap to where we used to be. And our goal, we're maniacally focused on getting back to that level. We do need some macro help in that, as you mentioned. So some of the elements of it, freight, we do see that getting a little better, the inflationary impact of the cost of the inputs into our manufacturing process, we see that abating over time. And then the consistency of the supply of the materials into our manufacturing process has improved. I mean, frankly, that’s improved, but it’s not back to where it used to be. So we still – it is choppier than we’d like to see it. And that does impact your ability to really run a really efficient manufacturing process. So I think ‘23 kind of, as I said, we are where we are. When you get to ‘24 and beyond, I think there is an opportunity for gross margin to continue to contribute. Frankly, I think all areas of the P&L can contribute, both areas in OpEx, SG&A and R&D, we can be more efficient. In R&D, we certainly can be more efficient overall in SG&A. And if gross margin can move north of that, approaching 71% that we have for this year, I’m excited about the opportunity for margin expansion going forward.

Dan Brennan:

Thanks, Matt.

Samantha Kurtz:

Hi. This is Sam Kurtz on for Matt. Congrats on a great quarter and for taking our question. I guess we would like to touch on the guidance again. And maybe could you tell us a little bit about where you're most excited heading into the second half of the year and where we could potentially see that upside?

Samantha Kurtz:

Thanks so much.

Matthew Miksic:

Hey. Thanks so much for taking the question and congrats on a super strong quarter. So really impressive breaking into double-digits. You are welcome. So Dan, I want to just follow up on cash flows and cash flow conversion and sort of what the puts and takes there have been in the first half? What your expectations are in the back half, and your intermediate long-term goals there? I'm sure you more about at the Analyst Meeting, but anything you can share now? And then also just on cash, if I could. You have so many things going on in that portfolio and in your our clinical programs, but I'd love to get your sort of posture on the business development front and your efforts to find and invest in additional technology and assets? Thanks.

Matthew Miksic:

Yeah, exactly. Yeah.

Matthew Miksic:

Thanks and congrats.

Operator:

Our next question comes from Marie Thibault with BTIG. Please go ahead.

Mike Mahoney:

Yes. Thank you. POLARx is doing extremely well in Japan, doing quite well in Europe as well, where we also are selling FARAPULSE, as you indicated. We do not have the constraints on POLARx from a supply standpoint. So the team has been well ahead of that. So there's no limitations there. We do anticipate approval at some point, likely in the third quarter. So we'll have the supply to meet the demand. We have the commercial team in place. And the Cryo market is quite substantial in the U.S. And certainly, doctors are very interested in FARAPULSE, but there's a number of Cryo users there. Some physicians may be looking for even longer-term data on FARAPULSE. So we do see a nice market for Cryo in the coming years. And that's an area that really hasn't seen any innovation in nearly a decade. And so we're excited about what POLARx delivers in terms of differentiating features. Physicians are anxious to try a new platform, and we had the demand to support it. So it's -- we're blessed to have both FARAPULSE coming in the U.S. and Cryo as well as our mapping system to really meet the demands of the electrophysiologists. So we're excited about launching Cryo.

Mike Mahoney:

Yeah. Thanks, Marie.

Patrick Wood:

Amazing. Thank you very much for taking the question. I'd love a little bit more detail if you could on the Endo business. Obviously, you did very well in the quarter. There's obviously a lot happening in that business overall. But maybe just giving us a sense of patient volumes relative to share pricing, like any details you can give around their single-use endoscopy, that kind of thing. I'd love any more details, if you could? Thanks.

Patrick Wood:

Really appreciate it. Thanks for the details.

Vijay Kumar:

Hey, guys. Thanks for taking my question. Maybe my first one here, you look at 2023 double-digit organic, that's a pretty big number. Should we worry about comps? When you look at the outlook here, can you just remind us, the plus and minuses from a product perspective, what could be tailwinds, headwinds in fiscal '24?

Vijay Kumar:

Understood. That's helpful commentary. Dan, on the margin question, any one-offs that we should be aware of when we think of fiscal '24? Anything on FX, kind of VVP (ph), anything that's outside the normal operating leverage at Boston and Delaware that we should be thinking about?

Vijay Kumar:

Understood. Thanks, guys. Congrats on the [indiscernible].

Operator:

Our last question comes from Jayson Bedford with Raymond James. Please go ahead.

Mike Mahoney:

You've seen others report. So the markets are healthy. There's -- we had a bit tougher comps than some of the others in the second quarter. So we're proud of the growth we had in the second quarter. And we had maybe a bit less easier comp. So the -- we'll further redefine what we think the markets are growing in the future. We call it maybe the -- we would have said 6% to 7%-ish range for our served market growth and maybe that's a bit higher this year. But we still believe that in most of our business units, we're growing faster than our peer group, which is what we're paid to do. So it's a healthy market. And whenever we have a very close pulse with our customers and the hospitals that have -- the big hospital systems who have already announced earnings, they have very healthy demand, but we see an ongoing patient backlog for lack of a -- patient wait time. So we don't see the current demand abating. Oftentimes, you'll see a bit of a slowdown in some of the vacation months in August and so forth, which is very routine. But we do anticipate continued support from strong procedure volume in the coming years. We don't see that really abating.

Lauren Tengler:

Thank you for joining us today. 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, Kyle will give you all of the pertinent details for the replay.

A - Lauren Tengler:

Thank you, Jamie. 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 Q1 2023 results, which included 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 of our website under the heading Financials & Filings.

Mike Mahoney:

Thanks, Lauren, and thank you to everyone for joining us today. Our first quarter performance exceeded our expectations across all business units and regions, which is a testament to the winning spirit of our global team and their relentless focus on innovation and execution and we also launched more than 70 new products globally in 2022. In first quarter 2023, total company operational sales grew 15% versus 2022, while organic sales grew 14%, exceeding the high end of our guidance range of 6% to 8%. We believe that all business units grew faster than the respective markets with differentiated portfolios and a strong commercial execution, supported by healthy procedural demand. First quarter adjusted EPS of $0.47 grew 19% versus 2022, exceeding the high end of the guidance range of $0.42 to $0.44. First quarter adjusted operating margin was 25.5%, which is in line with expectations. Now for our 2023 guidance, for second quarter 2023 organic revenue were guiding to growth of 7% to 9% and full year organic growth of 8% to 10%. Our second quarter 2023 adjusted EPS estimate is $0.48 to $0.50, and we're guiding to a full year adjusted EPS range of $1.90 to $1.96. I'll now provide additional highlights on first quarter along with comments on our 2023 outlook, and Dan will provide more details on the financials. Regionally on an operational basis, the U.S. grew 13% versus first quarter 2022, inclusive of 140 basis point tailwind from the Baylis acquisition with notable organic strength across all our business units. Europe, Middle East and Africa grew 20% on an operational basis versus first quarter 2022 with nearly every market growing double digits in the quarter. This strong above market growth is driven by our diverse portfolio, new launches and commercial execution with healthy underlying market demand. We remain excited about the year ahead and expect to continue to outpace our peers within the EMEA market. Asia Pack grew 15% operationally versus first quarter 2022 with broad based strength across all major markets and business units. Within the quarter, we're pleased to have received health sciences authority approval for FARAPULSE in Singapore. Expanding access of this innovative new technology to more patients. In Japan, first quarter growth was fueled by the launch of AGENT Drug-Coated Balloon, a differentiated coronary drug coated balloon for in stent restonosis and small vessels with physicians pleased with ease of use and balloon deliverability. China also grew double digit in first quarter ahead of our expectations with solid procedural demand as hospitals work through COVID delayed procedures. Our diverse portfolio in China, commercial execution and supply chain management within the country supported the strong performance in the quarter. In February, we also closed our majority stake investment in Acotec, further expanding our presence in the market and we continue to expect double digit growth in China for the full year. I'll now provide some comments on our business units. Urology sales grew 16% organically. All four franchises grew double digits in the quarter with strength in key products including LithoVue and Rezum. In the U.S., we received FDA clearance and initiated a limited market release for LithoVue Elite, which is a single use flexible ureteroscope, which incorporates an innovative pressure sensing capability that will enable physicians to monitor intrarenal pressure during stone removal procedures. Endoscopy sales for the quarter grew 11% organically versus first quarter 2022 with broad based strength across all regions and franchises, our single-use imaging franchise grew double digits, so we're pleased to have recently launched our third generation EXALT D with improved ergonomic design updates to improve the physician experience. In April, we closed the Apollo Endosurgery acquisition, which furthers our category leadership strategy within the important area of endoluminal surgery. With differentiated technologies like OverStitch and xTAC, along with an entry into the adjacent endobariatric market. Neuromodulation sales grew 14% organically versus first quarter 2022. Our pain business grew high single digits in the quarter with strong SCS performance driven by our innovative Alpha portfolio with fast therapy in our cognitive suite of digital tools supporting patient activation. Our Brain franchise grew double digits in the quarter, driven by new product launches including [GuideXT] (ph), which was developed in collaboration with Brain Lab. This revolutionary software provides implanting and managing clinicians the ability to model the effect of a patient simulation ahead of actual programming, which will improve procedural efficiency. In the quarter, peripheral interventions also grew 12% organically versus first quarter 2022. Our Arterial franchise grew double digits, led by a drug-eluting portfolio, establishing clear leadership in SFA drug- elution further supported by our differentiated Eluvia long length DES. Our venous franchise growth was driven by ongoing above market performance in Varithena. And within the quarter, we launched EKOS Plus in the U.S. which provides more ultrasound power to resolve clot burden more quickly and completely. Our interventional oncology franchise grew double digits with strength across the entire portfolio. We look forward to initiating our limited market release in second quarter for Obsidio, the first conformable embolic indication for the peripheral vasculature. Cardiology delivered another excellent quarter with operational sales growing 17% and organic sales growing 15% versus first quarter 2022. Within cardiology, interventional cardiology therapies sales grew 13%. Our coronary therapies franchise grew low double digits in first quarter, led by strong performance within our imaging portfolio with particular strength in the U.S. with the ongoing launch of the [indiscernible] guidance system. Our structural heart valves franchise continues to grow strong double digits and we're pleased to have completed enrollment on our ACURATE IDE trial and continue to expect to launch ACURATE neo2 within the U.S. in the second half of 2024. WATCHMAN sales grew 29% organically versus first quarter 2022. Demand remains very strong for WATCHMAN FLX and we now have treated more than 300,000 patients globally since launch. We are proud of our performance to date and we continue to invest for future through product innovation, solutions and clinical evidence. Last week, the Population Health Research Institute announced the IDE approval of [indiscernible], which is a collaborative research study with Boston Scientific that will continue to expand our LAAC clinical evidence. This trial is expected to start in mid-2023 and will complement the existing CHAMPION-AF and option trials. Cardiac Rhythm Management sales grew 8% organically versus first quarter 2022. Our diagnostics franchise grew strong double digits in the quarter, with continued momentum across the portfolio. In core CRM, both our high voltage and low voltage businesses grew mid-single digits and we believe that all major markets were in line or slightly above market growth. We do expect our core CRM growth to taper closer to market growth for the remainder of 2023 as replacement tailwinds neutralize. Electrophysiology sales grew 54% operationally and 31% organically versus first quarter 2022. Our international EP business grew 40% and importantly the EMEA region grew our EP business 57%, driven by strong adoption of FARAPULSE and POLARx. We continue to invest in the expansion of our portfolio and received approval in Japan, Canada and Europe for [POLAR Fit] (ph) which is an expandable balloon catheter capable of creating 28 and 31 millimeter sizes, providing procedural adaptability and efficiency. And just last week, one year outcomes data from the MANIFEST-PF registry were presented as a late breaker at EHRA. This is the first large real world dataset on a novel ablation technology, which demonstrated real world safety, efficacy and efficiency of the FARAPULSE PFA system. The data also reinforced the minimal learning curve and reproducibility of the FARAPULSE workflow in everyday commercial use. We continue to advance our clinical evidence within this space and initiate enrollment in our ADVANTAGE AF trial which is studying the use of FARAPULSE for patients with persistent atrial fibrillation. We also look forward to the readout of our ADVENT U.S. IDE randomized controlled trial in the second half of this year and continue to expect the approval in the U.S. in 2024. We're also very pleased with the performance of our Access Solutions franchise franchise, which grew strong double digits in first quarter, driven by further penetration into transseptal crossing procedures. Last week, we released our 2022 performance report outlining our environmental, social and governance results. We are pleased with the progress our global teams have made to advance sustainable innovation, while contributing to a healthier planet. Addressing inequities and supporting communities around the world. We have much more to do and our values based culture will serve us well as we continue to transform lives and hold ourselves accountable to our commitment. We are confident the year ahead will bring many more exciting milestones across each of our business units and we remain committed to our financial goals of consistently growing faster than our underlying markets and our peer group, expanding operating margins and delivering double digit adjusted EPS growth with strong free cash flow generation. We also look forward to hosting our Hybrid Investor Day event on September 20. With that, I'll pass it off to Dan to provide more details on the financials.

A - Lauren Tengler:

Thanks, Dan. Jamie, let's open it up to questions for the next 35 minutes or so. In order for us to take as many questions as possible, please try and limit yourself to one question. Jamie, please go ahead.

Robbie Marcus :

Great. Good morning. And congrats on a great quarter here.

Dan Brennan:

Thanks, Robbie.

Mike Mahoney:

Sure, Robbie. Thanks for the question. The second one is easier for me and then I'll do the first one. On the second one on M&A, as you know, we've been consistent over the years. As a matter of practice, we never comment on rumors or speculation in the marketplace. On the first question, really proud just of the global performance really across the board. If you look at on the regional side, as I mentioned in the script there, U.S. grew 13%. I think it's really important to note that Europe grew 20%, and Asia Pac grew 15%. So it wasn't one region or one business. It really was across the board performance. And it's encouraging in Europe, in particular, where we have an impressive product line in our EP portfolio and in our TAVI portfolio that's not launched yet in the U.S., which I think is a good signal for the future, as you'll hear about more in Investor Day. As well as in Japan, where we have our POLARx product approved in Japan, but not approved in the U.S. So the fact that the U.S. put up a double-digit number, albeit on some softer comps, as you said, given the COVID impact. The European and Asia Pac performance is really impressive, and LatAm. And those products -- many of those products are not yet approved in the U.S. So, overall, really pleased. You saw almost every business unit grew double digits. But I think, more importantly, and not all of our competitors have reported yet, but we'd be surprised if we didn't exceed the peer group across each one of our businesses. So the execution of the team is very -- quite strong. And also, I would say the -- clearly some underlying market improvement in first quarter. You saw the public hospitals report, good patient volume, particularly good outpatient volume, which is a good indicator for Boston Scientific, given our portfolio. Nursing shortage is still of challenge for sure, but has improved and the hospitals being very efficient. So the underlying backdrop for procedure volume demand has improved and is strong and our portfolio really meets the moment around the world. So, we're really pleased with the overall performance.

Robbie Marcus :

Great. Thanks for the thoughts.

Operator:

Our next question comes from Joanne Wuensch from Citi. Please go ahead with your question.

Mike Mahoney:

Sure. On the first one, Joanne, we could give you a perfect scientific response to your question on the overall market. I would say, it's a healthy market for all the factors that you just indicated. There are some easier comps. Our comp for Q1 was -- it was [97] (ph), but that was based on COVID impacted 2021. So maybe the comps are a little bit easier, but clearly, the procedure volume is stronger, as I mentioned, with the hospitals that have reported. The outpatient momentum is quite strong, which fits our portfolio. And we've got a very strong portfolio cadence across the world right now. So, I think it's really all those things that contribute to a very strong first quarter and the increase in the guide that we gave for the full year. We typically have said previously that the markets that we serve grow kind of plus 6% in that range. Clearly, the market grew faster than that in the first quarter. But we're not quite ready to call this exceptionally strong market growth for the full year. We think that would be premature to do that and not responsible. So that's why we gave the guidance that we did of the 8% to 10% full year, because we do see strong underlying market demand, but it may not be quite as strong as we saw in the first quarter, and we'll see as the year goes on. On FARAPULSE, I was at that EHR meeting in Europe just last week, and the enthusiasm for FARAPULSE is very unique, I would say. The MANIFEST data was excellent. And Dr. Stein is here. Can you remind us when the -- when do we expect the trial to read out.

Joanne Wuensch:

And would you expect it to ramp similarly to what you're seeing outside the United States?

Lauren Tengler:

Yes, sales ramp similar in U.S. versus...

Lauren Tengler:

Yes.

Lauren Tengler:

Organically, all EP.

Joanne Wuensch:

Thank you so much.

Frederick Wise:

Hi. Good morning to you both and good morning to everybody. Mike, just looking ahead to the September 20 Analyst Day, Boston's excellent CFO recently spoken public, I think, March 1 at my friend Joanne event and said that he is excited for the next chapter for the company for 2023 and then for 2024, 2025 and 2026. And I think he said, Boston has the opportunity to have a special chapter for the company. I'm just wondering what do you think, Dan, meant? And what is a special chapter? And does that possibly suggest more willingness, given that everything is happening fundamentally and with the product portfolio to commit to a sustained higher growth rate guidance for the next LRP?

Frederick Wise:

And let me sneak in one quick follow-up on FARAPULSE. I know that you've been supply constrained on FARAPULSE generators. Is that situation improving? Will it be resolved by the time you hopefully get U.S. approval? Any update on that situation? Thank you.

Frederick Wise:

Thank you so much.

Larry Biegelsen:

Good morning. Congrats on a great start to the year here, guys. So one for Dr. Stein, one for Mike. So Dr. Stein, FARAPULSE is a single-shot technology with PFA energy, but companies are developing large vocal catheters and dual energy sources. How are you thinking about the evolution of FARAPULSE beyond its current geometry and energy source? And Mike, we all completely understand you won't comment on rumors, but there are interesting assets in medtech that would push you to over 4.5 times leverage or require the use of equity because of relatively large deals. Are those options on the table? And just remind us of how you think about ROIC? Thank you.

Mike Mahoney:

I’ll take the second one [Multiple Speakers] As a matter of practice, Larry, we don't comment on rumors or speculation. I will comment on -- we did comment on the closing of Apollo in the quarter, which is really going to be a nice asset for us endoscopy, expand our endoluminal presence and a nice continued focus on category leadership. So we -- at our venture portfolio, we've signed the Acotec -- or closed the Acotec deal this year, we had closed the Apollo deal. But like we always said, any future deal speculation as a matter of practice, we don't coming on.

Larry Biegelsen:

Got it. Thank you very much.

Travis Steed:

Hi. Thanks for taking the question. I guess high level, maybe you could just refresh us on your overall capital allocation priorities and start there. And then a quick question on the guidance. Revenue growth, obviously, moved up quite a bit, but earnings didn't move up quite as much. So I just want to make sure I'm not missing something on the EPS side given that margins are staying the same.

Travis Steed:

Great. Thanks a lot.

Vijay Kumar:

Hi, guys. Congrats on the print and thanks for taking my question. I had a two-part, one on product and one on capital allocation. On the product side, PFA, Mike, did I hear you correctly on the prior question on FARAPULSE. Can you do point-by-point ablation at this point? I thought it was a single shot catheter, but I would be curious to know if you have -- if it can do point-by-point ablation and are you gaining share in the RF side as well in the current market? And then on the capital allocation side, I know you're not going to comment on market speculation. So this is not related to market speculation, but can you just remind us, in current interest rate environment, what kind of leverage levels would Boston be comfortable with? And if Boston deems a deal as strategic, would you be okay doing an earnings dilutive deal?

Dan Brennan:

And then relative to your specific question on leverage. I'd say. it's been a focused and intentional journey for us to get back to BBB+ with all three rating agencies that rate us. And very comfortable there, obviously, committed to investment grade and comfortable at that BBB+ rating.

Dan Brennan:

I wouldn't comment on specific dilution and this and that. I think, from our perspective, relative to the M&A environment. We're committed to looking at deals that are high growth and tuck-in acquisitions as we've done.

Operator:

And our next question comes from Danielle Antalffy from UBS. Please go ahead with your question.

Ken Stein:

Yes. Sure, Danielle. I guess I'll take that first one, and we'll see on the follow-up. I mean, the easy answer to what your question was, is yes. We do see FARAPULSE accelerating adoption of AF ablation. AF, right, is the most common sustained arrhythmia that's seen globally. In fact, ablation today for current indications is still very much underpenetrated. It's underpenetrated for a couple of reasons, right? And one is, safety concerns around the procedure. One is, just the skill level and the relative inefficiency of AF ablations today using thermal energy. So I think, first of all, with the FARAPULSE system with FARAWAVE and again, the safety the efficacy and the procedural efficiency, I think it's going to pull more people in who are currently indicated. And then also believe that there's a real opportunity to drive further use of this, the patients with persistent atrial fibrillation, where frankly, conventional thermal ablation results are marginal at best. And it's one of the reasons we're so excited about the ADVANTAGE trial that we recently began enrollment in the United States, which is aimed to getting approval and indication for FARAWAVE for persistent atrial fibrillation as well as paroxysmal atrial fibrillation.

Mike Mahoney:

Sure. I would say we call the market 25%-ish growth. So very, very strong as it continues to get more and more scale. I think it's important to note that we believe our share is maintained at least flat, if not actually increased over the past six months. So our teams in the U.S. have done a very, very excellent job commercially with the WATCHMAN FLX product. So we continue to see this to be a plus 20%, 25% market grower for a number of years here. And then we have these very groundbreaking trials with [Option] (ph), with CHAMPION, and we just highlighted LOUS 4, which will follow those. So we're very committed to the market developments of this category and expanding the indication over time through these clinical trials, assuming that they're positive. And I think just as importantly, we look to continue that momentum with our product cadence. We have a differentiated steerable sheath that will be approved in the coming nine months. And then our third generation WATCHMAN product, which we will be launching kind of around this time next year or first quarter next year. So we've got the portfolio and the clinical work to continue to expand the market, and the team is doing an excellent job globally.

Operator:

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

Mike Mahoney:

Sure. In the first quarter, we did see an improvement out of that global business. The overall business grew 14%, led by our deep brain simulation business that had a terrific quarter. And Spinal Cord trended fine, about 9%. So in the quarter, there definitely was some improvement in staffing, which likely helped the entire market and the Neuromod business. And as we said, there are some slightly favorable comps as well in the quarter comparing to the 2021 COVID year. But overall, we expect that business and the pain size to grow above market and the brain side, DBS, significantly above market. And we're very excited about this new [indiscernible] capability. The one challenge with that deep brain stimulation, it's an excellent procedure, but it's -- it takes quite a bit of time and a lot of coordination between neurologists, implanting physicians the, patient. And we believe this software enhancement will continue to improve the productivity and cycle time for patients. So overall, I think it's too early to call what we think the market will be for spinal cord stim for the full year. We still would say maybe mid-single digits, kind of 5%, 6% is where we would land if you force us to give you a number now.

Mike Mahoney:

Yes. China catches up to everything quickly. So there was an impact early in the quarter with COVID procedures, and they clogged that back very quickly in the second half of the quarter. So we do expect double-digit growth in China despite some of the pricing pressure consistent with previous years, really based on the strength of the overall portfolio there and continuing to expand our capabilities. We're excited about this Acotec agreements where we own 60% of Acotec, which is a local China company that's the leader in drug-coated balloons in the region, as well as many other peripheral and potentially cardiology procedures. So we think that strategic alliance will also help us and help them and we continue to expect double-digit growth in China. And WATCHMAN, I have the exact numbers. Doing fine in China and we can provide more details in the future. But FLX is approved, I believe isn't it?

Cecilia Furlong:

Thanks for taking the questions.

Operator:

Our next question comes from Matt Taylor from Jefferies. Please go ahead with your question.

Mike Mahoney:

Well, I would say, again, we're super proud of the quarter we exceeded, we believe, the peer group and did well across every region. I won't go through everyone. We do think there are -- despite it being a 9.7% comp, again, it's off of a lighter 2021. So we do think there is some comp benefit there despite it showing a 9.7% if you look at the number. But that doesn't take away from the excellent performance in the quarter overall as you compare to our peers. So I just think it would be not prudent for us to assume the same market growth for the remainder of the year when traditionally, this has been a, call it, 6.5% markets that we serve in. And over time, you're going to see that served market growth continue to expand like we have every couple of years based on our portfolio. So to say that the market's kind of jumped from 6% to 10% over the last six months probably isn't feasible. So we think that the markets are healthy. We still think the market's growth is kind of 6% to 7% where we serve. And those will hopefully increase over time as our strategy continues to play out, but it's too soon to call the first quarter performance for the market lapping every quarter.

Dan Brennan:

I would attend our Investor Day. We'll give you a sense then [indiscernible] LRP is for 2024, 2025 and 2026. We'll see how this year plays out over the next few quarters. But I would imagine, as we have at prior Investor Days, we'll give you a good sense there about what we think the next three years look like.

Dan Brennan:

All right. Thanks, Matt.

Matthew Miksic:

Great. Thanks so much. So a question for Dan. And then just a couple of follow-ups on some of the product lines here we haven't yet talked about so much on the call. So for Dan, free cash flow conversion. Could you talk maybe a little bit about where you're at now? Where you want to be? And what some of the challenges are currently, supply chain or whatever else has been more challenging? And how you're kind of tackling those? And as I mentioned, I just have one other follow-up.

Matthew Miksic:

Great. Thanks. And then maybe a follow-up for Mike. So Interventional Oncology, we talk to clinicians that business just seems to be growing at very healthy kind of rates in these centers. So just any quick color or comment on what Obsidio could mean to that business? And then similarly, [stone] (ph) management, very strong. Maybe if you could talk a little bit about how the [Luminous] (ph) acquisition is kind of dovetailing there and what the impact of this new single-use scope could be the LithoVue Elite? Thanks

Matthew Miksic:

Thanks for that.

Christopher Pasquale:

Thanks for fitting me in. And sorry, Mike, but I'm going to go back to FARAPULSE real quick here to finish up. Just I want to ask a couple of follow-ups on the MANIFEST study. First, do you think 80% efficacy in paroxysmal patients is a realistic goal for ADVENT? Or should we keep in mind any important differences and endpoints or trial design? And then second, I was struck by the relatively low use of mapping in Europe today. How important do you think Rhythmia integration is to the long-term outlook of FARAPULSE? And how are you thinking about the regulatory pathway and timing to achieve that?

Lauren Tengler:

Thank you, Dr. Stein, and thank you for joining us today. We appreciate your interest in Boston Scientific. If we are unable to get to your question or if you have any follow-up, please don't hesitate to reach out the Investor Relations team. Before you disconnect, Jamie will give you all of the pertinent details for the replay.

Operator:

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

Mike Mahoney :

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 all of our business units gained or maintained market share throughout the year. In fourth quarter '22, total company operational sales grew 9% and organic sales grew 7% versus fourth quarter '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. And 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 minus 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 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 and 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. And despite the ongoing macroeconomic pressures and supply chain headwinds, 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 '23 outlook. I'll now provide some additional highlights on '22 results along with comments on our '23 outlook. 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 opportunity 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 impact 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 global position -- I'm sorry, the number one position within SFA in the U.S. On a full year basis, our venous franchise was flat versus 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, frontier the image of -- safety of image-guided intra-arterial delivery of TheraSphere GBM in patients with the reoccurring 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 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 the 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 has now been treated to treat over patients since launch. Momentum in FARAPULSE continues with another strong quarter of growth in Europe. And 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 these therapods patients with persistent AFib imminently. We've been very pleased with the performance of our Baylis acquisition and the innovative platform, which grew 2 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. And 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 a 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.

Lauren Tengler:

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.

Rick Wise:

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 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.

Dan Brennan:

And then relative to the macroeconomic environment, Rick, the -- we kind of reiterated that 375 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, and which is the reason that we've been giving the updates at the level of specs 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 at a detailed level to try and understand what 2023 could bring. There are some elements that look better, right? Freight does work better. 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, prudent to assume a similar headwind to what we saw last year.

Operator:

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

Mike Mahoney :

Sure. Yes, our EP business in the quarter grew 25% and it grew 40 or 50, I think...

Mike Mahoney :

40% 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. And 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. 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 hopeful to have approval for that second half of '23 in the U.S. here. 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. But 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. And if we can get some -- the approval of the cryo platform in the second half, the U.S. will perform quite well as well. And then 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?

Robbie Marcus :

Great. Thanks. And maybe just a quick follow-up. China has been an important growth driver for Boston Scientific, grew 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 first quarter? And what's your expectation for the year going forward? Thanks.

Operator:

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

Ken Stein :

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 actually 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 validating a dosing strategy with ReMAP studies 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, gives us a high degree of confidence in where we're going, right? So, MANIFEST is a registry study of the earliest commercial cases following our CE Mark approval in Europe. So, 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. And really what those data show really proves the advantages of using a system like FARAPULSE. Certainly, 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, now sort of routinely seeing these cases being done on the order of 30 minutes. And that kind of procedural efficiency is, it's good for the system as a whole, right? There are a lot of patients who need to be treated dealing with staffing issues, et cetera, et cetera. Anything we can do an increased throughput is good. It's good for patients, though, too. The less time you're undergoing a procedure, the less number of things that can go wrong, honestly. And so basically, to some, right, 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 what you see with thermal ablation and a really efficient procedure, which benefits physicians, hospitals and patients.

Operator:

The next question comes from Joanne Wuensch with Citibank. Please go ahead.

Mike Mahoney:

Great, Mike here. Thanks for asking the endo, uro. You didn't asked 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 words, 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 underpenetrated. But now with all the investments that we've made, commercial and through R&D and through acquisitions is strengthening our outside the U.S. business in urology extensively. And 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. And so urology continues to do quite well, and we expect similar results over the next few years here. And 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?

Operator:

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

Dan Brennan:

Yes, sure. On the share count, just to take that clean up quickly and then Mike can take your revenue question. It's just a simple math 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 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?

Dan Brennan:

Yes. So I mean the takeaway should be neutral EPS impact from share count related to the mandatory preferred conversion this year.

Vijay Kumar:

That’s helpful. Thanks guys.

Travis Steed:

Hi, good morning, everybody. And thanks for taking my question. I guess I'll ask a question on the Italy impact. Just curious why we're only hearing about this from Boston. I don't know if maybe it's -- you're taking a more conservative approach in taking a reserve. And it seems like a big number. I know it seems like Italy wouldn't be that big of a country, so maybe just calculated on more than a year of sales. And I just want to confirm no impact on 2023? And then I'll ask my follow-up now as well, which is on op margins. I think you mentioned gross margin first half higher, lower in the second half on currency. And I just want to make sure there's any puts and takes to consider on the op margin side first half versus second half? Thank you.

Mike Mahoney:

He also mentioned do you see an issue in '23 with more reserves?

Travis Steed:

Yes. Thank you.

Cecilia Furlong:

Good morning. And 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 time lines at this point in the U.S.?

Cecilia Furlong:

Great. Thank you for taking the question.

JoshJennings:

Hi, good morning. Thanks for taking the question. I was hoping to start off with just your Apollo acquisition and get you into the diabetes -- sorry, not diabetes, the obesity segment. And 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. And I think three of 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's plan to generate clinical evidence for that indication going forward? Thanks a lot.

Unidentified Company Speaker :

And then on Neuromod, I asked about SOLIS.

Unidentified Company Speaker :

And 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?

Operator:

Good morning and welcome to the Boston Scientific Third Quarter 2022 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Lauren Tengler, Vice President, Investor Relations. Please go ahead.

Mike Mahoney:

Thanks, Lauren, and thank you, everyone, for joining us here today. We're very proud of our performance in the third quarter, particularly in light of the ongoing macroeconomic and supply chain headwinds. Our performance continues to be supported by the strength and diversification of our innovative portfolio and the winning spirit of our global team. Third quarter 2022 total company operational sales grew 14% versus prior year and organic sales grew 11.5%, which does exceed the high end of our guidance range of 8% to 10%. This performance is a testament to our category leadership strategy and focus on innovation with strong commercial execution. Six of eight of our business units grew double-digits organically and we believe that nearly all of our businesses and regions grew faster than their respective markets. Third quarter adjusted EPS of $0.43 grew 6.3% versus prior year at the low end of our guidance range of $0.43 to $0.45, attributable to increased FX headwinds and slightly higher spend within the quarter. We have grown 9.2% organically year-to-date through third quarter. And in light of this performance, we are increasing our full year 2022 guidance for operational growth to approximately 11.5% and organic growth to approximately 9%. For fourth quarter 2022 revenue, we're guiding to operational growth of 8.5% to 10.5% and organic growth of 7% to 9%. We're also updating our full year 2022 adjusted EPS guidance to $1.71 to $1.74, primarily related to the ongoing headwind from foreign exchange. Our fourth quarter 2022 adjusted EPS estimate is $0.45 to $0.48. Throughout 2022, we have maintained our goal to improve operating margins. While our goal remains, we feel it's prudent to provide an updated adjusted operating margin target of approximately 26% considering the continued macroeconomic pressures. On a full year basis, this does represent approximately 70 basis points of margin expansion versus our 2021 rate of 25.3%. I'll now provide additional third quarter highlights along with some comments on future outlook. Regionally, the US delivered operational growth of 12% versus prior year. Strong growth was realized across most all of our business units, particularly cardiovascular and endoscopy, and included an approximate 300 basis point tailwind from acquisitions. Middle East -- I'm sorry, Europe, Middle East, and Africa grew 15% on an operational basis versus prior year. We continue to see excellent execution fueled by our innovative portfolio with seven of the eight business units growing double-digits. Sales growth accelerated within our growth in emerging market countries within Europe, with notable strength across cardiology and peripheral interventions. In Asia-Pac, we grew 15% operationally with strong growth in China, India, and ASEAN countries. While our Japan results saw some impact from COVID within the quarter, we continue to see strength driven by new products, including POLARx, WATCHMAN, FLX and Rezum. Our team in China delivered excellent results in the third quarter with growth of 36%. Growth is primarily driven by our ICTx business within cardiovascular, PI and our CRM business units, supported by new and ongoing product launches across the portfolio. Turning to Latin America. The team executed another exceptional quarter, growing 29% operationally. All business units in major markets grew double-digits in the third quarter and across the portfolio. More than 10 new products were launched enabled by remote training and support. I'll now provide some thoughts on our business units, starting with Urology and Public Health, which grew organic sales 13% and 16% on an operational basis. The stone management, prosthetic urology, and prostate health franchises all grew double-digits in the third quarter, with balanced performance across the regions. We continue to focus on global expansion and are pleased to have received approval and commenced the launches of SpaceOAR in both Korea and Mexico and Rezum in Japan. Our Lumenis acquisition did turn organic in September and we remain excited about the global opportunity ahead with the Moses Laser Technology, LithoVue Single-Use Flexible Ureteroscopes, and our broad portfolio of stone management products. In Endoscopy, sales grew 10% organically. This category-leading business continues to focus on product innovations, enhanced by best-in-class physician education and training. Growth in the quarter was driven by our biliary and single-use imaging franchises with ongoing market development activities, enabling increased utilization of EXALT-D and other key products. In Neuromodulation, organic revenue grew 3%. Our pain franchise sales were flat year-over-year, below our expectations, with ongoing reimbursement challenges impacting US procedures for both Vertiflex and Spinal Cord Stimulation. In SCS, while international growth was very strong, with broad demand for WaveWriter Alpha, our US SCS sales were impacted by preauthorization denials despite strong patient demand and ongoing physician interest in our fast therapy. We have a team in place focused on supporting the preauthorization documentation requirements. However, we do anticipate that challenges will continue to persist in the fourth quarter. In Deep Brain Stimulation, the US, EMEA and LatAm regions grew double digits in the third quarter. Globally, we're seeing stable underlying DBS procedure growth, and we continue to see momentum in the US as we moved into full launch of our STIMVIEW XT integrated imaging and programming platforms. Cardiology delivered another excellent quarter, with organic sales growing 13% and operational sales growing 16%. Within cardiology, interventional cardiology therapies, organic sales grew 11%. This coronary therapies franchise performed well in third quarter, driven by strong performance in our international regions, particularly with our differentiated imaging franchise. Importantly, we recently completed enrollment in our AGENT IDE trial. This is the very first US trial for a coronary drug-coated balloon to treat in-stent restenosis. And we expect to launch in Japan in 2023, in the US in 2024. Our structural heart valves franchise did grow double digits in the third quarter again, with continued strength in Europe with our ACURATE neo2 TAVR platform. Additionally, results from the PROTECTED TAVR trial were presented as a late breaker at TCT. Recall the PROTECTED TAVR trial studied our cerebral embolic protection device, SENTINEL, with TAVR versus unprotected TAVR. With a reduction in the primary endpoint of overall stroke -- while the reduction in the primary endpoint of overall stroke did not reach statistical significance, a secondary analysis demonstrated a clinically meaningful 63% relative risk reduction in severe disabling stroke. Turning to WATCHMAN. Organic sales grew 26% in third quarter. Global growth continues to be very strong, further supported by the US FDA approval of an expanded label to include DAPT, giving physicians and patients choice of DAPT or OAC in the first 45 days post implant. We continue to focus on innovation in this space, with a Trusteer, which is our new steerable sheath and we also highlighted our next-generation FLX device, WATCHMAN FLX PRO at our TCT investor event in September. We expect FLX PRO to build on our second-generation FLX with additional sizes in the device coding designed to enhance healing. In Cardiac Rhythm Management, organic sales grew 7% versus prior year. We had another strong quarter of performance, as we continue to focus on lifetime patient management from diagnostics to implant with our broad portfolio. Within core CRM, our low-voltage franchise grew mid-single digits and high-voltage grew low single digits. Our diagnostics franchise continues to perform very well. We're pleased to have received CE Mark for our implantable cardiac monitor, LUX-Dx, and we have commenced our commercial launch. Electrophysiology sales grew 26% on an organic basis and 83% on an operational basis. We continue to see strength in our comprehensive international portfolio, which grew 45% organically. And this includes two months of contribution from FARAPULSE. Physician demand for POLARx in Japan and FARAPULSE and POLARx in Europe remains very strong, and we continue to see increased utilization at existing centers, while we are expanding into new accounts. In addition, we're pleased to have launched FARAPULSE in Australia and Singapore under special access, and we anticipate approval in 2023. The Baylis integration continues to go well with the differentiated Transseptal access portfolio growing double-digits in the quarter and remains on track to achieve our full year expectations. In Peripheral Interventions, organic sales grew 12% with broad growth across all major franchises and regions. In Arterial, our differentiated drug-eluting portfolio grew double-digits in the quarter and we received FDA approval for a line extension of ELUVIA and commenced launch of the longest length of drug eluting stent for peripheral arterial disease in the US. The Interventional Oncology business had another very strong quarter with great growth and continued strength in our cancer therapies, ICX and TheraSphere. We're pleased to have closed on the acquisition of Obsidio and the gel embolic material technology. Obsidio is the first gel embolic with an indication for the peripheral vasculature and a complementary addition to our portfolio. We look forward to launching this technology within the US in 2023. In alignment with our overall commitment to progress our environment, social and governance efforts, the PI division announced collaboration with a healthcare data platform, TruVida, aiming to provide insights to help better address healthcare disparities within various PI disease states. We remain committed to driving sustainable innovation to Boston Scientific. And despite the persistent macroeconomic pressures, we continue to invest for the long-term in R&D, execute strategic tuck-in M&A with a focus on improving patient outcomes today and into the future. We're also excited about the opportunities ahead and remain focused on our long-term financial goals, continuing to grow sales faster than the markets, operating margin expansion, double-digit adjusted EPS growth and strong adjusted free cash flow generation. Before I turn it over to Dan, I do want to take a moment to share that our Chief Medical Officer, Dr. Ian Meredith, will be retiring in April of 2023. We're extremely grateful for his strong contributions, particularly as dedication to patients, clinical science and meaningful innovation. And it's a great sense of humor. With that, I'll now turn things over to Dan to review our financial performance in more detail.

Lauren Tengler:

Thank you, Dan. Andrew, let's open it up to questions for the next 35 minutes or so. [Operator Instructions] Andrew, please go ahead.

Robbie Marcus:

Great. Thanks for taking the question and congrats on a great top line quarter. I'll also add congratulations to Dr. Meredith on a very well-deserved retirement. Maybe for my question, it really was a strong top line, double digits organic. Fourth quarter continues to look good in guidance. I think the one area where we've seen a little pressure is on margins. So, Dan, I was hoping you might be able to give us an early look into next year, how elevated is the spending. There's a lot of moving pieces with OpEx and currency and the share count. Do you think the Street's generally in a decent spot for next year with returning to more normalized margin expansion, or do you think it's still going to be a pressured year in 2023? Thanks.

Robbie Marcus:

Great. Appreciate the color. Thanks.

Larry Biegelsen:

Good morning. Thanks for taking the question. I just wanted to ask about Neuromodulation. Mike, could you talk a little bit more about the reimbursement challenges there? What channels are you seeing that in? And it seems like all your businesses are consistently growing around the corporate growth rate except Neuromodulation. So what's the plan to accelerate the growth in that business? And let me just also extend my congratulations to Dr. Meredith, and I wholeheartedly agree with your comments earlier, especially about his sense of humor. Thanks for taking the questions.

Larry Biegelsen:

Thank you so much.

Joanne Wuensch:

Sorry, Thank you very much for taking the questions. Can we spend a little bit of time on WATCHMAN franchise? You've had over the last 12 months, increased competition but an improved label and sort of broader geographic reach. Can you pick apart how those segments are going or how those headwinds and maybe not headwinds are impacting the franchise? Thanks.

Joanne Wuensch:

Thank you very much.

Vijay Kumar:

Hey guys. Thanks for taking my question. Dan, maybe 1 for you on the financial side here. I think the 26% operating margin for the year, that would imply Q4, the pretty steep ramp in Q4. Are we thinking about margins the right way? And when you think about those margins, what should FX impact be for next year at current rates? Anything to think about balance sheet inventories, which have been capitalized that flowing through the P&L for next year, any impact for 2022? Thank you.

Vijay Kumar:

I meant the inventory impact for 2023, sorry. Not 2022.

Vijay Kumar:

Thanks guys.

Operator:

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

Dan Brennan:

Yes, on the double-digit earnings per share, that's always been our growth goal, and we've achieved that many years. The issue this year is a change in tax legislation that went into effect in January. And that is about $0.06 overall for the year. So if that were the old legislation, we'd be solidly double digits. It's a provision on the amortization of R&D within tax. And so, that's really the kind of the stick and the spokes of getting to double digits this year. Double digit remains our goal going forward as we talked about at Investor Day. And then your first question was...?

Travis Steed:

That’s helpful. And if you could just remind us the moving parts on the 2022 margin guide, exactly what the higher OpEx and what drove the change in op margin again. I may have missed that earlier.

Travis Steed:

Great. And congrats on another good top line.

Operator:

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

Dan Brennan:

Yes. I don't think we're going to get into the specifics of the quarter. I mean, we're -- I think the revenue results stand on their own. We're super proud of the 11.5% organic growth in the quarter. So I think that speaks for itself. Relative to Q4, obviously, we're giving guidance today. We know where we are through October through -- where we are in October. And Neuromod, as Mike said, Neuromod is probably a bit challenged in Q4 versus what we might have expected 90 days ago. But the rest of the business has tremendous momentum. And again, super proud of the 11.5% that we delivered in Q3, again, with most of those businesses in double digits.

Cecilia Furlong:

Great. Thanks for taking the question.

Operator:

The next question comes from Rick Wise with Stifel. Please go ahead.

Mike Mahoney:

Sure. On the hospital staffing, you've seen some of the big public companies, hospital change report. Maybe it's gotten incrementally better, but certainly still quite a challenge for hospitals. Despite that, the procedure volumes are quite healthy. Despite some of the staffing shortages, could they be a little bit better. If the shortage were improved likely. But they're doing a nice job of managing it. And it's forcing us to be innovative with them on reducing procedure times, which we continue to do, find ways through our portfolio. So, staffing may be slightly better, but still a very tough environment for hospitals. It might provide some upside over time as that gets better, but it's going to get better, more slowly, not overnight. And the other headwinds we talked about I think the $375 million-ish of incremental supply chain, bucketed supply chain costs versus 2019. And the biggest -- we are seeing some slight improvement in some of the freight areas, and we expect some slight improvements ongoing there in 2023. The bigger bucket that's most impactful is the product cost. The material cost, the supplies and raw materials that we purchase. And due to some of the shortages there we have tied up some longer term contracts to ensure supply, but those have come at more hefty price increases. So that bucket, we don't see getting better in 2023. So, we think we'll carry that forward in 2023 as you annualize those contracts. Some of the other areas will get more efficient the productivity of our manufacturing plants and so forth. So, as Dan mentioned, we expect to carry many of the supply chain headwinds primarily for material cost into our 2023 plans. But similar to this year, we did improve margins 70 bps versus 2021. Our goal will be to continue to improve margins in 2023 and manage through that.

Mike Mahoney:

Thanks, Rick. I'll have Dr. Stein cover that one.

Rick Wise:

Thank you, very much.

Matthew O'Brien:

Good morning. Thanks for taking my question. And let me offer my congratulations to Dr. Meredith as well on his retirement. Mike, it seems like you're taking a little bit of near-term pain right now to continue your spending in these growth areas, because you continue to be one of the faster growth, diversified med tech names out there. So I'm just curious, if you feel like that momentum is going to continue into 2023, where you can stay one of the faster growth, large-cap med tech names out there. And if it's going to be more of a broad-based level of improvement across all the different franchises where you can keep kind of growing in this double-digit range in some areas, or if it's going to be a little bit more focal than what we've seen historically. I don't know if it's specifically in cardiology or other areas. Thank you.

Operator:

The next question comes from Matt Taylor with Jefferies. Please go ahead.

Dan Brennan:

Yes, hear you fine Matt.

Dan Brennan:

I think it's really just the comp, which is the better part of 250 basis points more difficult. And Neuromod is lower than the average of the rest of the businesses. But as we've continued to say, six of eight double-digits in Q3, continued momentum with a lot of the good new product launches we have, both in the US and internationally. So, I think the business has great momentum. And I think once you clear for the comp, it's a great Q4. And if we delivered 9% organic revenue growth for the full year versus 2021, I think that will be a great year for the company.

Dan Brennan:

We think the volume is pretty good. And there is certainly pent-up demand, but it's been in the system for a while. You look at your typical backlog, whether it be a knee replacement or a Afib product or whatever, a men's health implant. Oftentimes, you're getting a 60 to 120-day wait in the US. And so there's certainly pent-up demand. But I don't see that getting cured in the near-term. I think there's just a very strong patient demand. There is a bit of a staffing shortage -- there's only so many labs that a hospital has to do procedures. And so we see pretty strong volume, which I guess is a good sign for the future here despite some of the staffing shortages and just hospitals extremely busy, lab time very busy and demand that outstrips their supply in many cases that drive the waitlist. But we don't see that waitlist dramatically changing in the coming months.

Operator:

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

Mike Mahoney:

Yes, I think -- thank you. I think it's similar to the last response. It depends on the region of the world. We did see a slowdown in third quarter in Japan. And you see pockets in China and sometimes pockets all over the world depending on what happens with COVID. But overall, that's been smoothed out with the underlying pretty good procedure growth and us doing a bit better. And so again, I think as you look to fourth quarter and 2023 here, staffing shortage still is an issue. It's not going to be resolved in 2023. Hospitals are being very innovative to try to shore that up. But a strong patient demand, common to see longer wait list. So, we do see pretty consistent demand, but we don't see a quick fix for the staffing shortage. But the underlying demand still strong despite that.

Operator:

The next question comes from Chris Pasquale with Nephron Research. Please go ahead.

Mike Mahoney:

I'm really much more to comment on. The team does quite a bit with our clinical studies that we do for product approvals. It's a well-accepted therapy across -- it's been -- it's a pretty mature market in terms of number of competitors and clinical science that's actually increased quite a bit the last few years. Part of it is the payers. We certainly work with our hema teams to contact those payers directly and reemphasize that clinical evidence. But it's really a bit of just some of the recent preauthorization denials that just need to be worked through in terms of their efficiency. And we aim to improve that process.

Mike Mahoney:

I don't think it's related to any -- it's not related -- the slowdown is not related to any poor clinical data. There's good clinical data at Boston Scientific and our peer group and it's well established by the implanter, whether it be a pain physician or an orthopedic physician. It's well proven out. I think it's working through some of the mechanics of these preauthorization denials is the issue. But I also think overall, the market is a bit slower, even excluding that than it was historically.

Mike Mahoney:

Dr. Meredith, take that one.

Chris Pasquale:

Thanks, and congrats, Dr. Meredith.

Operator:

And I understand there is time for one last question, and that would be from Matt Miksic with Barclays. Please go ahead.

Mike Mahoney:

Good morning Matt.

Dan Brennan:

Sure, Matt. A lot to chew on in that question. So, the -- first, I agree with your assertion. The $1.71 to $1.74 from the $1.74 to $1.77 adjusted earnings per share guidance for the year, that is FX. That's down $0.03. FX is the FX impact on EPS was $0.03, it is now $0.06. So that is the difference for the $1.71 to $1.74 change in guidance. On the revenue for Q4, your comment that it appears conservative. I think it's appropriate. I think we've looked at all the different variables that are there, the momentum in the business and we think that the guidance we gave is appropriate. And I think for 2023, I think it's just a bit early. I mean I gave you a little bit of a teaser there on FX, given where we are with our hedging program. But I think other than that -- and obviously, that our goal is to continue to expand operating margin over time. But other than that, I'll probably just let you wait until we give guidance officially on all the specifics. But super excited about how the company has performed this year and look forward to continuing that trend in 2023 and beyond.

Operator:

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 9072485 until November 2nd, 2022, at 11:59 P.M. Eastern Time. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator:

Good afternoon, ladies and gentlemen and welcome to Apollo Endosurgery Second Quarter 2022 Results. At this time all participants have been placed on a listen-only mode and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Matt Kreps. Sir, the floor is yours.

Chas McKhann:

Thanks, Matt and good afternoon thank you, everyone, for joining us. On today's call, I'll cover highlights of our Q2 performance. Jeff will then cover our financial results and I'll come back and talk to you in more detail about our recent milestones and launch plans for the Apollo ESG and the Apollo REVISE devices. So starting on Page 3 of our deck, our strategy has been to pursue large market opportunities and build an organization that is primed to capitalize on them. And I'm pleased to say that our recent performance has been good validation of this approach. Q2 was a solid quarter for us. We demonstrated revenue of $19.3 million in reported sales and just under $20 million in constant currency. This performance represents a really nice step-up compared to our recent sales levels and the growth has come ahead of two very recent and important catalysts that we've just announced in the last month, the FDA market authorization for the Apollo ESG and Apollo REVISE devices and publication just last week of the MERIT study in The Lancet. So turning to Page 5, where we've listed both constant currency growth on the left and then GAAP growth on the right. In Q2, we achieved 20% growth in constant currency and 16% year-on-year growth on a GAAP basis. Once again, our growth has been well balanced across both products and geographies. On a GAAP basis, ESS grew 23%, with strong growth in the U.S. of 22% and international growth of 24%. Our IGB franchise grew 6% on a reported basis, 7% in the U.S., 5% outside the U.S. so again, nice balance across the business and across geographies. As with any U.S.-based company that has a significant presence in Europe, foreign exchange has presented a headwind, it's important to note that Apollo unusual for a med tech company of our size has just under 45% of our sales from outside the U.S. and more than half of that is in Europe. Many of you will know that a year ago, the euro is at $1.20, it's now at $1.02. And so it is a significant impact. But again, we're pleased with the reported 16% and the 20% year-on-year growth from a constant currency standpoint. So again, I'll come back to you with an update from a business and strategic standpoint but let's allow Jeff to walk through the financials. Jeff?

Chas McKhann:

Thanks, Jeff. So in 2022, we have four overall strategic priorities. I'm going to spend the majority of our time today talking about the launch of Apollo ESG and Apollo REVISE given our recent announcements. But before I do that, let me comment on the other three. First, around expanding our core GI defect closure and fixation business that's our OverStitch and our X-Tack products in that area. We've had a good quarter and good progress. Many of you know that in May, we had a very productive Digestive Disease Week meeting and that I think it included more than 100 different presentations about our products and that the X-Tack device was featured very prominently in that. And some of the first data that's come out on X-Tack after just one study that was published last year. And so building on that, we saw a 16% sequential growth in the quarter with X-Tack and we do anticipate that the awareness generated at DDW and that those presentations are then published and that will continue to help support continued interest and adoption of X-Tack. And then furthermore, that there are lots of opportunities still for OverStitch across a whole range of applications in defect closure and fixation. On Orbera, Orbera continues to perform well and has been a meaningful growth driver in our business for the last 18 months. We have successfully implemented co-marketing programs for Orbera in a number of our target accounts and MESA [ph] provided significant incremental growth for Orbera. And we also view these as essentially pilot programs where learnings from what's worked and what's been most successful can be applied to Apollo ESG and Apollo REVISE and I'll come back to that. And we've also observed that Orbera has done particularly well in integrated practices that are offering a range of both Orbera, ESG and revision procedures. And we believe that has a sustainable element to it. And then on advancing the organization and Jeff already talked about this, right we are building the right capabilities that we think we need to really take advantage of these opportunities. We're doing it in a very targeted way. We're reviewing every addition in headcount, line item detail and only investing in the ones that we think are critical but we are making great progress in building our key capabilities in the organization. I am very pleased also to welcome Sharon O'Keefe to the Apollo Board of Directors which we announced just about a month ago. Sharon has extensive experience in leading large medical centers and for nine years served as the President of the University of Chicago Medical Center. She is a thoughtful, experienced healthcare executive and she will bring a new perspective to Apollo Board and we are very excited to have her. So moving now to the launch of Apollo ESG and Apollo REVISE, first, let's start with the news that we've announced over the last month, two important milestones that literally have been years in the making. On July 12, Apollo received marketing authorization from the FDA for the Apollo ESG and Apollo REVISE products it was via the de novo process. A couple of things to highlight 1 is the BMI range for the clearance of 30 to 50. That is a wide range and helps us allow us to treat potentially many, many patients who suffer from obesity. And so we're very pleased with that. Also, this de novo decision came even faster than we anticipated and we are very grateful to our reviewers at the FDA for their responsiveness and an interactive process throughout the process. And then on Thursday, just this past week, the MERIT study, a randomized controlled trial of ESG procedure was published in The Lancet. And I think the quote on the right side of the page which comes directly from the publication, is an excellent summary. For those who don't have the slides in front of you, I'll read it and the implications of all the available evidence. The MERIT study proves that ESG is scalable and can be offered in outpatient -- endoscopy practices by surgeons or gastroenterologists with an excellent safety profile without mortality and with predictable conservatively managed adverse events. And so the publication in Lancet is a big deal and one that we're very excited about. Many of you may know that recently, The Lancet was -- basically took over the leadership position as the highest impact factor journal in the world and so it's an honor to be published in it and all due credit to the investigators in the study. As you see on this page, there are some quotes from Dr. Abu Dayyeh [ph] from the Mayo Clinic and Dr. Wilson from UT in Houston really highlighting some of the overall benefits that were observed in the study and of the ESG procedure. Dr. Abu Dayyeh highlights not only the weight loss benefits but the study also highlighted meaningful improvements in comorbidities such as diabetes, hypertension and metabolic syndrome. And Dr. Wilson highlights the fact that we now have a safe, effective and durable procedure that can be performed by both GIs and surgeons. We are very grateful to both Dr. Abu Dayyeh and Dr. Wilson and the entire clinical investigator group who works on MERIT. This was not an easy study to complete. Most of it was performed during the height of the COVID pandemic just a few years ago and we congratulate them on their publication and we are very, very thankful for the work that went into it. So I'd like to take a step back and put into context now these two announcements. For more than two decades, engineers, researchers, venture capitalists have been working on developing new endoscopic approaches for weight loss. It's not an exaggeration to say that 100s of millions of dollars have been invested in pursuit of a less invasive, safe, effective and durable treatment for weight loss. And as you can see on Slide 18, ESG is the first and only procedure that fully delivers on this promise. Let me say a word about the Orbera intragastric balloon because it's an outstanding product and it continues to play a growing role in the treatment of weight loss. And Orbera's role is increasingly important in an integrated setting of care within an integrated endobariatric practice. But that being said, when you think about a full package of -- and the value proposition, only ESG offers what you see on the page. That being an FDA authorization in this case, for both primary and revision procedures, Level 1 evidence with the MERIT study in The Lancet, an endoscopic approach that same day, no incisions and with a fast recovery period, proven effectiveness with 49% excess body weight loss in MERIT. And 15% to 20% total body weight loss in a global published literature which by the way, now has more than 10,000 patients that have been studied in ESG procedures. A very good track record of safety with consistently around the 2% rate of adverse events, serious adverse events -- and as highlighted in The Lancet publication, these events typically can be managed very conservatively and in durability, two years in MERIT and up to five years in the published literature. And so again, that's why there's so much excitement now about the authorization and the study back-to-back. And physicians who've been working on this, as I said, for literally a decade or more, are incredibly excited by these two developments. So if anyone on the call isn't familiar with ESG, it is a suturing procedure in -- on the stomach, reducing the stomach volume as well as delaying gastric emptying which results in the benefits I just mentioned. We're going after and addressing a large patient population, more than 100 million people in the U.S. have a BMI over 30. But importantly, there are only about 200,000 primary bariatric procedures, traditional bariatric procedures performed in the U.S. each year. That result -- that translates, sorry, into a 0.2% treatment rate. We recently conducted market research with more than 1,100 people and confirm something that would seem intuitively pretty obvious. The biggest reason people don't consider bariatric surgeries is fear, fear of side effects, fear of complications. But the value proposition of ESG is fundamentally different. In the same survey we presented information about the ESG procedure and approximately 2/3 of patients are interested in the procedure and you can see the reasons why in terms of no surgical cuts, significant weight loss, durability. 57% would likely see a doctor to talk more about it. And the preference and overall participants expressed a clear preference for ESG over traditional surgeries. These surveys findings are consistent with the experience of physicians who are already early adopters. And what they tell us is that when patients are treated with both options, ESG or traditional surgeries, there is a true benefit for the ESG procedure. But furthermore and probably even more importantly, many patients who would not even consider a traditional surgery are now contacting these practices and wanting to learn more about ESG. And so with ESG, there's a substantial opportunity to grow the size of the pie of people who seek intervention. I'd like to directly address recent questions about the potential impact of weight loss medications on our endobariatric business. Recently, there have been important developments in new weight loss medications, including first semaglutide for Novo Nordisk which has the brand name of Wegovy as well as trazefetide from Eli Lilly which is currently only approved for diabetes but we do expect that in the coming months, it will be a clear for weight loss as well. These new medications are a substantial step-up compared to traditional weight loss drugs. And they are widely anticipated to become blockbusters. But as with any treatment, there are some downsides. The new drugs are expensive -- well more than $1,000 per month and they often are not covered by insurance. They can have tolerability issues and side effects. And we know from decades of experience, the compliance on long-term medication is often very challenging for patients. But again, we do expect them to have a major impact but recall the size of the problem. More than 100 million people and 40% of the adult population in the U.S. have a BMI over 30, having new treatment options, including these medications as well as ESG is a big step forward. And we also anticipate that the increased focus on obesity provided by companies like Novo Nordisk and Eli Lilly will prompt many people to consider whether to take action and to evaluate their treatment options. And when they do, they're going to learn more about ESG as well. The potential of combination therapy of ESG plus one of these new medications is very exciting. The study shown on Slide 21 was presented at DDW 2021, so a little more than a year ago and was just recently published. It was a randomized controlled trial for one arm with CDSG [ph] and the second arm received a combination of ESG and a short course of semaglutide. The ESG arm alone performed very well with 18.7% total body weight loss. In combination, the total body weight loss was 25.2%. That's comparable to what is achieved typically with a traditional bariatric surgery without all of the downsides of undergoing a full surgical -- traditional surgical procedure. We are already aware of other physicians who are conducting similar studies of combination therapy for both ESG and revision procedures and so we'd expect to see more data in the future. And also, some of our customers are already incorporating GLP-1 medications into their treatment paradigms of patients who receive an ESG. Turning now to revision procedures, this also represents a big opportunity for us. Over a 10-year period, 1.4 million people in the U.S. underwent a primary bariatric surgery in the U.S. And over time, the body accommodates and studies have shown that up to 1/3 of people who receive a bariatric surgery may be candidates -- for a revision procedure. Traditionally, this has involved another invasive surgical procedure with all of the costs and risks associated with the primary procedure. But despite this, revision surgical procedures are the fastest-growing segment of the traditional laparoscopic surgical market. Now with the Apollo REVISE device, physicians will be able to alter the anatomy using a suturing technique and be able to regain many of the original benefits in an incision-less and typically same-day procedure. In a study published last year out of Brigham and Women's Hospital in Boston, an endoscopic approach to revision procedures demonstrated similar effectiveness to a surgical procedures and this was studied by the way, up to five years but showed substantial improvements on adverse events and especially serious adverse events. So the potential value proposition is very clear. So turning now to Slide 23, so we've just recently received the FDA market authorizations but early adopting physicians have already started to embrace the procedures and prove their viability in real-world clinical settings. What you see on Slide 24, the top 10 private practices in the U.S. that are focused on endobariatrics and the top 10 academic centers where the majority or the entirety of their procedures are endobariatric. As you can see, the growth in these practices in the past 18 months has been substantial as both surgeons and GIs begin to incorporate endobariatric procedures into their clinical practice. The academic centers have grown by 28% in the last year. The private practices have grown their volumes by over -- by 60%. And furthermore, if you look at the average annualized sales across these 20 accounts in the first half of 2022, the annualized sales is about $600,000. As we look at this group, we see that there are numerous recipes for success, private practice and academic, surgeon or GI or a combination of both. Some are primarily cash pay. Some are using prior authorizations which I'll come back to as we talk about market access in a minute. So there are multiple potential models for success going forward. I will say replicating these successes will take some time. Many factors need to come together to create a successful practice, a skilled and well-trained physician. Staff who can provide excellent patient care both before and after the procedure and a practice infrastructure that is effective in identifying and managing patients in all of the key requirements for success. These 20 institutions and others like them in our key international markets already provide an excellent starting point and give us the confidence as we move forward. Slide 25 shows visual examples of some of the accounts that are already beginning to educate patients about endobariatric procedures, including ESG and revisions. These are publicly available screen shots from their websites but many of these practices are already using sophisticated marketing efforts using channels like Facebook, Instagram, Twitter, TikTok, YouTube as well as traditional radio and print ads. Through these collective efforts as well as co-marketing programs from Apollo, patients will be -- have an opportunity to learn and become increased awareness of ESG and endoscopic procedures and awareness and understanding will continue to grow. Slide 26 shows a summary of the different activities associated with our launch plans, including our marketing and medical education initiatives, training for physicians, readying our sales team and targeting them from a sales effort and then a range of reimbursement and market access initiatives -- that are ongoing. These activities are well underway and we do anticipate them contributing to our growth both later this year and into 2023 and beyond. Highlighting some of the key activities among our sales organization, one of the big changes that we've made is we've now added a new role into our sales team that we call regional endobariatric managers. This is a group that now complements our existing market development managers -- sorry, traditional sales reps. And the REM role really complements the traditional sales rep role by focusing on supporting new and emerging practices and that can incorporate Orbera ESG and revision procedures. And they're really focused on all of the different aspects of market development, of identifying patients, how to share best practices and helping grow and develop which is a different set of skill sets but one that's incredibly important in terms of how we will develop this over time. And then we're also enhancing our sales team effectiveness through enhanced training, customer relationship management and marketing support. Moving on to reimbursement and just market access, incredibly important to sustaining growth, importantly, we have already had existing models that are working as you see in the growth on the prior slide. Among the top 20 accounts, some exclusively use a cash pay model and their substantial growth is very good evidence of the high interest level and willingness to pay among patients. And we've been making channel checks with these accounts, especially in light of the broader macroeconomic environment and we continue to hear reports of strong interest and demand even in today's uncertain economic environment. Something we're watching closely but we're getting good feedback from the people who are talking to patients every single day. Other accounts also pursue prior authorizations with insurance companies for both ESG and revisions and often are getting coverage on a case-by-case basis. Achieving broader coding coverage and payment will take time. We have three primary areas of engagement, especially now with the both MERIT study and the FDA authorization and SAM [ph] first is the facility coding and payment. There are potential opportunities for new technology codes with Medicare and we will be pursuing those and we'll provide an update as we move forward. CPT codes are how physicians get paid and we are engaging the leading GI and surgical societies in the CPT coding process. Our objective is to have a successful Category 1 CPT code during the upcoming annual cycle which will result in a new Category 1 CPT code being effective January 1, 2025. But again, still work to do with the societies because I think we've mentioned this before, the AMA-CPT panel in the surgical and GI societies will really drive that process. And then thirdly engaging payers, coverage will build over time. As I mentioned, we already have seen success in some cases on a case-by-case basis. With the new market authorizations as well as with The Lancet publication, we will engage in efforts now to improve the coverage of both ESG and revisions. In the meantime, moving on to Slide 29 -- pardon me, we do still have a very viable cash pay model. And we just try to showing on this slide that it really is a win-win for both patients and physicians. Patients have very good treatment options that can be tailored to their needs with Orbera, with ESG or with revision procedures. And again, these can be in the context of both, a dedicated GI-based endobariatric practice or an integrated program that's offered by surgeons. For physicians, it is a chance to differentiate their practice, a chance to grow their practice and the practice economics can be very attractive as well. So in summary, with the recent market authorization and The Lancet publication, we are reiterating our medium-term growth outlook and adding a line of sight to cash flow positive business in the years ahead. And we are very excited about the impact that our products can have in improving patient care going forward. So with that, let me turn it back to Matthew and we'll open the call to Q&A.

Chris Cooley:

Congratulations on the solid quarter just a couple of quick ones for me. First Chas, just curious if you could help us maybe look into your crystal ball. And as we think about in particular, the Lilly results, how do you see this affecting the market from a channel perspective. I guess, not only from a provider but also if we just think about the patient funnel, does this bring more patients into the patient funnel than over time, basically source from that for the surgical procedure? Does this -- I'm just kind of curious how you're thinking about that because in that study, the mean percentage weight loss was approximately 15% in six months. So just kind of curious how you think that may or may not play out? And then secondly, maybe just -- I'll ask both my questions upfront for Jeff. I appreciate the focus on achieving profitability on the hand the plan that you've outlined here on today's call? Just curious, though, if you've kind of changed your views on the rep adds. I think at DDW, you talked about getting upwards of 45 by calendar year-end. I noticed on Slide 27 and maybe this is just semantics, approximately 40 reps by year-end. I'm just curious if you're thinking about maybe modulating your headcount there a little bit. I know -- in your prepared remarks at the outset you talked about more closely evaluating incremental hires going forward, just trying to triangulate that a little bit as well?

Jeff Black:

Sure yes Chris, thank you. And to your question on headcount and OpEx modulation, I think it's a combination of two things. It's just being very critical about every dollar of spend and every head count that we add. But on the sales channel and on the commercial organization, it's really less about expense control, to be honest with you and more about the strategy around what is the right mix in the sales force, right. And so, we're really -- we're in many areas, we're really doubling down on this REM role and piloting some REM roles and how they best interplay with the sales reps. And so, that may differ on a geography by geography basis. We may have situations where a sales rep has a broader coverage territory because they have an REM to support them. We may have situations where because of geographic distance, we may have to add more sales reps to cover a more expansive geography and then supplement with more or less REMs. And so it's really more of a piloting around what's the right mix. And so it's less about, hey, let's say, five heads but let's get the mix right. Anything to add to that, Chas?

Chris Cooley:

And if I could maybe just squeeze one other quick one in. I know during the first quarter, you received OverStitch. I'm sorry you received clearance in Japan for OverStitch. And we're going to -- obviously, you're working on timing and the dollar value there for reimbursement. Are there any new updates that you can provide at this time for the Japanese market and I'll get back in the queue?

Operator:

Your next question is coming from Adam Maeder from Piper Sandler.

Chas McKhann:

Yes, no I appreciate the question. I think there'll be a time -- let me back up. The interest level following the authorizations and especially -- and then the publication last week has been extremely high. There's a lot of excitement. But there'll be a time lag from that to cases and people being treated, right? I mean if you think about the different elements I mentioned that come together through accelerating their practice, they take some time. And so, we do see that factoring into later in the year and then certainly, our momentum heading into 2023. And so that's kind of the timeframe and we would expect to see an impact of moving from, as I said, a lot of interest to a real impact. And then it's also been offset -- the announcements have just come in the last month. And as Jeff mentioned, we have seen some summer seasonality. And if any of you have traveled recently, airports are extremely busy, people are taking vacations. And we've seen that both with a number of our key customers. And so that's normal at this time of the year but I think maybe even a little bit more so this year. And that might cloud any immediate impact relative to putting the pieces together. We really are thinking about this for the long-term as well. One of the things I meant to mention in my upfront comments is speed is not our most important thing in this next phase quality is, right? We want to make sure we get very good customers getting excellent outcomes because that will result in the most long-term sustainable growth.

Chas McKhann:

Sure no, happy to. Yes overall, we had a really good quarter outside the U.S. And the ESS business which is primarily OverStitch outside the U.S., we only have X-Tack in a few countries cleared. We reported 24% on a GAAP basis and 35% year-on-year growth so just good continued adoption of OverStitch. Most of our business outside the U.S. is for OverStitch is endobariatric but we are having a focus on also expanding core GI as well and the team is doing a nice job with that. Pretty good balanced growth between distributor and direct markets. And so, we're pleased with that. We also see good growth on the IGB side as well. We've had some share wins on -- we're much more competitive outside the U.S. and Orbera really does have a great track record of tried and true. And so we continue to do well there. So we had a nice balance in our business and are pleased with how the performance went again, despite the FX piece. And so, I don't over -- get too wrapped up in that it is what it is. The underlying fundamentals, we think, on the international side are very good. And then we are looking forward to X-Tack. No real changes on updates on that from an international CE mark. We're still working through the MDR processes for regulatory and that's probably a 2023 event like versus 2022.

Simran Kaur:

Got it. And then, if I could squeeze one quick one in there. Maybe any update on the NASH strategy? I know Jeff, you were talking about modulating spend -- in your efforts to do that. Some of the more longer-term priorities are kind of being put on the back burner for now. So just what are your latest thoughts there any updates?

Operator:

Your next question is coming from Frank Takkinen, Lake Street Capital.

Chas McKhann:

Yes, no, it's an insightful question, Frank and it's one that our reimbursement team is working through as part of the overall facility payment side of things. So I mentioned things like new technology codes but you're right, C codes could be part of that strategy as well. And we're working through those details right now.

Chas McKhann:

Sure, yes. So on the new -- there are new devices that were cleared the Apollo ESG and the Apollo REVISE devices. There is still some, frankly, kind of logistical elements that go into the packaging around those and being ready to ship that we would expect will still take a few months and probably be early in Q4 when we're shipping the new devices. And that just aligns with what we expected the original time line would have been unusually FDA beat us to it but we were more than happy. So we can still train physicians. We can still speak to the procedure but the actual SKUs being available will be a few months. And then we are also still finalizing the pricing strategy but we do expect they will be opportunity for some premium pricing that would help. But we're still working through the final pieces of that strategy because it will have long-term implications for things like reimbursement and others. And as we get further along, we'll provide an update on that.

Chas McKhann:

Well just that, I mean, the ability to have some pricing leverage would absolutely improve and help that and then as Jeff mentioned, the OverStitch and the components OverStitch are our primary focus areas of reducing costs as well. So we've factored that into kind of our overall plans of getting into the mid-60s on gross margin but we'll work that as part of the overall mix as we go forward.

Matt Hewitt:

Maybe first one and you touched on this a little bit in your prepared remarks but obviously, there was a ton of buzz around DDW for both OverStitch and X-Tack now that we're three months removed. I'm just curious, how has that kind of played out? Obviously, you've gotten the big approvals since then as well as the publication last week. So maybe it's difficult to pull those two pieces apart. But follow-through post DDW would be helpful?

Matt Hewitt:

Got it. And then maybe my second question, I think it was Slide 24, where you were talking about your top 10 private practice groups as well as your top 10 academic groups and the growth that they're seeing. I guess that was one of the things that came up at DDW was that some of your top accounts are figuring out ways to navigate the reimbursement with preauthorization? As they get more adopt at doing so until you've got more formal coverage in place, is that something that kind of a road map that your other accounts can follow, especially now that you've got the formal labels. But is that something where they can follow that road map and kind of get reimbursement kind of precharged even ahead of formal coverage?

Operator:

Your next question is coming from Jeff [ph] from Cowen.

Chas McKhann:

I think it's a really interesting question of how it will play out. I think people, for the most part, currently assume that the sweet spot will be in the 30 to 40 range, i.e., the MERIT population and that's probably where we will start for the most part. But there were data presented at DDW, as you may recall, by one of our customers that showed very good results in patients with the BMI over 40. I think it was consistently a 20% or more total body weight loss. And that was independent of any medications. So one of the big speculative questions is whether combination therapies will really play a bigger role in that 40-plus range. And I certainly know some surgeons who think that it may well -- but I do think it will kind of go in that sequence. There still is a belief that ESG is typically a little bit lower on the efficacy side but a really good safety profile and a lot of patient benefits will probably start more of a sweet spot in that 30 to 40 range and then maybe migrate up over time.

Chas McKhann:

We have seen people think about a kind of bridge to surgery approach at times as well. I'm not sure how common that is. I mean we certainly have heard it a bit more anecdotally. And could that play out over time, possibly. I mean one of the benefits of ESG as you aren't cutting off future treatment options. It's something that surgeons are very interested and know that they can do a sleeve in the future or do a bypass in the future if they choose to -- but I don't expect necessarily a bridge approach will be that widespread at least initially.

Chas McKhann:

Sure, yes. No, I appreciate the question. We have a lot of data out to two years. There was just a patient -- a study with 3,000 patients out of the Middle East with very good data out to three years and then there's limited data but some out to five years. So we're in that range. I think our experienced customers who've already been doing this in advance of us talking about it, are careful not to promise it as a panacea and really emphasize the importance of the patient follow-up and patient management in the programs that they do and if they -- how they engage in that can really impact the durability. But then, also, obesity is a chronic disease. And if people understand and expect that, then setting up the possible expectation that, yes, down the line, you need a retightening procedure. And we've got experience with that and good success with it. Or in the future, you may be a candidate for a surgical procedure. These are often part of the conversations and I think we'll be part of how we market it as well.

Unidentified Analyst:

This is Colin on for Matt, just one quick one for me today, first of all congratulations on the recent approval and the strong quarter. I had a question on the midterm growth target of 20%. Is that step-up largely ESG driven or do you also contemplate potential halo effect from ESG on the rest of the broader portfolio pull-through?

Operator:

That concludes our Q&A session. I will now hand the conference back to Chas McKhann for closing remarks. Please go ahead.

Operator:

Thank you, ladies and gentlemen. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.

Operator:

Good afternoon, ladies and gentlemen, and welcome to the Apollo Endosurgery First Quarter 2022 Results Conference Call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Matt Kreps. Sir, the floor is yours.

Chas McKhann:

Thank you, Matt, and thank you, everybody, for joining us here today. We really appreciate it. So look, we are about a year into a new strategy to transform Apollo. And I'm really excited about the progress that we've made in a relatively short period of time. We've repositioned the company to go after larger market opportunities, and we're building a much stronger organization that's poised to capitalize on those opportunities as we focus on energizing the business and then over the course of this year, moving into an acceleration mode and eventually building leadership positions in the markets we serve. This afternoon, we reported solid performance for the first quarter of the year with sales of $16.7 million, and that was even in the face of the Omicron wave that impacted a lot of companies and procedures around the world really, and then other global macroeconomic challenges, which we'll refer to over the course of the call. But despite that, and I'll -- some of the highlights for the quarter, we achieved 20% year-on-year growth. And it was well-balanced growth. It was 24% in our ESS franchise. That's our OverStitch device and our X-Tack product. And we also achieved 16% growth with our intragastric balloon franchise, and so again, nice balance across our products. This quarter, our growth was primarily driven by the US with 33% growth in the US, 40% for IGB franchise, 34% for ESS, so really nice performance here in the US. An interesting fact here over what we've observed, and this is an extension of what we reported on our prior call. Our top 10 accounts grew by 63% year-on-year. And these are not distributors, these are individual accounts. And the average sales in those top 10 accounts, is right around $1 million annualized. So it gives you a sense of what we can achieve, when our customers really incorporate Apollo's products into their clinical practice and really make it a focus of patient care. And then in addition, we achieved 14% sequential growth in the number of ordering accounts for X-Tack here in the US. And we also achieved sequential sales growth in terms of -- so ordering accounts up 14% as well as sequential growth in X-Tack sales quarter-on-quarter. And so while delivering on a strong quarter, we also remain very focused on a broader set of priorities for the overall year, both delivering on the near term but also building the foundation for the growth in years to come. And so, our four main priorities. First is to expand our core GI business and defect closure and fixation. And that's inclusive of both OverStitch and X-Tack. It involves training new users, continue to build adoption and preparing for the approval of X-Tack, the CE mark approval outside the US. Second priority is leveraging a resurgence in ORBERA. The intragastric balloon franchise has done very well since I've gotten here, and it's been a big important part of our business, continues to grow. We want to make sure that's sustainable growth, and we're putting a lot of focus and energy behind that. And that fits part and parcel with our third priority, which is preparing for the launch of Apollo ESG and Apollo REVISE. We're working through the process with the FDA for a new regulatory clearance and preparing for the new product launch associated with that. And all the while building the organization. We need to have the right capabilities in place to make sure that we can go after those opportunities, and we've been making very important ads really top to bottom, and I will come back to that. So, Jeff is going to provide some updates on the financial results in the quarter, and then I will come back and talk through each of these four priorities to give you updates on how we're doing against each of them. Jeff?

Chas McKhann:

Thank you, Jeff. So turning to slide 12, just a quick reminder for those who are new to Apollo, we've got our three different product lines, our X-Tack product, OverStitch and the ORBERA intragastric balloon and that's really focused across two different therapeutic areas

Q – Matt Hewitt:

Thank you. And congratulations on the strong quarter, kind of bucking the normal seasonal pattern, especially given the headwinds you faced in January from COVID. I guess my first question is regarding progress with X-Tack, I think last quarter, you really started to focus on your desire to drive utilization. I think during your prepared remarks, you mentioned 14% growth, if I heard you correctly. Do you have kind of a target that you're hoping to hit from a utilization standpoint, or how should we be looking at that over the remainder of this year and going forward?

Q – Matt Hewitt:

Understood. Okay. And then one of the questions that I get a lot, especially here over the past couple of weeks when others from -- on the device side have been reporting is this question about how much of Q1, were you seeing a rebound in just getting back to normal, or was there some backlog to kind of work through? And maybe if you could walk through what you're seeing even now through April, are we getting back to a normal that it's not so much a backlog. This is a normal growth rate for the business and what we should be expecting going forward?

Matt Hewitt:

Got it. And then maybe one last one for me, and I'll hop back in the queue and it kind of touches on what you're just saying there, as far as staffing issues and some of that, I think, at least on the hospital side, as we're reading it is some doctors are just transferring from one hospital to another. In other cases, they are leaving the market. But does that -- I would imagine that, that actually can represent an opportunity for you as well, a doctor that's familiar with OverStitch and Orbera and X-Tack and leaving one practice and going to another, bringing you along gives you a new in a new group to train or bring up to speed. Are you seeing some of that with some of the issues that healthcare has been seeing on the hiring side, or what could -- what do you think is going to drive that next leg of adoption, or is it just hitting the payment and introducing the products.

Matt Hewitt:

Got it. Thanks very much.

Unidentified Analyst:

Hi, Charles and Jeff, this is Simran on for Adam. Congrats on a great quarter, guys. I guess I'll start off asking about just kind of your business and exiting Q1, you said there's some momentum with recovery. So how should we think about models in Q2 and quarterly cadence throughout the duration of the year?

Unidentified Analyst:

Okay. Perfect. Should we be seeing any meaningful impact from the cadence of new product launches that you could potentially be having this year in terms of ESG revised as well as OverStitch in Japan, just kind of what can you say about the impact of these launches and approvals?