Boston Scientific Corp (BSX) 2021 Q4 法說會逐字稿

Good morning, and welcome to the Boston Scientific Fourth Quarter 2021 Earnings Call. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Lauren Tengler, Vice President, Investor Relations. Please go ahead.

Thank you, Andrew. Hello, everyone, and thanks for joining us. With me on today's call are Mike Mahoney, Chairman and Chief Executive Officer; and Dan Brennan, Executive Vice President and Chief Financial Officer.

We issued a press release earlier this morning announcing our Q4 2021 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 on the non-GAAP measures used in today's call to the Investor Relations section of our website under the heading Financials and Filings.

The duration of this morning's call will be approximately 1 hour. Mike will focus his comments on Q4 performance as well as future catalysts and the outlook for our business, including Q1 '22 and full year '22 guidance. Dan will review the financials for the quarter, provide more details regarding our Q1 and full year guidance, and then we'll take your questions. During today's Q&A session, Mike and Dan will be joined by our Chief Medical Officers, Dr. Ian Meredith and Dr. Ken Stein.

Before we begin, I'd like to remind everyone that on the call, operational revenue growth excludes the impact of foreign currency fluctuation, and organic revenue growth further excludes acquisitions and divestitures for which there are less than a full period of comparable net sales. Relevant acquisitions for organic growth versus 2020 and 2019 include Preventice, Farapulse, Lumenis, which closed in March, August and September of 2021, respectively; as well as Vertiflex and BTG Interventional Medicines, which closed in May and mid-August of 2019, respectively.

Divestitures include BTG Spec Pharma, which closed March 1, 2021, and the global embolic microspheres portfolio and intrauterine health franchise, which were divested in August 2019 and second quarter of 2020, respectively.

Throughout the call today, we will refer to 2021 growth rates versus 2019 and 2020, utilizing the comparison to 2019 as the last full year baseline prior to COVID. Going forward, 2022 guidance and corresponding results will be compared to 2021 only. 2022 guidance excludes Baylis Medical acquisition, which is expected to close in Q1 '22. For more information, please refer to Slide 10 of our financial and operating highlights deck, which may be found on our Investor Relations website.

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

Factors that may cause such differences include those described in the Risk Factors section of our most recent 10-K and subsequent 10-Qs filed with the SEC. These statements speak only as of today's date, and we disclaim any intention or obligation to update them. At this point, I'll turn it over to Mike for his comments.

Thanks, Lauren, and thank you, everyone, for joining us today. I'm very proud of the agility and winning spirit of our employees and continue to be impressed with the resiliency of hospital systems and their ability to provide patients with the care they need during the pandemic. We're very pleased with the strength of our fourth quarter performance and anticipate that all of our business units either maintained or gained share in the quarter despite the challenges COVID presented.

On a full year basis, the global strength of our product diversification and category leadership strategy resulted in all businesses with the exception of CRM and USEP gaining share. We look forward to the year ahead and remain bullish in both the near-term and the longer-term opportunities we laid out at our Investor Day.

In fourth quarter '21, total company operational sales grew 17% versus 2020, while organic sales grew 15%, achieving the high end of our guidance range of 12% to 16%. Fourth quarter '21 organic sales grew 7% versus '19. Full year 2021 operational sales grew 19% versus 2020, while organic sales grew 19%, again, achieving the high end of our guidance range of 18% to 19%. Full year '21 organic sales grew 6% versus 2019.

Q4 adjusted EPS of $0.45 grew 94% versus 2020 and was flat to 2019, achieving the high end of the guidance range of $0.43 to $0.45. Full year adjusted EPS of $1.63 grew 69% versus 2020 and 3% versus 2019, again exceeding the high end of the full year guidance range of $1.60 to $1.62. Fourth quarter adjusted operating margin was 26.2%, resulting in a second half 2021 run rate of 25.9%. The full year '21 adjusted operating margin was 25.3.

Overall, we're very pleased about the cash flow with full year 2021 free cash flow generation of $1.3 billion and adjusted free cash flow of $2.2 billion, which grew 11% versus 2020.

So turning to 2022. While we anticipate less of a COVID impact on underlying procedures for the full year 2022 versus 2021, we're providing a wider range to account for uncertainty related to COVID waves and staffing shortages. For first quarter '22, organic revenue were guiding growth of 5% to 8% and for a full year of 6% to 8%, excluding the Baylis acquisition, which is expected to close in first quarter of 2022.

Our Q1 adjusted EPS estimate is $0.38 to $0.40, and we expect our full year adjusted EPS to be $1.73 to $1.79. Despite the near-term macroeconomic pressures in 2022, we continue to target operating margin expansion with a goal of double-digit adjusted EPS growth at the high end of the range. Dan will provide more details on both sales and EPS performance and outlook, including more insights on 2022. I'll now provide more highlights in Q4 and full year '21 results along with comments on '22 outlook.

Regionally, on an operational basis, the U.S. grew 20% versus fourth quarter 2020 and full year 21% -- full year 2021 grew 25%, inclusive of a 300 basis point tailwind from acquisitions and continued strength of new product launches across the portfolio. Europe, Middle East, Africa grew 16% on an operational basis versus both fourth quarter '20 and full year '20.

We continue to see strong performance in Europe despite the pandemic impact with many of the western countries and excellent growth in the Middle East and Africa region. On a full year basis, all business units in Europe grew double digits versus the prior year with the majority of businesses gaining share. We continue to anticipate strong growth from our Europe region given the innovative product pipeline, globalization efforts and the integration of the acquisitions.

Asia Pac grew 17% operationally versus fourth quarter '20 and 14% for the full year. Within the quarter, the vast majority of Asia Pac countries grew versus prior year with double-digit growth in IC, PI and EP supported by new and ongoing product launches. On a full year, Japan grew 7%, fueled by new products like WATCHMAN FLX, POLARx and Ranger as well as innovative launches across the coronary therapies portfolio. I'll now provide some additional comments on our business units.

Urology and Public Health sales grew 9% on an organic basis versus fourth quarter '20 and on a full year basis grew 19% versus 2020 and 11% versus 2019. Within the quarter, SpaceOAR and Rezum both grew double digits, and we're pleased with the 22% improved reimbursement for the ASC and hospital outpatient setting for Rezum.

On a full year basis, we saw strength across the business with double-digit growth in LithoVue, Core Stone, Rezum, SpaceOAR and Erectile Restoration. As we look forward towards 2022, we remain excited about our strong leadership position further extended by the acquisition of Lumenis in the market-leading MOSES laser technology.

Turning to endoscopy, sales grew 10% organically versus fourth quarter '20 with full year growth of 19% versus '20 and 12% versus 2019. Over the duration of the year, broad-based strength across all regions and franchises resulted in Endoscopy business achieving $2 billion in 2021.

Within the quarter, we launched the AXIOS stent in China and on a full year basis grew this product line over 20% globally. We remain excited about the outlook of our innovative offerings within our single-use imaging portfolio, including SpyGlass DS, EXALT Model D, EXALT Model B and SPY Discover. Looking at 2022, we continue to anticipate above-market growth as the endoscopy global commercial teams continue to execute at a high level by creating long-term partnerships with hospitals, given the unique breadth and differentiation of our portfolio.

Turning to CRM. Organic sales grew 4% versus fourth quarter 2020 and full year sales grew 8% versus '20 and declined 6% versus '19. In Q4, our high-voltage business grew low single digits, which we expect was in line with the market with improved sequential growth in our S-ICD franchise, enabled by our enhanced electrode launch in June.

The pacer business grew mid-single digits, which was likely in line with the market. In December, we enrolled our first patients in the modular ATP trial, our dual-track clinical study for a stand-alone leadless pacemaker as well as to provide antitachycardia pacing to Emblem S-ICD patients.

Within the Diagnostics franchise, our implantable cardiac monitor, LUX-Dx, continues to perform well and grow share. The Preventice business grew 20% on a full year pro forma basis, enabled by our differentiated portfolio and strong execution. Electrophysiology sales grew 16% versus fourth quarter '20 on an organic basis, with full year growth of 23% versus '20 and 7% versus '19. Importantly, the international EP sales grew 38% versus prior on a full year operational basis, fueled by our innovative portfolio, including POLARx, StablePoint and Farapulse. The early Farapulse launch is going well in Europe with physicians enthusiastic about the safety and ease of use of this technology. We're very excited about the outlook of the EP business and look forward to further complementing it with the closing of Baylis in first quarter '22.

In Neuromodulation, fourth quarter organic revenue grew 6% versus prior year and full year sales grew 19% versus 2020 and were flat to 2019. Despite the COVID wave impacting procedure volumes, we continue to gain share with strong demand for our WaveWriter Alpha systems, and ongoing clinical evidence resulting in a full year SCS growth rate of over 20% versus 2020.

Just a few weeks ago, we presented various data sets of NANDs, including the 2-year combo RCT data supporting the longevity of our SCS therapy. We continue to roll in the SOLUS trial studying our WaveWriter SCS systems for the treatment of patients with chronic low back and/or leg pain who have not undergone spinal surgery and anticipate initial clinical work on DPN in the coming months.

In our Brain franchise, while COVID impacted procedure volumes, we continue to enhance our portfolio and capabilities with strong full year growth in '21 versus 2020. We look forward to expanding our U.S. Vercise Genus offering in '22 in partnership with Brainlab.

In Interventional Cardiology, organic sales grew 40% versus fourth quarter 2020 and 31% versus full year '20, which includes a tailwind of approximately 1,000 basis points related to sales return reserves for the transition to consignment for WATCHMAN in 2020.

Full year Interventional Cardiology sales grew 7% versus 2019. In Coronary Therapies, our complex PCI franchise had strong growth in '21 with strength across every region, further enabled by the recent launch of our AVVIGO II guidance system in the U.S. Within drug-eluting stents, we continue to differentiate our portfolio through the global launches of Synergy 48-millimeter and MEGATRON. We continue to anticipate being first to U.S. market in 2024 with our AGENT drug-coated balloon and expect to complete enrollment in the U.S. IDE trial in the first half of 2022.

We're extremely pleased with the performance of WATCHMAN franchise in the fourth quarter as sales surpassed our expectations. Importantly, the 2021 global performance of WATCHMAN was consistent each quarter with strong double-digit growth, resulting in full year sales of $830 million, growing 68% versus 2019.

We continue to be pleased with our ability to deliver the safest and most efficient therapy, increased physician utilization and global expansion while driving greater awareness to this fast-growing LAAC market. Clinical evidence generation remains an important focus, and we expect the first readout from the ongoing (inaudible) analysis of the NCDR LAAO registry at CRT later this month. This analysis will include over 16,000 patients and is the largest data set in WATCHMAN FLX patients presented to date.

We continue to expect WATCHMAN to be a significant growth driver for Boston Scientific in '22 and beyond. Across the Structural Heart franchises, we had the highest quarterly sales results to date for ACURATE neo2, Sentinel and the Safari Guidewire. ACURATE neo2 continues to perform well with positive physician feedback on the clinical performance and ease of use of the valve, and we're excited for the year with over 10% share across full European market and are approaching 20% share in open accounts.

While we've been pleased with the early clinical progress of the (inaudible) technology, we have decided to discontinue work in the (inaudible) program due to the time and financial investment required to commercialize this platform as compared to other near- and long-term portfolio opportunities across the company. We've made this decision now so that we can focus on the execution of existing and future technologies within the structural heart space and elsewhere within our portfolio.

In Peripheral Interventions, organic sales grew 9% versus fourth quarter 2020 with full year sales growth of 14% versus '20 and 9% versus 2019. Within the drug-eluting portfolio, we've been pleased with the globalization and ongoing clinical evidence supporting Eluvia and Ranger, resulting in exceeding our sales goal of $150 million for 2021. In VENOUS, our market-leading varicose vein offering, Varithena, grew over 40% in 2021, and we see continued runway with this underserved market.

In Q4, we closed the Devoro acquisition and look forward to launching our arterial and venous offerings in the second half of 2022, complementing the broader portfolio and further extending our category leadership. In Interventional Cardiology, TheraSphere grew over 20% on a full year basis, supported by ongoing clinical evidence, including the EPOCH trial, which is the first positive Phase III SIRT trial studying TheraSphere as a second-line therapy in patients with liver-dominant MCRC that have failed first-line chemotherapy.

Our focus on improving patient health comes with a responsibility to have a positive impact in the world we share. Our environmental, social and governance practices guide us as we make long-term measurable progress, and I'm proud to announce that Boston Scientific received the 2022 Catalyst Award, the premier recognition for organizations' initiatives that advance women in the workplace.

Boston Scientific also ranked in the top 50 of America's Most JUST Companies for our contributions to creating jobs, providing benefits and work life balance, cultivating a diverse and inclusive workplace and producing sustainable products and building stronger communities. I'm grateful for the passion and commitment of our global team as we continue to deliver our values and do our part to create a better future, both as a global business and as a global corporate citizen.

While we have faced challenges over the last few years of COVID, we are stronger for it. We're building new capabilities that will enable us to better serve our patients and customers, both today and the future. We are well positioned in 2022 with category-leading innovative product positions, continue to focus on investment in clinical evidence while continuing to enter high-growth adjacent markets. We acquired several companies in the past year, with innovative products that are accretive markets, and we continue to evolve our leadership and commercial structures to best enable these exciting new technologies. We remain committed to our long-term financial goals of 6% to 8% organic revenue growth, operating margin expansion, double-digit adjusted EPS growth with strong cash flow generation. I'm very grateful to our employees for their winning spirit, I will now turn things over to Dan to review our financial performance and forward-looking expectations.

Thanks, Mike. Fourth quarter consolidated revenue of $3.127 billion represents 15.4% reported revenue growth versus fourth quarter 2020 and reflects a $38 million headwind from foreign exchange. On an operational basis, revenue growth was 16.9% in the quarter. Sales from the acquisitions of Preventice, Farapulse and Lumenis contributed 330 basis points, partially offset by the divestiture of the BTG Specialty Pharmaceuticals business, resulting in 15.1% organic revenue growth towards the high end of our guidance range of 12% to 16% growth versus 2020. This 15.1% growth includes a 440 basis point tailwind from the WATCHMAN sales return reserve recognized in Q4 2020, which was contemplated in our guidance.

Compared to fourth quarter 2019, organic revenue growth was 6.7%, nicely above the midpoint of our guidance range of 4% to 8%. This 6.7% growth excludes $67 million in 2019 sales of the divested intrauterine health and BTG Specialty Pharmaceuticals businesses as well as $89 million in 2021 sales of acquired businesses, including Preventice, Farapulse and Lumenis.

Q4 adjusted earnings per share of $0.45 represents 94% growth versus 2020 and flat versus 2019 and achieved the high end of our guidance range of $0.43 to $0.45, driven by revenue performance at the higher end of our guidance range and a slightly favorable adjusted tax rate.

Full year 2021 consolidated revenue of $11.888 billion represents 19.9% reported revenue growth versus the full year 2020 and reflects a $126 million tailwind from foreign exchange. On an operational basis, revenue growth was 18.7% in the quarter versus 2020.

Sales from the acquisitions of Preventice, Farapulse and Lumenis contributed 210 basis points, more than offset by sales of the divested intrauterine health and BTG Specialty Pharmaceuticals businesses, resulting in 18.9% organic revenue growth within our guidance range of 18% to 19%.

Compared to full year 2019, organic growth was 5.7%, again, above the midpoint of our guidance range of 5% to 6%. This 5.7% growth excludes $131 million in 2019 sales of divested businesses as well as $531 million in 2021 sales of acquired businesses, including Vertiflex, BTG Interventional Medicines, Preventice, Farapulse and Lumenis, and $13 million of specialty pharmaceutical sales prior to divestiture.

Full year 2021 adjusted earnings per share of $1.63 represents 69% growth versus 2020, 3% growth versus 2019 and exceeded the high end of our guidance range of $1.60 to $1.62. Adjusted gross margin for the fourth quarter was 70.9%, in line with our expectations of a slight sequential improvement from the 70.6% recorded in Q3. We continue to face macro environment headwinds on gross margin, which included the cost of running plants with COVID-specific measures, increased freight costs and price pressures and higher direct labor wages.

As the Omicron variant surged, we saw increased headwinds particularly in December with higher levels of COVID-related absenteeism in our plants as well as price pressure on direct material costs, driving unfavorable manufacturing variances.

As a reminder, manufacturing variances are capitalized on the balance sheet and realized over an approximate 6-month period. As a result, we expect full year 2022 gross margin to improve slightly versus the second half of 2021.

Gross margins in the first half of 2022 are expected to be below the second half of 2021, driven by the lagging impact of unfavorable manufacturing branches capitalized on the balance sheet and typical standard cost revaluation. In line with our historical trends, we anticipate that the second half of 2022 gross margins will be improved versus the first half, driven by lower COVID-related headwinds and recognition of full 2022 standard cost improvements.

Our longer-term goal remains to return to pre-COVID gross margin levels of 72% plus as global supply chain disruptions and inflation lessen over time. Fourth quarter adjusted operating margin was 26.2%, resulting in a second half average of 25.9%. Full year adjusted operating margin was 25.3%. In light of increased gross margin pressures, we felt it was prudent to provide a range for 2022 adjusted operating margin and expect the full year to be within a range of 26% to 26.4%, representing a 70 to 110 basis point improvement over the full year of 2021, with the high end representing our long-range plan goal of 50 basis points annual improvement versus second half average 2021.

On a GAAP basis, fourth quarter operating margins were 5.8% and includes a $197 million intangible asset impairment related to the discontinuation of the Millipede program, as Mike outlined, and a $128 million in litigation-related expenses, which I'll provide further details on in a moment.

Moving below the line, adjusted interest and other expense totaled $115 million in Q4 and $423 million for the full year 2021, in line with expectations. Our fourth quarter tax rate was 5.3% on an adjusted basis. Our full year adjusted tax rate of 7.6% includes discrete tax items and the benefit from stock compensation accounting. Excluding these items, our operational tax rate was 8.8% favorable to our expectations, driven by our geographic mix of earnings.

Fully diluted weighted average shares outstanding ended at 1.436 billion shares in Q4 and 1.434 billion shares for full year 2021. Adjusted free cash flow for the quarter was $425 million, and free cash flow was $217 million with $478 million from operating activities, less $261 million of net capital expenditures.

For full year 2021, we delivered adjusted free cash flow of $2.2 billion and free cash flow of $1.3 billion with $1.9 billion from operating activities, less $540 million of net capital expenditures. We exceeded our expectations for full year adjusted free cash flow with growth of 11% versus 2020 driven by lower working capital as we balance increasing our inventory position with sales recovery and finished the year with a favorable DSO.

For 2022, adjusted free cash flow, we aim to be at or above 2021 while we continue to invest in inventory with less COVID-related impact on our manufacturing, labor and direct material availability. As of December 31, 2021, we had cash on hand of $1.9 billion. We continue to expect to close the acquisition of Baylis Medical in Q1 funded with cash on hand. Our top priority for capital remains high-quality tuck-in M&A, and we'll continue to assess opportunities in conjunction with our financial goals.

With respect to our legal reserves, we booked $128 million in Q4, which includes $60 million related to ongoing litigation in the neuromodulation space and $68 million related to mesh product liability claims in Australia. There's been no material change to the outlook for the U.S. mesh claims over the last 3 years. Materially, all U.S. claims remain settled, and we continue to seek prompt resolution of active cases and claims.

Our total legal reserve was $548 million as of December 31, 2021. I'll now walk through guidance for Q1 and the full year 2022. As a reminder, guidance does not include the acquisition of Baylis Medical since it has not yet closed.

We expect full year 2022 operational revenue growth to be in a range of 7% to 9% versus 2021, which excludes an approximate 100 basis point headwind from foreign exchange based on current rates and includes 110 basis point contribution from the acquisitions of Preventice, Farapulse and Lumenis, and $13 million of pre-divestiture specialty pharmaceutical sale in 2021.

Excluding the impact of closed acquisitions and divestitures, we expect full year 2022 organic revenue growth to be in a range of 6% to 8% versus 2021. We expect first quarter 2022 operational revenue growth to be in a range of 7% to 10% versus 2021, which excludes an approximate 200 basis point headwind from foreign exchange based on current rates and includes 210 basis point contribution from the acquisitions of Preventice, Farapulse and Lumenis, and $13 million of predivestiture specialty pharmaceutical sales in 2021.

Excluding the impact of closed acquisitions and divestitures, we expect first quarter 2022 organic revenue growth to be in a range of 5% to 8% versus 2021. We forecast our full year 2022 operational tax rate to be approximately 13% with an adjusted tax rate of 12%, including the benefit from the accounting standard for stock compensation.

Of note, our forecasted tax rate includes a headwind from delayed provisions in the 2017 TCJA that take effect in 2022 related to the treatment of R&D expenditures. We believe there is bipartisan support to reverse these provisions and if such legislation were to be enacted, we would expect our tax rate to revert to its historic range of approximately 11% operational and 10% adjusted.

We expect adjusted earnings per share for the full year to be in a range of $1.73 to $1.79 and for the first quarter to be in a range of $0.38 to $0.40. A few other items to keep in mind as you look to model 2022.

We expect below-the-line expenses, which include interest payments, dilution from our VC portfolio and costs associated with our hedging program to be approximately $400 million for the year. Preferred stock dividends will be approximately $55 million for the year, and we expect a fully diluted weighted average share count of approximately 1.443 billion shares for Q1 2022 and 1.447 billion shares for the full year 2022. Please check our Investor Relations website for Q4 2021 financial and operational highlights, which outlines more detailed Q4 results.

With that, I'll turn it back to Lauren, who will moderate the Q&A.

Thanks, Dan. Andrew, let's open it up for questions for the next 30 minutes or so. (Operator Instructions) Andrew, please go ahead.

We will now begin the question-and-answer session. (Operator Instructions) The first question comes from Robbie Marcus with JPMorgan.

Maybe we can start on operating margins for 2022. Dan, just a few weeks ago, you reiterated the comment that you're planning on 50 bps margin expansion off of the second half run rate from 2021. And we ended up with a margin guidance lower than that, implies just very minimal margin expansion. So maybe walk us through what happened in the past few weeks. And are you returning to that 50 bps expansion target for 2023 and beyond?

Sure, Robbie. Yes. To be clear, the 50 basis points is the goal, has always been the goal and is the high end of our guidance range. So our guidance range is 26% to 26.4%. The second half average in 2021 was 25.9%. So the goal is absolutely still to deliver that 50 basis points.

Just given the macro environment and the headwinds from inflation and the Omicron surge and the global supply chain disruption, which have really intensified over the December, January timeframe, we just thought prudent to provide a range. But rest assured, our goal is still to deliver that 50 basis points. But as we have always done and being thoughtful in providing ranges, we thought prudent to provide that range of outcomes.

And for 2023, it's still the -- should we be thinking of this as the midpoint of ranges going forward? Or is it somewhere in the range? I think it's just a bit of semantics and how we think about it.

Yes. I would just -- good morning, Robbie. I would say, as Dan said, our goal is to deliver that in 2022, but we provided the range given the macroeconomic headwinds. We do believe that the second half of '22 should ease some of the supply chain and some of the macroeconomic headwinds that we see, as COVID continues to wane and supply chain gets more in order. So our goal for '22, just to reiterate, is to deliver that, but we provided that range.

As you look to '23 and beyond, it's tough to call that. But we do think, assuming that there's less COVID impact in '23 and as most people predict the supply chain continues to get more in line with norms, that the margin improvement opportunities potentially could be enhanced more in '23 versus '22, given the macroeconomic environment.

So our overall Investor Day goal of improving 50 basis points over the 3-year period per year, 150 basis points over 3 years continues to stay the same. There's nothing unchanged there. And we do think the macro environment will get better in the second half of the year, and our goal is to still deliver that number in 2022 despite the challenges.

The next question comes from Larry Biegelsen with Wells Fargo.

Congrats on a nice finish to the year.

Thanks, Larry.

Just on WATCHMAN, just what you've seen so far with Amulet. Boston -- I mean, I'm sorry, (inaudible) claims they had about 10% share in the U.S. in December. What are you assuming in the guidance for WATCHMAN growth in 2022? And how confident are you, you'll get the DAPT label in the first half of this year?

Sure. WATCHMAN, we had a fabulous year and a fabulous quarter. And quite frankly, the results in Q4 exceeded our expectations. And I think the big thing you're seeing that's maybe difficult for the competition to see is the size of the market growth. It continues to perform very well. With increased utilization by current doctors, opening new accounts, referring physicians' confidence in the WATCHMAN FLX product and also helped by the international market. So I think we're very confident going into 2022.

We think the share position that the competitor talked about is quite a bit elevated, and I think it's quite frankly a result of not understanding the size of the market and the market growth that we're seeing because fourth quarter 2021 results in terms of growth rate were really in line with what we saw in previous quarters. So we didn't see any hiccups in fourth quarter growth rate due to the size of the market.

So in 2022, we're going to lose some share. But we are very confident in the performance of the WATCHMAN FLX platform, the momentum that we have, the infrastructure that we have. We've got our super exciting clinical data set coming at CRT that Ian or Ken can comment on. So we're very bullish on WATCHMAN going forward here. And maybe you want to talk about the DAPT label.

Yes. I think that we're very confident, Larry, that we'll get that DAPT label in the first half of the year. We want the capability of being able to give patients the choice of DAPT or NOAC therapy. So we've resubmitted.

We feel pretty confident we've got that position. As you know, we already have that approval in Europe and great results in patients in Europe, who are on DAPT label. So we don't foreshadow any further problems in achieving that label.

The next question comes from Joanne Wuensch with Citibank.

Briefly, I'm curious about 2 things. The first one is your view towards M&A for this year. And then I'll just have the second one out there. Did I hear correctly that the Millipede program has been stopped? And if so, what does that mean for a mitral program?

Sure. I'll take the Millipede one. We made that decision really with the context of looking at across our portfolio at Boston Scientific and areas we can invest in, whether it be in structural heart, WATCHMAN complex coronary as well as understanding the Venture portfolio that we have and the near-term opportunities that we see coming over the next 12 to 18 months.

And quite frankly, when we look at the composite of opportunities across the company on pipeline products and our venture portfolio, as you know, we -- I think about half the deals that we've done in the last 2 years came from Venture portfolio. We feel that that's a richer opportunity set to invest our money in versus the Millipede program.

Importantly, the Millipede program was making progress. We've had some clinical success. It's a safe product. But when we look at the overall financial investment versus the market opportunity, we see better choices across our portfolio. And that really was the basis of it.

In terms of our structural heart portfolio overall, clearly, WATCHMAN's our biggest platform where we have multigenerational enhancements coming to that starting even in 2023 and clinical indications. The ACURATE neo2 trial is enrolling extremely well in the U.S., and we're anxious to get that fully enrolled, hopefully, by the year-end here. And we're seeing really nice success in growing share and growth in Europe.

In terms of other mitral opportunities, we do have multiple venture investments in that area. But importantly, we have a lot of investments that we're not going to detail through here in the emerging heart failure space that we like a lot in circulatory support, some organic programs and also in lithoplasty. So within the cardiology segment alone, there's a number of new opportunities that we see that we like. And obviously, across our full business, we have others as well. So that was the decision we made, and we think it was the best financial return on investment, looking at the portfolio broadly.

And then with respect to the first question on M&A, Joanne, suffice to say, the landscape and the pipeline is rich across the entire business. You heard me talk about it. We were very consistent that our #1 priority in capital allocation is high-quality tuck-in M&A.

And the list is long, and we have a lot of interest in various properties across basically all 7 of our business units. So likely not to see the level of activity that you saw in 2021, but you should certainly look for a handful of tuck-in deals for us in 2022.

The next question comes from Vijay Kumar with Evercore ISI.

Dan, I did have one on the guidance here. If I just look at the EPS guide at the high end, it's about $0.08 below the Street numbers rate. If I correctly understand, right, the moving parts here, the guide does not have Baylis, and I think Street numbers had Baylis, probably about some of the delta. With your comments on supply chain, Omicron, I mean, these were things that were known back in Jan, right, late December, early Jan. So it doesn't feel incremental given your comments about gross margins being up. It looks like a lot of this seems to be below the line in a tax and share count. So maybe if you could just walk us through that $0.08 delta versus Street on EPS. Is that the right way to think about the EPS delta? This is all below the line versus operating margins or a top line issue?

Sure, Vijay. I think I can probably be helpful in this regard. So from what I see, there's probably 3 key areas that would cause that difference. And I think you hit on a couple of them. First is the all-in tax rate, which we've guided to 12% with that TCJA provision that I outlined. That's versus our historical 10%.

So with each 100 basis points in tax being worth a couple of pennies, that's a $0.04 difference to what folks might have expected. And you mentioned this. When I look at some Street models, I think there's just some housekeeping and some modeling updates that need to happen with respect to those below-the-line expenses. We very clearly today said those should be $400 million for 2022.

That -- from what I see, that's worth some pennies as well depending on what folks have modeled. And frankly, the rest of the delta is that Street revenue and operating margin is at the high end of our guidance range. And relative to that, we believe our guidance range is appropriate to start the year, given the lingering uncertainty on COVID and the staffing front as well as the macro environment.

It's a long year. So we've got plenty of time left. And as we start the year, we wanted to make sure that we had a prudent range as we head into 2022. So that's the rest of the difference is if you look at that, the Street is just at the high end of our guidance range. So I think if you take those 3 factors, that does a pretty good job of reconciling the difference.

The next question comes from Daniel Antalffy...

On Baylis, maybe comment on that as well.

Yes. On Baylis, when we put out the press release for that announcement deal, we said that was $0.01 accretive in 2022, and we were very clear that's not in our numbers today. So if that were to be in people's numbers, that shouldn't be. And when it closes, we'll add that $0.01 back.

Yes. I think just on all this margin EPS questions, we -- our goal is to improve margins, and our goal is to get to 50%, but we want to provide a range given the environment, and we'll stretch to -- and we'll push to do it.

The tax rate is elevated given the -- what Dan's comments, the share count, the Baylis piece shouldn't be included there. So in terms of operating the business, the goal will be to continue to improve margins like we've done consistently and some of those below the line matters on tax and share count that Dan laid that out.

Sorry, go ahead, Andrew.

And the next question comes from Danielle Antalffy with SVB Leerink.

Not to -- I have 1 broad question and 1 WATCHMAN specific question. But not to harp on this guidance issue. But it seems like people came away from your comments a few weeks ago, a little bit more bullish about how to think about 2022. Dan, I just want to make sure that we have the messaging correct, that the wider range is really reflecting more conservatism than anything that's materially changed versus a few weeks ago? That's my first question, and I just have one quick WATCHMAN follow-up.

Sure. I think -- I mean some things have changed. Obviously, the tax rate has changed as we've gotten into January. So that's -- we guide. I hadn't given tax guidance. We guide at the time of what the tax laws that are enacted at the time, and that's the 200 basis points.

Relative to the macro environment headwinds, we actually have seen some things get a little bit worse in January. The COVID absenteeism in our manufacturing plants -- we now have closed the books for Q4. We know what manufacturing variances are on the balance sheet as of the end of last year. And you've seen some of the data, recent data on inflation and the global supply chain disruption.

So again, I wouldn't call it necessarily conservatism. I would just say we think it's an appropriate range. And to state what Mike and I have said all through, 50 basis points is the goal. The 26.4 is what we're going to work hard to deliver as a team. But given the macro environment, we just thought it was prudent to provide that range.

Got it. Yes. Understand. And then just a follow-up on WATCHMAN. Given the competitive entry, I was just curious about what you guys are seeing from or expecting maybe is a better way to talk about it from a growth -- market growth perspective. Historically, cardiology markets when they go from a monopoly to a duopoly, expand pretty meaningfully. Just it's very early days, I appreciate that. But sort of how you're thinking about the market expansion potential with the second player now in the market?

Yes. They're a strong company, and they're running good clinical trials, just like we are, which are -- potentially could expand the market over time. And it's an exciting market.

We called at Investor Day a 30% growth market, and we're clearly seeing that type of market growth, if not slightly more, given what we saw in Q4. So the market is growing very well. I think the additional data that will continue to lay out with WATCHMAN FLX will continue to differentiate our platform in terms of its safety profile and ease of use. And we've got a very strong global infrastructure in place. So there's just a lot of momentum there. And so we're quite confident.

We're going to lose some share given a second player in our strong position here, but this will be a meaningful driver for us in '22 just like it was in '21.

The next question comes from Matt Miksic with Credit Suisse.

So I had one follow-up on some of the portfolio and investment and strategic comments that you made regarding Millipede and sort of the other options that are out there. If you could talk maybe a little bit about one of the areas I don't think you mentioned was tricuspid and other sort of structural heart opportunities and as well as digital. And any understanding HeartLogic is a big part of your CRM strategy. Maybe if you could comment on further investments there? Or to what degree you view either one of those as strategically important? And I have one follow-up, if I could.

Ken, you want to start with the HeartLogic stuff and maybe Dr. Meredith on the structure.

Yes. Thanks, Matt. Again, rebaseline everyone HeartLogic is our proprietary diagnostic currently implanted in our ICD CRTD devices proven to provide the median a month of warning prior to impending heart failure decompensation.

And as we've discussed previously at Investors Day, right, our goal is to take that same technology and enable it on our LUX-Dx implantable cardiac monitor platform, broadening its applicability beyond just the heart failure patients who are eligible for ICD CRTD devices but really to broaden the entire population of patients with heart failure. And we are currently engaged in a clinical trial, our LUX-Dx trend study that gets to exactly what the modifications are. We need to make the algorithm in order to bring it onto that platform. But we do have a high degree of confidence that we will eventually be able to do that, and we have been granted breakthrough designation by the FDA in that effort.

And touch on the other areas in structural?

Yes. Thanks, Mike. Thanks, Ken. With respect to trisuspid, we see this as a very important field and a growing field, particularly with the aging population and increasing burden of heart failure. As Mike said, the decision with respect to Millipede wasn't a decision to get out of mitral and tricuspid, it was simply a decision to focus on the execution of existing and future technologies we have both in the structural heart space and across the portfolio.

We have continued interest in that tricuspid space and investments that we won't outline here. But this shouldn't be taken as a decision to move away from the mitral and tricuspid space.

Okay. Great. And then just one follow-up. You have, obviously, a lot of strong growth drivers contributing currently and in Q4. But importantly, throughout 2022, you have this cadence of new -- of acquisitions that are kind of rolling in. You mentioned the 200 basis points contribution reported not organic in Q1. Can you maybe just give us a thumbnail sketch of how the quarter-to-quarter, what those additional acquisitions will look like in terms of additive organic growth throughout the year, that would be super.

Matt, I can take that offline when you -- we do talk about as they phase in, Preventice is first on March 1. And then the next one is really Farapulse in August and then Lumenis in September, but we can talk about that offline.

Yes. So I think the short story in that would be obviously some -- there'll be some benefit in '22.

Primarily from Preventice and some from Farapulse, and a lot more benefit in '23 as you anniversary the 1-year operational number. So there'll be some nice impact in '22, but more limited and stronger in '23.

I think it was a question I think what I'm really proud of in terms of as we finish the year is the share performance across the businesses. And I mentioned that in the script, beyond the acquisitions, which we're excited about that we did in '21, and we'll likely do a few more in '22, just the overall strength of the portfolio and the strength regionally. Each region performed extremely well.

And fourth quarter is probably our best quarter for the year in terms of our share position across the company, where we feel like we actually gained share or held share in every single business. And for the full year, the only really soft spot was some CRM, but fourth quarter had a nice quarter in CRM as well. So the trend exiting the year was quite good. We did provide appropriate guidance given the environment, but the momentum that the business has regionally and across each BU, something we're quite proud of as we enter '22 here.

The next question comes from Matt Taylor with UBS.

I just wanted to ask you one about your assumptions for recovery. I didn't hear a lot of color that you gave on recent trends. Maybe you could give us an update there and talk about how quickly you think things could come back here in the second half of Q1, and what's imputed into your range, the high end and the low end for recovery through the year?

Yes. Thanks, Matt. So to be clear, our assumption is that the macro environment factors of inflation and supply chain, they're present for all of '22, but they wane throughout the year, right?

And just as you look at the global supply chain disruption, as supplies continue to get more normalized, you would expect that, that would have an impact on moderating prices. And that -- we see that -- I don't think we're the only ones. We see that moderating as we go through 2022 as well with COVID, we're obviously -- Omicron has had impact in December and the first part here of Q1.

But as we look at the rest of the year, the goal is and the belief is that there will be less impact in '22 than there was in '21. So we see a brighter future, particularly as you get to that second half, as the macro environment gets a little bit better, COVID waned even more than it had in '21, and that gives us reason for optimism as we go through the year.

And just frankly, just relative to operating margin and gross margin, that should lead to higher gross margin and higher operating margin as we progress through the year. That's a historical trend that we've had in the past, but it also should be true in 2022, that it should get better as it goes through '22, and that's underlying in the guidance that we gave.

We've become pretty good at seeing what happens with our business when there's COVID peaks, and that's why you see wider ranges and you see how strong the business is when COVID wanes. So I'm not the expert on this anymore, that's for sure.

But we do believe it will be a better full year COVID impact in terms of less impact in '22 versus '21, and you're starting to see some improving trends recently. So it points to a hopefully, this kind of what we saw in December, January -- February is the, hopefully, the toughest part in terms of COVID impact and staffing shortages, and we expect that to get better as the year goes on.

That's really helpful. Could I ask one quick follow-up? I mean, I guess, in this immediate period post Omicron, do you expect more of a quick snapback or a more gradual recovery in terms of what you're seeing so far and formed by prior periods?

Well, I just look at this time last year, Dan will have all the numbers. But we saw a slower first quarter 2021, and we saw a fantastic second quarter. And then we saw a little slowdown in the third quarter as another wave came and we had improved fourth quarter.

So the business snaps -- the business is quite good anyway. So it's not like it needs to snap back. But if the business is quite good and we see when COVID wanes, the business responds quite well, especially divisions like urology, neuromodulation and others, who are more greatly impacted. So we've seen a couple of year trend now what happens during COVID waves. And we've learned how to manage through that well while improving margins, by the way. And we also know when it wanes, the business is quite strong.

The next question comes from Cecilia Furlong with Morgan Stanley.

I wanted to ask just on your EP business specifically. Can you talk about what you're seeing in Europe just in terms of early Farapulse versus cryo versus RF trends? And then just beyond that as well. Can you provide an update on your Farapulse U.S. trial, where enrollment stands there as well as what you're seeing in Japan specifically around POLARx?

Dr. Stein, do you want to answer that one?

Yes. Thanks, Mike. Thanks, Cecilia. A lot there to unpack. Let me just start again with Europe. And as Mike laid out in the script, we're really extremely pleased with the growth of the business in Europe. And that growth really has been broad-based. I mean it's all 3 of the technologies that you mentioned, right?

StablePoint, our unique catheter that combines force sensing with our proprietary DirectSense technology; POLARx, our differentiated cryo balloon and then really overwhelmingly positive reception to Farapulse as we started early commercialization of it in Europe and really seeing fantastic growth in accounts that we've been able to open with the technology, we continue opening new accounts.

In terms of our progress with the ADVENT trial in the United States, again, we are very pleased with the pace of enrollment in the trial. As I think I've said in other settings, it's an adaptive trial design. So we can't tell you exactly how many patients we're going to need before we close it.

But we continue to be on pace with what our expectation was when we closed the deal and what we've said that previously at things like Investors Day and are very anxious to get that trial fully enrolled and complete our 1-year follow-up and submit to the FDA.

And the next question will come from Pito Chickering with Deutsche Bank.

If you drill into neuromodulation for the fourth quarter, there is some COVID impact, which makes sense due to the deferability of the procedures. But can you give us any color on backlog as to the staffing and any color on geographic growth within the division, specifically Europe versus the U.S. And on the product side, any color on DBS growth as the COVID headwinds fade?

And then finally, how should we think about SCS competition in 2022 with DPN approvals for Medtronic and Nevro?

Sure. I'll do my best to try and answer some of that. Similar to our urology business, the neuromodulation business, and we've seen this kind of across the board with some elective procedures, kind of down quite a bit as COVID wades with cancellations and rescheduling and a bit of a frustrating process there.

But you can't control the market all the time. And we've seen how quickly it snaps back. If you look at second quarter '21 with our results with Neuromod. But I think encouragingly, despite that difficult market, full year, it grew 90% versus '20 and flat versus '19. Fourth quarter grew 6% versus '20 and minus 7%. So that's actually faster than what our -- some of our competitors have outlined for the fourth quarter. So we're pleased with the overall performance of the group.

You can ask them to do much more than -- to gain share and continue to invest in capabilities for the future, and the market will improve. So I think that's a good signal for, as you look at 2022 and beyond, and a lot of that is being driven by just the innovation we have in that business and our commercial teams. This fast algorithm that we have with SCS and the data that was presented at NANS supports the share gains that we're seeing. And these clinical indications, they're certainly something that we're interested in.

We are enrolling in our Virgin Back trial in 2022, and we have plans for DPN as well. So those will continue to expand the marketplace. But the market primarily in '22 will be all about spinal cord stimulation and treatment of pain, which we're doing quite well. DBS, it's a great story for us. We continue to invest in that business. That has been impacted by COVID, and that's another area that kind of snaps back when COVID wanes. But nonetheless, it's become a sizable business for us. We have a significant share position in Europe and the U.S., and we expect that to be again a nice growth driver for us in '22.

This concludes our question-and-answer session. Go ahead.

Sorry, Andrew. 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, Andrew will give you all the pertinent details for the replay.

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 3099327 until February 9, 2022 at 11:59 p.m. Eastern Time. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.