Abbott Laboratories

Good morning and thank you for standing by. Welcome to Abbott's fourth quarter 2024 earnings conference call. All participants will be able to listen only until the question and answer portion of this call. During the question and answer session, you will be able to ask your question by pressing the star 1 1 keys on your touchtone phone. This call is being recorded by Abbott. With the exception of any participants questions asked during the question and answer session, the entire call including the question and answer session, is material copyrighted by Abbott. It cannot be recorded or rebroadcast without Abbott's express written permission. I would now like to introduce Mr. Mike Camilla, Vice President, Investor Relations.

Good morning, and thank you for joining us. With me today are Robert Ford, Chairman and Chief Executive Officer, and Phil Boudreau, Executive Vice President, Finance, and Chief Financial Officer. Robert and Phil will provide opening remarks. Following their comments, we'll take your questions. Before we get started, some statements made today may be forward-looking for purposes of the Private Securities Litigation Reform Act of 1995, including the expected financial results for 2025. Abbott cautions that these forward-looking statements are subject to risk and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. Economic, competitive, governmental, technological, and other factors that may affect Abbott's operations are discussed in Item 1A, Risk Factors, to our annual report on Form 10-K for the year ended December 31, 2023. Abbott undertakes no obligation to release publicly any revisions to forward-looking statements as a result of subsequent events or developments except as required by law. On today's conference call, as in the past, non-GAAP financial measures will be used to help investors understand Abbott's ongoing business performance. These non-GAAP financial measures are reconciled with comparable GAAP financial measures in our earnings news release and regulatory filings from today, which are available on our website at abbott.com. Note that Abbott has not provided the related GAAP financial measures on a forward-looking basis for the non-GAAP financial measures for which the company is providing guidance because the company is unable to predict with reasonable certainty and without unreasonable effort the timing and impact of certain items which could significantly impact Abbott's results in accordance with GAAP. Unless otherwise noted, our commentary on sales growth refers to organic sales growth, which is defined in the press release issued earlier today. With that, I will now turn the call over to Robert.

Thanks, Mike. Good morning, everyone, and thank you for joining us. First, I want to express gratitude to my Abbott colleagues around the world whose hard work and passion are the driving forces of Abbott's continued success. Abbott's commitment to innovation, operational excellence, and serving the needs of our customers resulted in another year of exceptional performance, which included achieving sales growth of 9.5% excluded COVID testing, delivering 70 basis points of gross margin profile improvement, driving acceleration in the growth of our earnings per share throughout the year, and developing and advancing new products through our rich pipeline. The strong performance resulted in generating $8.5 billion of operating cash flow, which was used to reinvest in the business, fund capacity expansions, repay debt, and return $5 billion to shareholders in the form of dividends and share repurchases. These accomplishments played a key role in continuing our well-established track record for delivering on our financial commitments which included achieving results that finished at the high end of our initial guidance ranges we provided for 2024. These results included exiting the year with a very strong momentum as fourth quarter sales grew 10 percent, excluded COVID testing sales, and adjusted earnings per share increased 13 percent versus the prior year. For 2025, we're well positioned to deliver another year of strong growth. As we announced this morning, we forecast organic sales growth to be in the range of 7.5% to 8.5% and adjusted earnings per share to be in the range of $5.05 to $5.25, which reflects double-digit growth at the midpoint. I'll now summarize our fourth quarter results in more detail before turning the call over to Phil. I'll start with nutrition. Our sales increased 7% in the quarter. Growth in the quarter was driven by double-digit growth in adult nutrition, led by our market-leading Ensure and Glucerna brands. We achieved a significant milestone last year, with annual sales of Ensure surpassing $3 billion. This achievement helped deliver another year of strong performance in adult nutrition, with annual sales of adult nutrition products growing 9% last year. This strong performance is a continuation of a well-established trend. The five-year compound annual growth rate in adult nutrition is 9%, which reflects the impact of our well-known and respected brands, favorable demographic trends, and the significant investments we've made to expand manufacturing capacity to serve the growing global demand for our products. Moving to diagnostics, where sales increased 6% excluded COVID testing sales. Growth in the quarter was led by rapid diagnostics, where excluded COVID testing sales increased 16% in the quarter. This was driven by strong demand for our portfolio of respiratory disease tests used to help diagnose influenza, strep throat, and RSV. In core laboratory diagnostics, growth of 4% was driven by continued strong demand for our market-leading immunoassay clinical chemistry, hematology, and blood screening testing panels. Excluding the impact of challenging market dynamics in China, the combined growth in all other markets was double digits in the quarter. Turning to EPD, where sales increased 8.5% in the quarter, Growth was well balanced across markets and therapeutic areas that we participate in, including gastroenterology, women's health, CNS, and pain management. EPD also delivered broad-based growth across the markets we serve, including double digit growth in several countries across Latin America, Southeast Asia, and the Middle East. By focusing on the therapies most needed In these faster-growing markets, we continue to sustain our long track record of delivering strong growth, which includes a five-year compound annual growth rate for EPD of 8%. And I'll wrap up with medical devices, where sales grew 14%. In diabetes care, sales of continuous glucose monitors were $1.8 billion in the quarter, and grew 23%. For the full year 2024, sales of continuous glucose monitors were approximately $6.5 billion and grew 22%. This included growth of 27% in the U.S. where our market share on a revenue basis has increased by more than 10 share points over the last three years. In electrophysiology, growth of 9% was well balanced across the U.S. and international markets. As expected, growth in the quarter was impacted by a challenging comparison versus the prior year where we saw a sharp increase in demand for our end site cardiac mapping systems as customers prepared for the launch of PFA catheters. Excluding the impact of this prior year comparison dynamic, growth would have been double digits globally, in the US and internationally. In structural heart, growth of 23% was driven by strong performance across our market leading portfolio of surgical valves, structural interventions, and transcatheter repair and replacement products. Structural heart represents one of the most attractive areas in the field of medical technologies. It is an area that we have invested in heavily, and we're seeing those investments yield outstanding results. Our comprehensive portfolio of products drove an acceleration in sales growth in structural heart throughout the year. In rhythm management, growth of 7% was led by Avere, our innovative leadless pacemaker, and Assert, our newest implantable cardiac monitor, which we launched in the US last year. With growth of 7% for the full year, Our rhythm management business delivered another year of performance that far exceeded the market, and we expect that to continue this year. Last month, we announced that we completed the first in human implants of a new version of Aver specifically designed to deliver pacing to the left bundle branch area of the heart, activating the heart's natural conduction system. This highly innovative device currently in development was granted breakthrough designation by the FDA. In heart failure, growth of 9.5% was driven by our market-leading portfolio of heart assist devices, which offer treatment for chronic and temporary conditions. In vascular, growth of 7% was led by double-digit growth in vessel closure products, and growth from the spree are below the knee resorbable stent. And lastly, in neuromodulation, sales grew 8% driven by strong demand in international markets for our Eterna rechargeable spinal cord stimulation device. So in summary, we delivered another quarter of strong growth, with sales growing 10% and earnings per share growing 13%. For the year, we achieved the upper end of the initial guidance ranges we provided for 2024. We made great progress expanding our gross margin profile, and we expect that progress to continue into 2025 The pipeline continues to provide a steady cadence of new growth opportunities and we're well positioned to deliver another year of strong growth in 2025. And I'll turn over the call to Phil.

Thanks, Robert. As Mike mentioned earlier, please note that all references to sales growth rates, unless otherwise noted, are on an organic basis. Turning to our fourth quarter results, sales increased 8.8% on an organic basis and increased 10.1% when excluding COVID testing sales. Foreign exchange had an unfavorable year-over-year impact of 1.4% on fourth quarter sales. During the quarter, we saw the US dollar strengthen against most currencies, which resulted in unfavorable impact on sales compared to exchange rates at the time of our earnings call in October. Regarding other aspects of the P&L, the adjusted gross margin ratio was 56.9% of sales, adjusted R&D was 6.3% of sales, and adjusted SG&A was 26.3% of sales in the fourth quarter. Lastly, our fourth quarter adjusted tax rate was 15%. Turning to our outlook for 2025, today we issued guidance for full year adjusted earnings per share of $5.05 to $5.25, which reflects double-digit growth at the midpoint of the range and contemplates an adjusted earnings per share forecast of $1.05 to $1.09 for the first quarter. For the year, we forecast organic sales growth to be in the range of 7.5% to 8.5%. Please note that we are no longer providing separate guidance for the sales growth excluding COVID testing sales, as COVID testing sales represents less than 2% of total company sales in 2024. Based on current rates, we would expect exchange to have an unfavorable impact of around 2.5% on full-year reported sales, which includes an expected unfavorable impact of approximately 3.5% on our first quarter reported sales. We expect our full year 2025 adjusted gross margin profile to be around 57% of sales, which reflects an improvement of around 80 basis points versus the prior year. We forecast our full year 2025 adjusted operating margin profile to be in the range of 23.5% to 24% of sales, which reflects an improvement of 150 basis points versus the prior year at the midpoint of the range. This improvement is driven by a combination of strong gross margin expansion and operating margin leverage. We forecast our adjusted tax rate to be in the range of 16 to 17%, which reflects an increase compared to last year related to the adoption of the Pillar 2 tax framework. With that, we'll now open the call for questions.

Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone. You will then hear an automated message advising you that your hand is raised. To withdraw your question, please press star 11 again. For optimal sound quality, we kindly ask that you please use your handset instead of your speakerphone when asking your question. And again, that's star 11 to ask a question. Please stand by while we compile the Q&A roster. And our first question will come from Robbie Marcus from JP Morgan. Your line is open.

Oh, great. Thanks for taking the question. Congrats on a nice quarter and guide. And maybe, Robert, I could start with the 2025 guide. Once again, guiding to high single-digit organic sales growth, healthy operating margin expansion, and nice to see 10% EPS growth back in the algorithm again. Maybe you could just speak to some of the key growth drivers and how we should think about the different business segments on the top line and some of the components of the operating margin expansion down the P&L. Thanks a lot.

Sure, Robbie. Yeah, it's nice to see kind of the headline print now back to double-digit EPS growth. I think that's probably one of the things that – it's one of the things you'll see now, Ravi, as we go into 2025. I mean, you've got a lot of growth drivers there, but I think one of the big things is that you don't have the COVID sales decline cloud that's kind of overshadowing all these real strong growth drivers that we got in the business. And you saw that in in Q3 as we showed 13% EPS growth, sorry, in Q4 as we showed 13% EPS growth. So I think that's one big aspect is just not having those sales decline. I mean, we've got COVID sales in 2025, but it's, as Phil said in his comments, significantly less from our total revenue perspective. I think it starts with the top line always, Robbie. And the markets that we compete in, they remain attractive. We're seeing acceleration in several of them. I mean, we're a very diversified healthcare company, so we get to benefit from all the different dynamics that are going on in healthcare, whether it's increased health and wellness focus from consumers. We get to benefit from that on our nutrition business. Every treatment requires a diagnostic test. About 70% of them require a diagnostic test, so we're seeing continued growth over there. You know, we've got two areas where we focus on treatments, whether it's pharmaceuticals or med tech. And so all of those markets, they're accelerating. And then within them, we've got strong product portfolios that are either keeping up with these very high growth markets or, you know, we're outperforming the markets and taking shares. And if you look at the contributions, we've got, you know, your current drivers, whether it's Libre, Triclip, you know, Avere, Navator, you know, Amulet. all of those products in the cardiovascular space. So the bases are loaded, I would call that. And then you've got nice on-deck circle and a lineup of batters that are coming up right after that, whether it's biosimilars, Volt, innovations in the Libre portfolio, some clinical trial readouts. So I think we feel very good about all of the businesses. And you saw all of the businesses improve their growth from Q3 to Q4. So I think it starts with the top line, and I think we're well positioned in them. To your question on the margin drivers, I'd say we've done a lot of work on gross margin expansion. We've talked about that, committing to a 70 basis point improvement in 2024. We achieved that. We believe that we can achieve another 80 basis points of improvement in 2025, and that's what's embedded in that guide is continuous improvement. on the gross margin in the tune of 80 basis points, really driven by continued focus on gross margin improvement programs and then mix as some of the higher gross margin products continue to grow ahead of the company average. You get that mixed effect. And then down the P&L, I think you've got an opportunity, as we talked about in the past, to be able to leverage the business and obtain spending leverage across the business. And again, I think that was another Another challenge we had during COVID or as the COVID was coming down, we really only relied on one lever of margin expansion, which was gross margin improvement. I'd say now you've got two. We actually have two, which is our original formula, gross margin expansion and then spending leverage. So you put all that together. You've got about 16% actually underlying growth in the EPS coming from the top line, the gross margin improvement and the spending leverage. And then we've got obviously some friction on FX. I think every company is going to face that as we've seen the strengthening dollar and increased tax rates, which also aren't a surprise. We've known about that. And so that brings us down to that. down to that 10%. So I kind of look at this and say, okay, what you see now for 2025 is the Abbott that we know, the Abbott identity that we built, which is high single-digit top line, double-digit bottom line, gross margin improvement, spending, leverage and productivity, strong operating cash flow. We know how to deal with FX, so we deal with it every year, and we're dealing with it again this year and still being able to deliver double-digit EPS. dealing with the higher tax rates. I think I saw some notes about calendarization, about maybe Q1 not coming in. I could tell you we looked at our Q1 and all of our gating, you know, all of our gating or EPS is very much aligned to what it was in 2024. It's very much aligned to what it was pre-COVID. So again, all the elements of Abbott and the Abbott identity that we know are there and we're looking forward to 2025.

Great. Thank you very much.

Thank you. Our next question will come from Larry Beagleson from Wells Fargo. Your line is open.

Good morning. Thanks for taking the question. So, Robert, I guess you talked about, you know, it starts with the top line. You had another really strong year for CGM with over 20% constant currency growth on $6.5 billion in sales. So I'd love to hear you talk about your expectations for growth in 2025 and the status of the Libre 3 supply issues and any color you have on the Lingo launch. Thank you.

Sure. So let me talk about Libre 3 supply. As we spoke about during the last call, Larry, there was a little bit of a mismatch between our manufacturing coming up online and the demand that we were seeing, especially here in the U.S. That caused a little bit of friction there, but as I said, we were in process of getting our new manufacturing site up and running. Um, I was there in November, um, and, um, seeing the team and, you know, that's going now at full force. Um, so Libre three, uh, supply with two manufacturing sites, uh, up and running. And, um, I think you'll start to see, uh, throughout the next, uh, you know, one or two, uh, quarters, uh, a change, a change here in a little bit on the MBRXs on the TRXs. I know you guys like to look at those, uh, um, quite often, I guess. Those are an important metric to look at, Larry, but they're not the only metric to see how the businesses are doing. I mean, I think you saw that in our Q4, we're able to grow the U.S. 24%. So there are other elements that aren't measured. I think you guys also saw the impact of relying exclusively on those data in Q3 as competitors had challenges also. So it's an important metric to look at, but I would say it's not the only ones, and I think we've kind of shown that here. So Libre 3 is doing pretty well, and it's just going to get better. As I look at 2025, I'd say there's some pretty interesting kind of growth drivers here for us. I'd say first is a base case. I still think there's under penetration in the intensive insulin using segment. I mean, if you look at the U.S., there's still 25% of that segment that are not on CGMs. And if you think about that internationally, it's more like 50%. So I still think as a base case to driving all this growth, there's all this opportunity in this segment. But I think there are three areas in 2025 that I believe accelerates that opportunity for us. One of them is obviously basal coverage, and we continue to see with the publication of more clinical evidence, you see more and more markets move towards expanding basal coverage, reimbursement coverage. Now, we have a couple markets where we're the only ones that do have that coverage, whether it's Japan or Canada. These are large markets. So these are great opportunities for us where we've got this head start, and we'll keep on driving that. So I think basal is a big bucket of growth. I think the other area that I've talked about as being an area of growth for us is more a kind of share, ability to take share, and that's through connectivity strategies with insulin delivery systems. We've been talking about all the things that we've been doing in regards to partnership with insulin pump companies, and I think you'll see throughout this year several announcements on, you know, connectivities and different geographies, and that gives us the opportunity to penetrate, albeit a smaller segment, but be able to penetrate that segment and take share. And I think the third area of growth for us of acceleration is just the whole OTC non-diabetes application with the launch of Lingo. Continue to see very nice trends. We've launched it in a restricted number of U.S. cities. But I think now that we understand what it takes to be able to drive adoption with this completely different consumer segment That will probably be expanding this And expanding this more nationally here in the US and and potentially looking at other areas Internationally do to bring this so I think the lingo is Launch is going very well in several areas. I think it surpassed some of my expectations, especially regarding reorder rates. And I think those continue, and I think that's going to be another kind of leg of the stool, so to say, on this growth. So I think those are really the kind of growth drivers that we've got planned for Libre. I think the insulin, intensive insulin segment is still an opportunity, a pretty significant opportunity. And then you've got these three accelerators on top of that.

Thank you very much.

Thank you. Our next question comes from Travis Steed from B of A Securities. Your line is open.

Hey, thanks for taking the question. I wanted to ask about EP growth. Still strong high single digits in the quarter, and I think it was even faster than that, excluding the tough mapping comp. There's a lot of things moving around in that market right now. One competitor had a big setback in PFA, and your progress is moving forward with both. So just thinking about how how you're thinking about ET growth in 25 as you bridge to PFA in 26 and your ability to kind of regain market share once both launches?

Sure. Yeah, I mean, I think, you know, this wasn't a surprise for us, and it wasn't really driven by any kind of adoption of PFA regarding our Q4 growth rate. In fact, as I've said in previous calls, I think, you know, the net effect for us, the net effect for us has actually been very positive. What we did have was an execution of that strategy, Travis, where we said, OK, we're going to bridge ourselves. And one of the ways to do that is through our mapping. And that's what really drove our success in 2024 is what we did in Q4 of 2023, really taking advantage of our ability to offer the only real open, truly open mapping system. So that created that comp issue. It was double digits in Q4, 12% in the US, 12% internationally, so still seeing very good. I think, again, I would say these results, I think we outperformed a lot of the expectations that many of you guys had about our AP business. The driver of that has been the team. The team in the field has just been spectacular, I think. And I've been close to them last year, and I think what they did was really strong. So I guess I answered your question in 2025, really looking at what we did in 2024. And I expect to continue to benefit in 2025 from just the general increasing procedure trends. We've got opportunities to grow with some recently launched products, whether it's our GRID-X, our next generation mapping catheter, our new Agilis introducer sheath. I mean, that's a great opportunity for us also. So, yeah, it's going to be a little bit more competitive. It's been pretty competitive in 2024. I expect that intensity to increase when it comes to the ablation catheters, but I'm confident that we can maintain a strong position in the mapping segment and everything that comes with all the consumables that come with that. On top of that, our pipeline is very strong. We'll continue to engage KOLs and our customers. We've got an ongoing trial right now with a dual energy source catheter internationally and in the U.S. We've got integration with ICE. you know, kind of new sheets to launch. So I think the pipeline allows us to continue that interaction with the KOLs and with the users. So we should expect, you know, I think you mentioned bridging to PFA in 2026. It's more like 2025 on PFA, at least internationally. So I feel good about it. And, you know, maybe you've got a tail of two halves. where the second half is going to grow faster than the first half as Volt comes on board. But I'd say for the full year, high single digits seems like a good place to start. Call that our base case. And then to the point that you made about competition and some of the dynamics that have occurred the last couple of weeks, it's still a bit too early to tell, but that could be an opportunity for us also. So I feel good about the business, not only the pipeline, but More importantly, the team that we've got, they're doing an incredible, real strong job.

Great. Thanks a lot.

Thank you. Our next question will come from Vijay Kumar from Evercore ISI. Your line is open.

Hi, Robert. Thanks for taking my question, and congrats on a strong finish to the year. I guess I had a two-part question, if you don't mind answering. you know, really strong operating margins, you know, driven both by gross margins and operating leverage. But your gross margins are still below pre-pandemic levels. I'm curious, when you look at the margins, how sustainable are these trends? Perhaps not at triple digits, but should we be thinking about trend margin framework as gross margins normalize? And my second part is on balance sheet. I'm curious. There's been some M&A activity picking up in MedTech. How are you thinking about devices versus diagnostics? I'm curious. Any thoughts on that cancer screening, MRD, et cetera?

I'll let Phil talk to the gross margin, the sustainability of that margin improvement, and then I'll take your balance sheet question.

Yeah, thanks, Robert and Vijay here. On the gross margin front, I think we spoke to this the last few calls, and nothing here has really changed relative to an underlying focus of the business and of the organization, as Robert touched on here. I think the difference in recent years causing that erosion was the significant inflation in commodity prices, which has really sort of resorted back to, I'd call it, normalized inflationary pressures that we're very much accustomed to managing through with our organizations and focus on gross margin expansion. And so what you saw in 2024 was exactly that, the recipe we're accustomed to and the commitment in 2025 to do much of the same. So from an expansion standpoint, we expect this to continue, and it's not a matter of if but when we get back to kind of the legacy and historical gross margin profiles.

Yeah, I guess on your question on balance sheet, I've always talked about this, Vijay. I mean, we do take this kind of balanced approach. I'm not going to give you a formula of how much goes to here, how much goes to there. We do take a balanced approach. And on your M&A question, yeah, there's been an uptake of activity, no doubt. You know, there are some good opportunities out there. and you know whether and I don't think you're going to see a Change in kind of rate environment, but maybe on the regulatory environment. I think that you know creates opportunity I've said that we've got a strong organic pipeline It allows us to be selective allows us to look opportunities that you know make sense strategically, but also generate an attractive return I talked about how ROIC is important for us also, so not just top line, but return on that capital. So we do take a position here of being stewards of that capital. So I'd say, yeah, we're in a great position. We do have some debt to pay down this year, which we will. I don't anticipate rates coming down to the point that we might want to look at refinancing that. So we'll pay off that debt. It's about $1.5 billion this year. But even with that, we're in a great position with our balance sheet to be able to, you know, leverage opportunities that we'll see. I talked about them. There's opportunities in med tech. There's opportunities in diagnostics. And, you know, we're in a great position. It allows us to be selective.

Understood. Thanks, guys. Thank you. Our next question will come from Josh Jennings from TD Cowen. Your line is open.

Hi, good morning. Thanks for taking the questions in. Echo VJ has congratulated on a strong finish to the year. Another margin question, just because the operating margin guidance for 2025 was stronger than expected. I think you talked about a lot of the drivers, Robert and Phil, but just a continued positive mix shift from stronger medical device contributions and the strong top line growth. I was hoping You may just help us think through just the margin expansion opportunities in EPD, nutrition, and diagnostics, and just with the outsized expansion in 25. Now, how should we be thinking about sustained operating margin expansion in 26 and beyond? I mean, should we be thinking about 50 to 100 basis points a year? Appreciate you taking the question.

Yeah, I mean, I'd like to get to that pre-pandemic gross margin. I mean, I know we talk a lot about this being behind where we were from a pre-pandemic, but our op margin profile, especially after our guidance for 2025, is actually ahead of that. So we've been able to achieve that through our spending and spending efficiencies. But I think that's the right range to have. I mean, I think we've always had this notion. I mean, I talked about being able to offset FX and things like that and not provide any surprises, that's part of the algorithm there, which is we're just constantly having to address gross margin. It's not like this initiative either because of inflation or because of tariffs or anything like that. It's just we're constantly working to improve gross margins. I'd say On the nutrition side, those gross margins, given what we encountered over the last two years, those came down. But if you look at them, they have been improving sequentially almost like every quarter. We've got a ways to go to get back to where we were in 2022, Josh. That's a little bit more dependent on commodities and and freight and distribution, things like that. But I think the teams have got a really good strategy here of kind of working on cost to serve and even, quite frankly, using some pricing where we felt we had to because of some of the increase in those commodities. So I think the nutrition gross margin is definitely an opportunity that we've got over the next couple of years. The pharmaceutical teams have done an incredible job at maintaining a gross margin under pretty significant effects. I mean, they do a fantastic job at offsetting effects. If you look at the margin profile in that business, it's actually increased several couple hundred basis points over the last couple of years. So they've been able to do that also through gross margin. And I think the other element is just ensuring that we keep on driving the med tech business that have accretive gross margins, quite frankly, across all of those different business units. And if we can continue to do that, then that's how you get to that model of maybe 50 to 100 basis points, you know, every single year. That's our target. You know, we committed to 70 and we delivered to 70. We're now committing to 80 for 2025 and, you know, getting us closer to where we were pre-pandemic. So I feel good about what we're doing, the strategy we've got in place, the discipline that we have as a management team to review these programs and dedicate time. They don't just happen. We've got to make decisions. There's oversight. So I feel good about it.

Excellent. Thanks again.

Thank you. Our next question will come from David Roman from Goldman Sachs. Your line is open.

Thank you. Good morning, everybody. I was hoping, Robert, you could go into a little bit more detail on the structural heart business. As you kind of break down the pieces of that portfolio, you have a balance of drivers, some more legacy like MitraClip and some that are more emerging categories like TriClip and the TriCuspid repair segment. But maybe you could help us think about the evolution of that business, which did very nicely through 2024 and how we should think about that. into 2025. And maybe that could just contextualize the broader outlook here. And I appreciate your comments about getting back to the habit of high single-digit top line and double-digit bottom line. But it looks like 2025 does carry some headwinds that may prove to be one time in nature, like VBP dynamics in China, on the diagnostic side, the transient competition in EP. So maybe you could kind of give us some color on structural heart, but also help contextualize the growth rate in 2025 as we think about the long term as well?

Sure. I think it's interesting, like the sixth question comes on structural hard after we posted a 23% growth. So thank you, David. As I said in my opening comments, I think this is one of the most attractive areas in MedTech. And it's one that we looked at several years ago and said, we're going to build truly a market leading portfolio of products And, you know, we're not going to just kind of rely on one platform, you know, to kind of drive growth. We're really going to assemble a full area here and look across the entire area. And even in surgical, I mean, I think I look at our Epic valve, the feedback I keep getting on the surgical side of it is it's just doing incredibly well. And it's really a preferred go-to on the mitral side for surgical repair, but replacement. But, yeah. Yeah, I think in the past, David, I think our structural heart portfolio was just viewed as MitraClip. And quite frankly, you know, the sales would say, yeah, that's probably the case. But, you know, as we've been building out the portfolio, building out our stroke prevention with PFO approval, with AMULET approval and driving growth there, AMULET did very well, you know, in Q4 also, grew 25%. um you know getting into the aortic segment right um and and really being a a player there that has established now uh clinical credibility whether it's through uh clinical trials but also actual real world usage of the product i've been seeing some of navator cases here in the us and uh just the feedback has been very very positive so building our aortic portfolio there we're making big investments whether it's uh in our clinical trials to to build out our indications. We recently talked about, shared that we are developing a balloon expandable TAVR valve and we want to have a full aortic portfolio. On the tricuspid side, you know, we were one of the leaders there to say, hey, there's no real good, you know, transcatheter opportunity here to treat TR, and TriClip has done very well. It's done extremely well, quite frankly, throughout this year. I think the team has done an incredible job getting approved behind the competitor. I would say right now our data says that the ratio of repair to replace is about two to one, and we're leveraging all of that built-in kind of infrastructure and scale that we already built with MitraClip. So what you see now is a structural heart portfolio, two and a half billion dollars growing in, let's call it mid-teens, because it is much more diversified and, quite frankly, very competitive products in these high growth areas. So I think that's going to continue, and we're committed to making these investments. We've got new versions of Amulet to launch. We just got an approval for an updated version of TriClip that ease even more the implant. You're going to see clinical trials read out in this area for label expansion indications in TAVR and LAA. This is an area that I think what you're seeing now, that kind of growth rate coming from the investments and just great execution from the team. Your question was about growth rate.

Yeah, I was trying to think of a second one, and they were just to contextualize the 25 growth rate given some one-time-ish headwinds like BBP in China and diagnostics and the dynamics in EP being potentially kind of transient as well.

Yeah, I mean, listen, every quarter, every year, there's always going to be some headwind. What we're trying to do here is assemble, David, more tailwinds than headwinds, right? But yeah, I mean, you mentioned one. which is a little bit of a headwind for us in our diagnostic business regarding VBP. That's going to be with us in 2025 as they're rolling out new panels of testing. That's going to go through that. But outside of that, I'd say the diagnostic business is doing very well. Q4 growth rates in most areas were actually higher than the full-year growth rate in those same areas, U.S., Latin America Europe even Japan was was faster in q4 so so yeah we do have a challenge but most companies going to do and you know what we've gone through these David we every company goes through a VBP and what we're trying to do is okay we're not going to you know define the company by having this one kind of head when we've got a lot more tailwinds you know to leverage we still have to deal with it we're still managing it it's still an important part of the business Um, but, uh, the company is more than just, you know, than just BBP, uh, in, uh, in diagnostics and in one, you know, important market, but just one market. So, um, so I think the growth rate, um, is, is, is, is very robust. I mean, 8% of the midpoint on a, on a, on a, on a base of, you know, 40 plus billion. Um, you know, I think it's, I think it's, is a pretty strong and pretty good.

Perfect. Thanks for taking the questions.

Thank you. And our next question will come from Joanne Wunsch from Citi. Your line is open.

Good morning, and thank you for taking the question. And nice quarter. I'm curious if you could just sort of step back and talk about the overall health of the medtech market. I feel like I'm constantly answering questions on things such as volume and price and looking at you delivering mid-teens revenue growth. And I think you're saying something that maybe not everybody is seeing, so I'd love to get your view on that. Thank you.

Sure. I mean, I think it does put us, I mean, the way our portfolio is structured, Joanne, is that it does give us a little bit of a perch, a little bit of a bird's eye view into the entire healthcare system and the spectrum, right? And I think if you're getting questions on medtech and medtech growth, I think all you've got to do is continue to look at what companies are reporting. And what they're reporting is ultimately what we're seeing in the market, which is it's not a post-COVID pent-up demand. You are seeing a greater focus from whether consumers or the technologies that are being developed that are attracting more people into these procedures. So I think what we're seeing here is continued utilization growth really driven by whether it's demographics combined with the innovation. I mean, what the industry is doing in terms of the innovation that we're bringing to the market, it's pretty spectacular. and the procedures are getting faster, they're getting less invasive, and that's attracting more people to look at, to look at these procedures as a real viable first line option versus guided medical therapy. So I think that's gonna continue as long as we continue to see this innovation where we are obviously positioning ourselves pretty strongly in this, and you've seen sequential improvement in the growth rate across quite frankly a lot of our businesses in MedTech. So I think the utilization is definitely increasing. I think there's maybe some questions, okay, what's going to happen with pricing? We've historically seen some price erosion in the past. I'd say over the last couple of years, it's actually been pretty stable. So I don't know how that's going to play out. We've got a scenario here where we believe that with our portfolio, we'll see some pretty stable pricing. But I think utilization combined with stable pricing is what's driving this MedTech growth. And we're seeing it in diagnostics, too. A lot of our diagnostic business is actual hospital-based diagnostics. So we're seeing those diagnostic tests and those routine diagnostic tests continue to increase high single, low double-digit growth rates in terms of utilization. So I think that MedTech is benefiting from just this increased utilization and focus of consumers wanting to take care of themselves and looking at these technologies as a viable option for treatment.

Thank you so much. Thank you. Our next question will come from Danielle Antolfi from UBS. Your line is open.

Hey, good morning, guys. Thanks so much for, excuse me, taking the question. And congrats on a really good quarter, strong end to the year. Robert, we've talked in the past, I mean, obviously we talk a lot about MedTech and the high growth areas, but some areas where you've excelled are the legacy sort of slower growth businesses. I'm obviously thinking CRM being one of those, you know, mid to high single digits growth. Can you talk about that you applied in CRM and other legacy businesses? I'm thinking like heart failure, peripheral, and maybe how you're thinking about elevating those growth profiles in 25, but then also longer term. Thanks so much for taking the question.

Yeah, so one of our strategies that we looked at a couple years ago, Danielle, was if you looked at our med tech business, it was growing like 8%, 9%. And that was a combination of probably like high growth areas like EP, structural heart, diabetes, even heart failure. And 40% of the portfolio was relatively flat. And that was mostly our vascular business and our CRM business. And the way we looked at it is to get our med tech to be best in class, to be able to grow 12%, 13%, 14%, we need to continue the strong growth rate of structural heart, EP, diabetes, et cetera. But we had to find a way to accelerate the growth rate of our vascular and CRM businesses. And we said, if we can get them, these are historically been flat growth markets. If we can get them to grow 5%, the way that would then work out is that we'd be able to elevate our MedTech portfolio to the mid-teens. So that's what we've been doing over the last couple of years, and the team have been executing on that. I think on the vascular space, what you've seen us do is kind of use a little bit of a combination of organic and inorganic to accelerate and increase our participation in higher growth areas, specifically in the peripheral side. I think you started to see that. We've been growing. This quarter was a good quarter. Our target was around 5% for our vascular business by having stronger pipelines and portfolios in that more peripheral space. You're seeing that now start to happen. On the CRM side, you know, our big strategy here was organic and getting to launch a very comprehensive and be the leaders in leadless. So we launched a single chamber a couple years ago, launched a dual chamber last year, going to get into conduct and pacing leadless also. And I think that you've seen that over the last two years, our CRM business has grown 7%. And I think we can continue to extend that with the strategy that we're doing, which is to really lead in this area. I actually think that Avere is probably the most underappreciated opportunities that we have in our portfolio. You know, look at it right now. You're asking a question toward the end of the call. But I think really what you're seeing is these businesses, the focus, The innovation, the execution, and now you're seeing those start to deliver on that strategy to bring these flat businesses up to at least mid-single-digit growth. I think there's – the team doesn't like that I characterize them like that, so that's good. I'm glad that they think that they can do better than that. But we've got a lot of opportunity in those big areas, and we think there's innovation to be had in those. So we feel good about it.

Thank you.

Operator, we'll take one more question, please.

Thank you. And our last question will come from Matt Mixick from Barclays. Your line is open.

Hey, thanks so much for squeezing me in. Just maybe a follow-up here, given the tax cuts you gave for this year and some of the dynamics in U.S. and overseas sort of tax policy, it'd be great to get your perspective on maybe the direction of where those things are going and how we should think about them for having it. Thanks so much.

Yeah, thanks, Matt. There's a lot of narrative at the moment going on, but to your point and to kind of the guide that we referenced in our opening comments here, What we've reflected is all kind of current tax laws and guidance and geographic mix of where our business growth is coming from, which is about 150 basis point increase at the midpoint of this guide. That increase in the guide is driven by the increased adoption or the rollout here of Pillar 2 as it's currently enacted in these countries. That's what we reflect. We continue to be a good taxpayer, a compliant taxpayer, and we'll see how more of this narrative unfolds here. But currently we're running the operations and reflecting kind of what's known, and as Robert highlighted, absorbing this still within kind of the way we run the business.

I want to add in on that one, Matt. I think you'll hear this topic come up quite a bit. And if I just take a bigger, bigger picture here, I mean, corporate tax rates tend to get hyper politicized and especially during election years. And, you know, it's really not a political debate, you know, in the business world, it's just an expense. It's just another form of expense. And in our world, when, you know, when one expense goes up, you got to manage and, you know, other expenses have got to come down or maybe not increase at the same rate that they were increasing. And, um, And I think what you'll find, you know, what you find sometimes is you get a small handful of companies that, you know, maybe have a really low tax rate, and then that viewpoint then gets unfairly applied to, you know, to every large company. And then you get these predictable narratives of, you know, companies have got to pay their fair share, et cetera. The reality is most companies pay their fair share and then some. I mean, I could talk about Abbott. You know, we... Our cash taxes are over 20%. And that's one thing that people never talk about is we use these kind of gap rates, but what really matters is cash taxes. That's the money that's going to be paid. But more importantly, U.S. companies, companies like Abbott, we play a key role in making the U.S. economy so successful. We're conducting a significant portion of the R&D in the U.S. We invest billions of dollars in capital projects, which then drive this drive job growth. Our CapEx spend has increased over 60% over the last couple of years. We increased our workforce by 20%. And when you increase that workforce, you're investing hundreds of millions of dollars in employee health care and employee benefits. So this Pillar 2 legislation, this Pillar 2 rule here that got adopted, that's added, and I think this rate that Phil's kind of quoted, that's an additional $200 million of expense. That's all it is, is $200 million of expense that is not going to investing in other areas. And what's even more challenging is of those $200 million, two-thirds of it is actually going to be paid taxes to overseas countries. So that's not a really good policy for the US. And so we're absorbing this. We're managing it. And I think I still said there are a couple still some new policies or new issues that we have to kind of work on. But I think the overall goal here has got to be to ensure the competitiveness of US companies and US multinationals And I'm hoping we can get to that during the next 12 months or so. Let me just kind of close then on the call. I think we had a really strong finish to 2024. We exited our Q4 organic sales growth with over 10% top line, 13% EPS, as I said, finished at the higher end of our range. expanded our gross margin delivered what we said we were going to do the pipeline continues to be highly highly attractive steady cadence of great new growth opportunities and i think you know to vj's question we've got a balance sheet that's going to provide us a lot of a lot of strategic flexibility uh so i think we're really well positioned uh to 2025 so with that i want to thank you for joining us today thank you operator thank you all for your questions this now concludes abbott's conference call

A webcast replay of this call will be available after 11 a.m. Central Time today on Abbott's Investor Relations website at abbottinvestor.com. Thank you all for joining us today.

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