Greetings, and welcome to the Edwards Lifesciences Fourth Quarter 2021 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note that this conference is being recorded. I will now turn the conference over to our host, Mark Wilterding, Vice President, Investor Relations and Treasurer. Thank you. You may begin.

Thanks, Diego, and thank you all for joining us this afternoon. With me on today's call are Mike Mussallem, Chairman and Chief Executive Officer; and Scott Ullem, our Chief Financial Officer. Just after the close of regular trading, Edwards released fourth quarter 2021 financial results. During today's call, management will discuss those results included in the press release and accompanying financial schedules and then use the remaining time for Q&A. Please note that management will be making forward-looking statements that are based on estimates, assumptions and projections. These statements include, but aren't limited to: financial guidance and expectations for longer-term growth opportunities; regulatory approvals; clinical trials; litigation; reimbursement; competitive matters; and foreign currency fluctuations. These speak only as of the date on which they were made, and Edwards does not undertake any obligation to update these statements after today. Additionally, the statements involve risks and uncertainties that could cause actual results to differ materially. Information concerning factors that could cause these differences and important safety information may be found in the press release, our 2020 Annual Report on Form 10-K and Edwards' other SEC filings, all of which are available on the company's website at edwards.com. Finally, a quick reminder that when using the terms underlying and adjusted, management is referring to non-GAAP financial measures. Otherwise, they are referring to GAAP results. Reconciliations between GAAP and non-GAAP numbers mentioned during the call are included in today's press release. With that, I’d like to turn the call over to Mike Mussallem for his comments. Mike?

Thank you, Mark. We’re proud of our performance in 2021. Although, hospitals continued to be impacted by COVID, it was a year of significant milestones and investment for Edwards and our teams were relentless. In TAVR, we made important strides in executing our long-term strategy. In particular, we invested in increasing awareness, pursued further therapy expansion and advance new technologies. We completed enrollment of the EARLY TAVR trial, an important pivotal study studying the treatment of severe aortic stenosis patients before their symptoms develop. Separately, we initiated enrollment in our PROGRESS trial for moderate AS patients, and we received FDA approval for our ALLIANCE pivotal trial to start our next-generation TAVR technology, SAPIEN X4. In TMTT, we achieved our significant 2021 milestones, as we continue to make meaningful progress on advancing our three key value drivers: a portfolio of pioneering therapies for patients; positive pivotal trial results to support approvals and adoption; and favorable real-world clinical outcomes. We are pleased to have treated over 3,000 patients in 2021 with our differentiated portfolio of TMTT therapies, gaining valuable learnings through both our clinical and commercial experiences. Each of our platforms demonstrated promising outcomes and clinical performance. I'm also pleased to announce that we completed enrollment of our CLASP IID pivotal trial in 2021, an important milestone that keeps us on track for U.S. approval late this year. In Surgical Structural Heart, we extended our leadership position through the adoption of our premium technologies. We also implemented valuable additions to our smart monitoring advancements in critical care. Most importantly in 2021, even more patients benefited from Edwards' life-saving technologies than ever before. I'm also proud to say that throughout the year, our employees remain dedicated to keeping our commitments to patients and to one another. Despite the ongoing pandemic that fueled global…

Thanks a lot, Mike. Today, I'll provide a wrap-up of 2021, including detailed results from the fourth quarter as well as provide an update on guidance for the first quarter and full year of this year. Sales in the fourth quarter increased 12.6% on an underlying basis. Adjusted earnings per share was $0.51, and GAAP earnings per share was $0.53. Our fourth quarter sales were negatively impacted by the wave of COVID that began late in the quarter, especially in the US. Earnings per share in the quarter was below our expectations as it was impacted by weaker-than-expected sales and we accelerated certain spending into the fourth quarter of 2021 that we had planned to incur during 2022, including preparation for TMTT product launches. For the full year 2021, we are pleased with our performance as sales increased 18% on an underlying basis to $5.2 billion and adjusted earnings per share grew 19% to $2.22. I'll now cover the details of our results and then discuss guidance for 2022. For the fourth quarter, our adjusted gross profit margin was 76.8% compared to 75.3% in the same period last year. This increase was primarily driven by a favorable impact from foreign exchange. We continue to expect our full year 2022 adjusted gross profit margin to be between 78% and 79%. This year, our rate should be lifted by a favorable impact from foreign exchange and an improved product mix, partially offset by investments in our manufacturing capacity. Selling, general, and administrative expenses in the fourth quarter were $424 million or 31.9% of sales compared to $339 million in the prior year. This increase was driven by the resumption of medical congresses and commercial activities compared to the COVID impacted prior year as well as the addition of personnel in preparation for…

Thanks, Scott. So in conclusion, we're proud of the significant progress we made in 2021, advancing new transformational therapies and delivering strong financial performance. We expect continued growth and progress in 2022. We are enthusiastic about the continued expansion of catheter-based therapies for the many structural heart patients still in need, which positions us well long-term success. As the global population ages and cardiovascular disease remains the number one largest health burden, we believe the opportunity to serve our patients will nearly double between now and 2028. We are confident that our patient-focused innovation strategy can transform care and bring value to patients and the health care system. And with that, I'll turn it back over to Mark.

Thanks a lot, Mike. With that, we're ready to take your questions. As a reminder, please limit the number of questions to one plus one follow-up to allow for broad participation. If you have additional questions, please reenter the queue and management will answer as many participants as possible during the remainder of the call. Diego?

Thank you. And at this time, we’ll be conducting our question-and-answer session. Our first question comes from Robbie Marcus with JPMorgan. Please state your question.

Great. Thanks for taking the questions. Maybe to start first, a little more color on fourth quarter and first quarter assumptions. US TAVR came in a little lighter than expected, I don't think it's a huge surprise, given all the commentary and trends we're hearing with Omicron late in the quarter. But maybe just walk us through what you saw throughout fourth quarter? What you're seeing in first quarter and what you're assuming for the balance of first quarter?

Yes. Thanks, Robbie. So yes, fourth quarter started very nicely. We saw a nice momentum in October and November, and we really saw a very strong impact in December. So, it was primarily focused in the US, and it was centered around really hospital capacity. They really -- they reached their limits in many cases and started deferring procedures. We've seen that continue to lead to a slow start in 2022. So at this point, I would say sales are below what we would have typically expected for a start, probably more in line with the kind of thing that we saw towards the end of December. But having said that, our assumptions are that we're going to see more normalized growth as the hospital resource constraints stabilize. And so as Omicron we think, comes down pretty hard, we think that our full year sales guidance is still in place on our best estimate.

Okay. And then maybe I'll do a follow-up question to that. As we think about the balance of the year, how should we think about the cadence throughout first quarter came in, as you mentioned, under pressure a bit here, lower than where we were thinking. Maybe just walk us through how we should think about as a framework for the rest of the year? And what are the assumptions underlying that? Appreciate it. Thanks.

Yes. Thanks, Robbie. It's -- we don't have great visibility to exactly what backlogs look like or what the patient flow might be. So at this point, we assume that many of the patients that are having procedures postponed or deferred are going to come back. It's not clear to us what month or what quarter we're going to see it. In our assumptions, Robbie, is that by the end of the year, that we would see all the COVID-related delays sort of return to the system.

Okay. Great. Thanks a lot.

Thank you. Our next question comes from Larry Biegelsen with Wells Fargo. Please state your question.

Good afternoon. Thanks for taking my question. Just to follow up, Mike, on the previous question in Q4. Why was -- it was a tale of two geographies, right? OUS was strong, US was soft. Why do you think the TAVR business was more impacted in the US than OUS? And I had one follow-up.

Yes. Thanks for that, Larry. Yes, there – I think actually it was clearer than you think. Omicron hit the US pretty hard, and it hit it in large population centers. We saw it across the East Coast, we saw it in the Midwest. You know all the places that it was seen. And so we felt a pretty profound impact. In Europe, it was not the case. So although the UK experienced Omicron, most of Continental Europe just didn't see it in Q4. And so it was a very different picture. I think that was the primary reason. Same thing in the rest of the globe, I would argue, right?

That's helpful. And Mike, just looking ahead, you completed the Class IID trial, which is degenerative MR. Obviously, how do you think physicians will use the product when it's approved? Do you think people will stick to the label? Do you think people will use it off-label for FMR, or do you think -- how do you think people will use it once it's approved for DMR? Thanks for taking the question.

Yes. Yes. Thanks very much. You know how we deploy these technologies. We're very hands on with them. We use a high-touch model and really try and guide clinicians to do what's right. So, we expect them clearly to be on label. That's the way that we're going to conduct our business. We're going to roll out to people that have experience that we think are very serious about treating mitral disease. And so we think it's going to be one that stays inbounds.

Got it. Thank you.

Our next question comes from Vijay Kumar with Evercore ISI. Please state your question.

Hi guys. Thanks for taking my question. Mike, maybe on one on the -- just guidance, right, I think, or perhaps a small for Scott question. I think in the past, you guys -- when you've given the guidance you said, look, it's prudent to be at the midpoint of the range. Given Q1 is about $50 million below Street numbers, perhaps, should we be now thinking about bottom half of that range? Would that be more appropriate?

Well, yes, Vijay, it's Scott. Thanks for the question. It's a little early to talk about where the full year is going to come in again, just because of the uncertainty of Omicron and how quickly it's going to fall off. Certainly, we feel like early prospects are different than we thought back last month at our investor conference. So, yes, we'd probably model that a little bit lower in the range. But keep in mind, because the fourth quarter came in a little bit lower, that brings us up a little bit in the range. So, still for modeling purposes, the middle of the range is probably a good place to settle.

Yes, I'll just add to that. I mean, if you want to think about some, just watch the impact of the pandemic on the healthcare system and on hospitals in particular. So, if that goes better, then probably has a better chance that our patients flow through faster. And if it's a greater burden have the opposite impact. So, at this point, we still think there's balanced risk in there, but a lot of it is going to depend on whether things transpire the way that we anticipate.

That's helpful, Mike. And maybe one follow-up. I think you call out Europe as mid-teens. Japan up strong double-digits. I'm curious, given at the low-risk approval or I guess the receipt of reimbursement in Japan, were there any stocking orders that benefited Q4, or perhaps is this real underlying procedures in the implications Japan should continue to be strong for the balance of the year?

Yes. Thanks, Vijay. So, no, clearly, what we felt like we saw OUS was not a result of any kind of stocking. These were real procedures that got done and that holds true Europe, Japan or elsewhere outside the US. Was there more to the question than that, Vijay?

No, I was just curious. So, it implies basically Japan now should be strong for the balance of the year under certain variant, I guess?

Well, yes, I mean it's -- it remains to be seen exactly how this variant is going to affect the rest of the world. There's one argument that say, hey, it's a little delayed and so it will come a little bit later. But then again, it may not have the same impact because of a lot of reasons, whether it's seasonality or vaccination rates or their own safety protocols. So, a little tough to predict how it's going to roll out. But overall, we've modeled probably a little more growth OUS than US for 2022.

Understood. Thank you guys.

Our next question comes from Joanne Wuensch with Citibank. Please state your question.

Good afternoon or good evening. Thanks for taking the question. I'm interested in the comment that you made, if I heard it correctly, that you accelerated spending in the fourth quarter for TMTT that you had expected in 2022. So that if you're planning for U.S. launch near the end of the year would have been pretty far in advance. So should I assume that's mostly outside the United States? And what was the motivation to accelerate that spending into the fourth quarter?

Yes. Thanks, Joanne, for the question. So there are a couple of things going on. And we are continuing to invest in our field force, as we continue to expand to new sites in Europe. And so that's a piece of the spending that we're doing. We're also starting to build resources in the states. So it takes a while to get ready for product launch, and we're taking very seriously getting the right team in place, making sure that training is robust and that we're ready to go when the time comes. There were some other things that happened in terms of just being ready for doing things like grants, market research, some of the patient awareness initiatives and starting to fund those in the fourth quarter is also an important part of teeing up TMTT and TAVR for continued growth in 2022 and beyond.

Excellent. And then my follow-up question has to do with the backlog. I appreciate a part can measure that. But is there any reason that we shouldn't see patients come back maybe in the second quarter the way we saw last year?

Yes. Thanks, Joanne. We remember that very well as well. We saw some pretty incredible surge that we really didn't expect in the second quarter. But I'll remind you, 2021 was a different picture than right now. It wasn’t Omicron. It was a different variant. Hospitals were probably in a little different position. They weren't dealing with the constraints associated with labor. And I think as you know, there's widespread nursing shortages. We think that all gets worked out over time. We think hospitals have a lot of sophistication. They're going to triage their systems and their staffing measures and ultimately find ways to treat the patients that are most in need. So we think that all gets worked out. But whether it pops in Q2, we're more hesitant than that. We really think it's going to be more of a gradual recovery.

Excellent. Thank you.

Thank you. Our next question comes from Matt Miksic with Crédit Suisse. Please state your question.

Hey. Good evening. Thanks for taking the questions. Just -- I know you're getting a lot of questions on capacity and some of the issues that are constraining the market, but on that topic, can you talk maybe just a little bit about some of the things you mentioned, Mike, about the impact of labor constraints on different types of centers and maybe coming at the guidance question from another direction, what gives you the confidence that these things will get better, like that you're not going to be sort of constrained by nursing shortages and staff, et cetera, for the brunt of the year? And I have one follow-up.

Yes. Well, thanks, Matt. And there isn't perfect certainty here, but we get a lot of anecdotal information, and we're obviously very close to our customers. It -- the situation now and as we've gone through it in December and January here, feels very different than the early stages of the pandemic. In the early stages of the pandemic, not only did hospitals sort of shut down and close their doors, but there were patients that were very concerned, that stayed out of the system. And I'll remind you that the patients that Edwards serves are exactly the patients that are most vulnerable to COVID. And so, we sort of had the double whammy, if you will, in 2020. What we feel now is it's less about the patient behavior and more about hospitals' ability to be able to do the cases. So do we hear anecdotal notes and again, I don't have perfect information for you, Matt, but things like hospitals saying, you know what, we're just going to limit to a certain number of procedures per week or we're going to postpone procedures until next month or we're going to involve our Chief Medical Officer, and he's going to look at all the procedures that need to be done and decide in triage them and decide which ones they'll do now and which ones they do later. So you have a variety actions that hospitals are taking. But we think that the patients are there. And so that's why we feel pretty comfortable staying with our current guidance. We don't have perfect visibility, of course, Matt, but that's behind our thinking.

Sure. And then just on that same topic of resources. One of the things that you've talked about over the past several years is this shift to more efficient procedures, light sedation and wondering if you're seeing the resource environment drive adoption there, or is that one of the levers that folks are pulling on a little harder to get more patients through the system with fewer resources?

Yes. I think the hospitals think about that deeply, Matt, and it is a big plus if they believe that the patients don't need to consume an ICU bed and so forth or even impact hospital occupancy. So, I think it all goes into the math of those folks that are managing hospitals. But even more important for them is they're trying to serve patients properly. They're trying to think about which patients are in greater risk and how to move them through the system. So it's complex and it's highly different from hospital to hospital and region to region, Matt. So it's -- there's a pretty good variance out there, if you will. But in total, I think it's all incorporated in our guidance.

Thanks so much.

Our next question comes from Josh Jennings with Cowen. Please go ahead with your question.

Hi. Good evening. Thanks for taking the question. Just two on the CLASS II program. Just first to follow Larry’s question. Our checks around from the MitraClip product to approval for FMR. And reimbursement suggested that up to 20% of FMR cases are mixed ideology and have a degenerative component. Mike, just to circle back on your answer about staying on label, were those patients of mixed ideology be on label, if they do have degenerative component?

Yes. So I think much of this is going to be physicians making that judgment. And so when it's all -- when it actually comes down to it, the physician is going to be looking at this patient, they're going to realize that our PASCAL device is only approved for degenerative and they'll have to look at this particular patient and use their own judgment. We think, by and large, they're going to stay on label, but as you say, there are mixed patients. And so there's going to be some of that, that I'm sure physicians are going to have to just work through.

Great. And then just on the CLASP IID and CLASP IIF, were there any design modifications because of COVID or already prespecified analyses that have been incorporated in the trial design, or because it's their head-to-head trials against MitraClip, that randomization takes any COVID-related risk off the table? Thanks for taking the question.

Yes. Thanks very much, Josh. We typically just don't go into some of the particulars associated with the regulatory process. It tends to be complex. There's a lot of nuance to it. And I think it would just be confusing if we went into all that. And so we really -- don't have anything new to share.

Okay. Understood.

Thank you. And our next question comes from Cecilia Furlong with Morgan Stanley. Please state your question.

Great. Thank you for taking the questions. I wanted to follow-up and just ask CLASP IIF and CLASP IITR, just what you've seen from an enrollment standpoint recently, and alongside that, how you're thinking about SAPIEN X4 and enrollment in that program commencing?

Yes. Thanks. So, Cecilia, we'll start off by saying, clearly, many of the same sites that we're doing CLASP IID were involved in CLASP IIF and CLASP IITR. And so having completed enrollment in CLASP IID does mean that they probably will turn some of their attention to IIF and IITR. And so I think it's likely to be -- it's only human, it's only likely to be a boost to that. I don't think it's going to have real impact on the completion of the trial. So, -- but we're hopeful that things go well here. Of course, these same groups are working with trying to get through Omicron, which is no picnic, but we're hopeful that's short-lived. As it relates to the SAPIEN X4 or the ALLIANCE trial, remember, this is a new valve. And so this isn't simply a case of, boy, I'm just going to take all my SAPIEN 3 patients and just put this new valve. And it really is a very novel valve system. And so this is going to be one that we do with a great deal of deliberateness. And so it's going to -- there's going to be a learning curve associated with this, and so we're just going to have to work through it. We really don't have a prediction on how fast that will enroll at this time.

Okay. Thank you, Mike. And to follow-up as well. I'm just curious, if you could talk about just TAVR in China, what you've been able to do recently with COVID hopefully pulling back in the near-term, how do you think about the opportunity to really start developing that market over the next year? Thank you.

Yes. We're really looking forward to developing the market in China. And as you say, COVID has been a real setback in that regard because often, if we are launching a new country like that, we would bring a lot of experts from Edwards, key opinion leaders, and there virtually is no travel to China right now. So, it's just been our local team that's doing that, which doesn't make it any easier. We're excited about it. We know this too shall pass and we'll move on to it. And we're really looking forward to bringing truly premium technology to China. Well, I'm sorry, there was a -- let's see. I think that's probably -- does that answer your question, Cecilia? Yes.

It does, Mike. Thank you.

Okay. Thanks.

Our next question comes from Danielle Antalffy with SVB Leerink. Please state your question.

Hey, god afternoon everyone. Thanks so much for taking the question. Just a question on PASCAL and how to think about the go-to-market strategy here in the US. In Europe, you guys have obviously been getting a price premium. The trial powered for non-inferiority, so I'm curious if you could might comment a little bit more on how you expect to get a premium here as well in the US, or if we should be thinking about that a little bit differently? Are there things that we could look for in the data when we do see it, that could give us a little bit more comfort that you will be able to successfully get that premium? And I have one follow-up. Thanks.

Thanks Danielle. I mean, first and foremost, when we come to the US, we're going to do -- we're going to run some of the exact same playbook that we have in Europe, which is to really focus on physician training, getting great real-world results, making sure that we get patient -- excellent patient outcomes every time we do this. We're going to probably tend to be staying in the places where people have real experience. I don't know that we have a pricing policy that's been established for the U.S. launch at this point. And so we'll tell you about that once it's clear. But our focus is going to be on doing great cases for a while.

Okay. Got it. And then, I guess, my other question is around PASCAL in the U.S. and go-to-market. How to think about leveraging? I know you guys are -- I believe you guys are building a separate sales force here, but how you might be able to leverage your presence. You have very strong presence in TAVR at a lot of these centers, and there's a lot of overlap. How can we think about sales synergies or sort of a halo effect on both ends, whether it's for TAVR or for PASCAL from a market share perspective? Thanks so much.

Yes. Thanks, Danielle. I think you know the way that we've approached this across the board, is we really feel like the TAVR has a long way to go, and a lot of growth in front of it, and deserves a great dedicated team and TMTT opportunity is a very large one. And so the way we've gone at this is decide that we're going to have a dedicated team. Is there some halo that comes from the Edwards brand and so forth, I'd like to think so. Of course, we try and maintain a great reputation, but we don't go into it thinking about leverage so much or it's our bundled sales. That's really not our approach. We're going to sell on really trying to do spectacular procedures and get great outcomes.

Thanks.

Our next question comes from Suraj Kalia with Oppenheimer. Please state your question.

Good afternoon, everyone. Can you hear me all right, Mike?

Yes, we hear you, Suraj.

Perfect. So Mike, I just wanted to follow up on Josh's question about CLASP IID, will there be any paired analysis presented in terms of the types of devices, i.e., MitraClips used and the number of devices used per case?

So Suraj, I'm not sure exactly what's going to be presented, but I would expect that you're going to see a pretty fulsome presentation of the data when it finally does get presented. We've said that that's going to happen in the second half of 2022. And when that happens, I think you're going to get a lot of information. You'll see almost everything related to device performance when that's presented.

Fair enough, Mike. And my follow-up, for the $10 billion by 2028, how does the pie chart look for symptomatic severe, asymptomatic severe and moderate? Thank you for taking my questions.

Yes, thanks. So we don't have perfect clarity on what It's going to look like in 2028. But I can tell you basically what's in our assumptions. The great bulk of this is going to be people with symptoms, with severe AS. And I don't know what percentage that is, but it is the overwhelmingly large percentage. We think that there'll be a small portion of it, which will be asymptomatic patients that are severe. We have assumed that moderate AS patients are really not much in that number. It's really negligible. And so, not really in the number at all. And so hopefully, that gives you a sense for it.

Thank you.

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

Hi. Thank you for taking the question. So I wanted to ask you a little bit more about this US, OUS dynamic. I know some of it may be short-term disruption difference, but there's been notable kind of resurgence or a renaissance in international growth. And I was wondering if you could talk more about that. Are you opening more centers? Is it improved acceptance of the therapy? And what does that mean for international growth over the next couple of years versus US growth? Do you think it could outgrow the US? Should they be close to each other? Any thoughts on that would be appreciated?

Yes. Those are all really good questions. And one thing to keep in mind is, the growth rates are all comparable to last year's growth rate, which was less than normal because it was also impacted by the pandemic. So we've been super impressed about what's going on in Europe right now. This mid-teens growth because here's technology that was improved in Europe in 2007 and to be growing at a mid-teens growth rate right now is very encouraging. And it speaks to the strength of TAVR. I mean, Europe has never had -- broadly across Europe, let's put it this way, they've never had -- so for example, TAVR per million population over 65 has been lower in Europe. Pretty good in Germany, but the rest of the country is behind. So there's been some catch-up. When we talk about Japan, we say the same thing, pretty routinely that they really probably should be doing more TAVR and have more disease. And so there's quite a bit of catch-up to go on. So there really is a big opportunity. And part of what we may be seeing is just health care systems that have typically been a little slower to adapt are coming around and fueling the growth that's a little higher. And at the same time, you have to say Omicron did hit US pretty hard.

Got it. Great. Thanks for the color. I will let some other chip in. Thanks.

Thanks.

Our next question comes from Chris Pasquale with Guggenheim. Please go ahead.

Mike, I just wanted to follow up on Cecilia's question about ALLIANCE. I don't think it's been post year. Could you just tell us a little bit about the design of that trial, number of patients, length of follow-up, things like that?

Yes. I don't -- the short answer is I'm not prepared to talk about that at this point, Chris. I think there may be some similarities to past trials, but I don't have the specifics on it. So we're going to have to get that to you at a later date here because it's just I don't have that available now.

Okay. No problem. And then, Mike, I think I heard you say that TAVR volume in Japan has now caught up with surgical volumes. It seems like you may have hit that milestone a little faster there than you did looking at the experiences in the US or Europe. Can you talk a little bit about how market development is going there? It seems like it may have hit a bit of an inflection, maybe over the past year with low risk coming online?

Yes. So thanks. For us, it doesn't feel like it's come really fast. It feels like it's come slower. We think that TAVR should be really popular in Japan, where surgery is not necessarily a preferred therapy and a great interventional procedure should have gone. There are a number of reasons that sort of slowed it down, they had tighter regulations. So for example, they limited TAVR to hybrid ORs. They required approvals by national bodies. But at the same time, there have been some really positive developments in Japan. So now that we have low-risk approval, it's really streamlined the pride and it's reimbursed, that streamlined the process for these patients to receive therapy. And so that was a big one. And slowly, but surely, there have been more centers that were added so that it covers the geography a little better. So, there's some positives there. And we're catching up. We're excited about the growth rate. But in our eyes, it should have happened sooner.

Thanks.

Thank you. Our next question comes from Jayson Bedford with Raymond James. Please go ahead.

Hi, good afternoon. Just a couple of quick ones. I'll go off script and ask a Critical Care question. The segment had a decent capital component. I'm just wondering, with labor becoming a bigger issue at hospitals over the last couple of months, is your view on the environment for capital changed at all?

Yes. So, it's a good question. Remember, when the pandemic hit and hospitals were in trouble, they really pulled back on capital spending. We saw that even most dramatically in the US. And that continued into early 2021, but it started subsiding, and we saw hospitals started recapitalizing, if you will, and we were the beneficiary of that during 2021 and even saw that affect our performance in the fourth quarter. And we've got this modern HemoSphere technology, which is really a step forward for these patients and brings together a lot of our advanced technology for patients that are needing a great recovery. So, the combination of those have been really helpful.

So, is 2022 still a conducive environment for capital itself?

It is. We think it's still a very conducive environment. Some of our people wonder whether 2022 will measure up to 2021 because it felt like 2021 might have had a little catch-up in it. So, that makes them nervous about being too bullish. But we think it's going to be a more normalized year.

Okay. Thanks. And maybe just quickly for Scott. Scott, in describing the factors impacting gross margin, you didn't mention inflationary pressures. And just wondering, are you not seeing it or is it just not material to the business right now?

Thanks for the question. We are seeing inflationary pressures in a couple of areas. One is just wage then, of course, materials and supplies. And so we're managing through those. Our biggest priority has been making sure that we can deliver our finished goods, our life-saving therapies to hospitals around the world. And we're really proud of our global supply chain team that's been able to navigate the challenges from shortages to logistics and still continue to be able to meet demand. And so we'll deal with the inflation. It's in our 78% to 79% gross margin guidance for the year, but we're feeling like we know what needs to get done.

Great. Thanks.

Thank you. And our final question comes from Pito Chickering with Deutsche Bank. Please state your question.

Good afternoon guys. Thanks for fitting me in here. To follow-up on the US TAVR questions, can you help us understand why in the third quarter, we saw hospitals near capacity for nearly two months in August and September, whereas COVID only impacted fourth quarter by a few weeks in December? Just if you can provide any more color on sort of why fourth quarter slowed sequentially versus the third quarter?

Yes. So, you're going to test my COVID memory a little bit here. But we felt like we were recovering from Delta. And so it had a pretty significant impact in the third quarter and that was being mitigated, to some extent, it was improving in October and improving in November. And then Omicron showed up and it changed the trend. So, that was that we were -- we went from recovering from Delta to being impacted hard and quick by Omicron.

Okay. And then a follow-up question for Scott. Like you talked about pulling forward SG&A investments from 2022 into fourth quarter in preparation of these product launches. So if you think about a similar dollar amounts for SG&A spending going into the first quarter and you start to get leverage on that as revenues increase after first quarter to get to your guidance range of 28% to 30%? Thanks so much guys.

Sure. Thanks for the question. I mean you can tell from our guidance, where the midpoint of our sales guidance is, call it, $1.315 billion, which is a little bit lower than our fourth quarter sales and yet our EPS were forecasting in a higher range. And so, the difference is going to be really in the cost lines. And we think that a lot of the SG&A that we pulled forward in the fourth quarter will probably not show up in the first quarter as a result. And that's really the biggest driver of the increase in EPS that we're expecting and guiding to in Q1.

Great. Thanks so much.

Okay, all. Thanks for your continued interest in Edwards. Scott, Mark and I welcome any additional questions by telephone.

Thank you. And that concludes today's conference. All parties may disconnect. Have a great day.