Greetings, and welcome to the Edwards Lifesciences First Quarter 2022 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 of 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, Chief Financial Officer. Just after the close of regular trading, Edwards Lifesciences released first quarter 2022 financial results. During today's call, management will discuss those results included in the press release and accompanying financial statements 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 statements speak only as of the date on which they were made, and Edwards does not undertake any obligation to update them 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 2021 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 for his comments. Mike?

Thank you, Mark. Let me begin by saying I remain very proud of our team's steadfast dedication to our patient focused strategy. Throughout the first quarter, our supply chain delivered, and our field team continued to support the skilled clinicians and patients who count on Edwards. We continue to believe that 2022 will be an important year for Edwards Lifesciences as we expect low double-digit sales growth and meaningful progress on our pursuit of significant opportunities to improve patient care. Looking beyond 2022, we remain confident in our long-term strategy and our pipeline of innovative therapies. Our patient focused culture drives us and motivates our employees around the world, and our R&D targets breakthrough therapies that can create significant value for patients and health systems, enabling strong organic sales growth. As we're hopeful, the worst of the pandemic is behind us, we're constantly reminded of the importance of our work as we pursue solutions for cardiovascular disease, which continues to be the number one killer in the U.S and the world well ahead of cancer and other deadly conditions. Turning now to our first quarter financial results. Sales of $1.3 billion, increased 13% on a constant currency basis versus the year ago period. Despite the impact that Omicron had on hospital capacity, resources and procedure volumes in January, especially in the U.S., Q1 global sales were moderately better than our expectations. Sales were lifted by performance outside the U.S where we experienced a less pronounced impact from the pandemic. Underlying sales growth was double-digit across all regions and benefited from improving trends as we progress through the first quarter. In TAVR, first quarter global sales were $881 million, an increase of 14% on an underlying basis with continued strong growth outside the U.S. We estimate that global TAVR procedure growth…

Thanks, Mike. We are encouraged by our start to the year. Despite the impact from Omicron early in the quarter, all product groups performed well and sales were balanced across all regions. We achieved total sales in the quarter of $1.341 billion, which represents 12.7% year-over-year underlying growth. This strong sales performance fell through to our operating income, and we achieved adjusted earnings per share of $0.60. Assuming no new COVID headwinds, and a gradual improvement in U.S hospital staffing shortages, we're projecting second quarter sales to be between $1.36 billion and $1.44 billion, which represents sequential organic growth from the first quarter partially offset by foreign exchange headwinds. We expect our year-over-year sales growth in the second quarter to be our lowest of the year, given our strong prior year sales performance. We were also projecting second quarter adjusted earnings per share of $0.61 to $0.69. Although we haven't fully overcome the January Omicron impact, we are maintaining all of our previous full year sales guidance ranges for 2022, despite more pronounced foreign exchange headwinds and COVID-related hospital staffing challenges in the U.S. As a reminder, for total Edwards, we expect sales of $5.5 billion to $6 billion; for TAVR $3.7 billion to $4.0 billion; for TMTT $140 million to $170 million; for Surgical Structural Heart $870 million to $950 million; and for Critical Care $820 million to $900 million. We're also maintaining our full year adjusted earnings per share guidance of $2.50 to $2.65, representing mid-teens growth over 2021. And now I will cover additional details of our results. For the first quarter, our adjusted gross profit margin was 77.8% compared to 76.0% in the same period last year. As we expected, this improvement was driven by the positive impact from foreign exchange, primarily the strengthening of the…

Thanks, Scott. So we're confident in our long-term outlook for strong sales growth and our teams remain passionate about helping more patients around the world. We continue to focus on driving organic growth with leading innovative technologies, while aggressively investing in our future. Our foundation of leadership coupled with a robust product pipeline positions us well for continued long-term success and greater shareholder value as we pursue significant opportunities to improve patients' lives. And with that, I'll turn it over to Mark.

Thanks a lot, Mike. With that we're ready to take questions. In order to allow for broad participation, we ask that you please limit the number of questions to one plus one follow-up. 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?

Our first question comes from Larry Biegelsen with Wells Fargo. Please go ahead.

Good afternoon. Thanks for taking the question, and congratulations on a nice start to the year. Just two for me. One, just on the progress to the recovery, and one on the guidance. I'll ask them both up front. So, for Mike, just a little more color on the recovery and what you're seeing in March and April, in the different geographies, particularly in your TAVR business. And Scott, regarding the guidance, should we still -- should we be thinking about the midpoint of the revenue range or a little bit lower because of the currency -- incremental currency impact? And regarding Q2, Scott, I heard your comment, it looks like about 6% underlying growth, assuming an FX headwind of about 4%. But it's only up about 4% sequentially, which seems conservative based on the historical quarter-over-quarter trends, and the Omicron impact you talked about in January. So just help us understand how you're thinking about the year and Q2? Thanks for taking the questions, guys.

Yes. Thanks, Larry. So let me start out with the progress of the recovery. It's a little different, obviously, when you go around the globe. And I think the recovery that I'll talk about first is the U.S recovery, and I think that probably has the biggest impact on Edwards results and why it would be meaningful. Big picture, we're not sure that U.S hospitals have really fully recovered from COVID. There's still a bit of a hangover of protocols. And, more importantly, we -- this issue that relates to the significant labor crunch and churn in the workforce is meaningful. Those workforce shortages are real. They're having an effect on staffing and their costs and they're just in the front of mind of a lot of the health care industry. And some of this is churn, and some of this is just openings that are yet to be filled. Now in our conversation with hospital executives, systems are aggressively working to address these challenges and they expect the dynamic to improve, but we're anticipating gradual improvement in our forecasts. And I'd say overall, Edwards procedure growth, we've fared pretty well on a relative basis. We're mindful that these systems have been extraordinarily challenged, but we're still able to grow pretty handily in this tough environment.

Larry, on your second question regarding guidance, we always guide people to the middle of a range just for modeling purposes. So, at 13.60, or $1.360 billion to $1.440 billion, the midpoint of that is $1.4 billion. So that's a good modeling assumption. Your math is right, which is year-over-year underlying growth for Q2 with that range is in the range of about 5.5%. And yes, it's 4.4% of these exchange rates sequentially from Q1. So sequentially up from Q1. And really for the full year, it doesn't change our underlying growth rate and our guidance of low double digits. And so, while FX is impacting our dollar guidance ranges, it hasn't had a big impact to our underlying growth expectations.

Thanks, Scott.

Thank you. Our next question comes from Robbie Marcus with JPMorgan. Please go ahead.

Hey, thanks a lot. I'll add my congratulations on a nice start to the year as well. Maybe a follow-up on Larry's question. I was hoping to get a better sense of where some of the bottlenecks are in the patient recovery here. In some of let's call it the easier to schedule and diagnose procedures, we're seeing a little faster recovery or maybe a little more positive commentary. So, maybe walk us through where you're seeing the biggest bottlenecks here. And I imagine it's not a patient demand issue, it's probably more a logistics issue. So, I think that'd be helpful just to hear from you. Thanks.

Yes. Yes, thanks, Robbie. We don't have perfect visibility into the patient funnel. It's just kind of limited and we get a lot of our data from conversations with health care providers and our own frontline clinical specialists that really helped give us some perspective. And certainly, we believe that there's a small COVID-related backlog at this point, but we think that that's relatively small by compare, because I think the positive experience the clinical outcomes that people are having, but this is a story yet to be told. And so, we're going to have to live this one.

That's it for me. Thanks.

Thank you. Next question comes from Matt Miksic with Credit Suisse. Please state your question.

Hi. Thanks so much for taking the question. So maybe just one if I could on TAVR centers, where you stand now. I know, we're sort of getting to maybe capacity of potential centers in the U.S. So, where you're at now and what the pace of new centers looked like, and then I just have one follow-up.

Okay. Yes, we think at this point, we're starting to approach about 850 centers in the U.S. And at this point, it's possible for there to be additional centers added, we still have some centers that approach us, but we think are going to be relatively few at this point. And we also think that they're going to probably tend to be smaller centers, and probably not have a dramatic impact on the overall numbers. But hopefully that gives you a sense of where we're at and what we're projecting.

Sure. Yes, no, that's super helpful. And then on sort of just the TAVR capacity, I know you've labor intensive model, you've been expanding, obviously in investing, maybe, or Mike or Scott, if you could talk about what the pace of capacity build out looks like, compared to last year, maybe what it looks like this year going forward?

Yes. So, it's easy to get lost in the pandemic, because we've had so many ups and downs. Maybe what I'll do is just remind you of what the company has been able to do over this period since 2019. And if you look at -- whether you're looking at the first quarter or full year 2022, we're looking at a 10% growth rate compounded annual growth rate. So, 10% each year from 2019 to now -- so 3 years, which gives you a sense that even with all of the constraints and incredible distractions and all the pressures that have been on systems, there's been a pretty continuous lifting of the TAVR treatment rates. And again, TAVR is a little faster than the rest of the company. But I don't have that number handy. But hopefully that gives you a sense for it's been happening on a pretty steady basis, and we expect the system to continue to adapt and evolve and add capacity. Although we don't expect it to happen kind of overnight, it will be more gradual nature.

Super. Thanks so much, Mike.

Our next question comes from Bill Plovanic with Canaccord. Please state your question.

Great. Thanks. Good evening. Thanks for taking my question. I just wanted to circle back on one of the comments just on the international TAVR business, I think, approaching 20%. I'd be a little surprised that, that would be a pretty significant change for Europe, if it's starting to approach 20%. I'm just wondering if you could give us a little more clarity on kind of how that -- that growth rate between Europe, Japan and maybe rest of the world looks? Thank you.

Yes, we typically don't give country-by-country growth rates. But that we did experience 20% constant currency growth outside the U.S. And that most of the geographies around the world were all in that 20% range and that included Europe and Japan, and other places in the world were dramatically under penetrated. So, all that is a big positive. In the case of Europe, it was broad based across many countries. I mean, every country just grew in the first quarter. Now some of that might have been the fact that it was a little tougher last year, but nonetheless, it was very impressive to us and here it is a product that was launched in 2007. Now it's 15 years later and still growing at this kind of pace, tells you that in some ways the system is still catching up with what the demand is -- that's out there, and what gives us optimism for the future. So, on a long-term basis, do we expect Europe to grow 20%? No, we don't. But we'd be very pleased if Europe can continue to be an important contributor to growth. We haven't tried to parse long-term growth rates out, but I have to tell you that it's exceeded our expectations in the recent past.

I just add to that, Mike, one of the benefits of having this now significant TAVR business with a global footprint is we do have different regions contributing to growth at different times. And so, we've got new technologies that get introduced to different markets, new indications that are issued on TAVR devices in different markets. And so, it really helps to have this broad footprint. And if one business is performing, maybe not as weak -- not as strong in one period, then that could be offset by another region that is.

Excellent. Thanks. And then if I could just on the U.S., I mean, I think is we're looking at the comp seem pretty tough as we get into Q2 on U.S TAVR. U.S., the first quarter for U.S was --- felt like it was kind of flattish sequentially. And I'm just trying to figure out, do you expect something similar that you're seeing into the TMTT is where we'll get more of a kind of keep recovering in Q2 on TAVR. And then maybe that really steps up as we get into the back half of the year, even in the U.S. Is that how we should think about it?

Well, your point is a good one about tough comp in Q2 for TAVR. We saw a really strong growth. I mean, it was mind boggling, something that we didn't expect Q2 of last year. Now having said that, so we expect a real step up in our Q2 sales in TAVR. Again, we're going to see what we think is probably an all-time record for TMTT in the second quarter as well. But we say TMTT is really going to take off in the second half. TAVR is not going to come down probably from Q2. We expect that probably to just continue to increase, be a little stronger in Q3 and stronger yet in Q4. So, we expect a continuous ramp there of really setting all-time highs.

Thank you.

Next question comes from Shagun Singh with RBC Capital Markets. Please state your question.

Thank you for taking the questions. Mike and Scott, I just wanted to ask the guidance question in a different way. So, your Q1 results and Q2 guidance, it does imply a pretty substantial improvement in the back half. And you've kept your guidance intact since December 9, despite a pretty dramatic shift in the operating environment, just given Omicron inflation, supply disruptions, staffing shortages, worse FX environment. And so, I'm just wondering, what's improved on an underlying basis since your December outlook? Is it International TAVR, TMTT? Or was your guidance just conservative?

That’s a good question. Back in December, it was before Omicron had really been introduced in the U.S., and we're still seeing Delta in Europe, but in January, we saw a pretty noticeable impact of Omicron in the U.S. And we talked about a little bit on the fourth quarter call. We talked -- say about how conditions generally improved since January. But I don't think we'd say that conditions have improved all the way back to what we still saw back in our December Investor conference. So, things are better, but maybe not all the way back to what we had foreseen back in December at our Investor conference.

Yes, and just a pile on there, and I don't have exact numbers behind this. But even though we've seen a pretty nice recovery here, not sure that the hole that was created for Omicron has been filled at this point. And that's still in the future. So, we have a pretty good-sized guidance range. And so, we continue to feel comfortable that will be within that guidance range. But we haven't fully filled the hole from Omicron yet.

Got it. And just to follow-up on capital, can you just comment on the capital environment in 2022, just given the exposure, you have, I guess, on the Critical Care side. But just generally, as you talk to hospital customers, are you worried about a slowing capital purchasing environment, especially in the midst of labor cost inflation and high interest rates that's ongoing? Thank you for taking the questions.

Yes. Thanks for the question. We're not maybe the perfect barometer. For capital, we have a pretty good capital business, but it's only about 20% of overall Critical Care. And so, part of what we saw, we saw a pretty good recovery that started last year. Started last year, probably in Q2, and a pretty big capital recovery and part of that's in our comparables when we look at this year. So, we think that that is -- it was been pretty impressive and that we think we expect it to repeat this year, but not be greater than it was last year. It was a pretty -- it was pretty significant last year. And so, from our view, at least the way people are purchasing HemoSpheres, we saw quite a recovery from what we saw in the early days of the pandemic.

Thank you.

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

Thanks for taking the questions. I wanted to ask on TMTT guidance for '22 and the expected acceleration in the back half, but really how much of that is coming from current sites and further penetration in the -- in those sites versus either additional site expansion or geographic expansion that you talked about?

Yes. So, it's a great point. Part of this is not to have COVID interfere. Just it seems as though COVID has traditionally impacted mitral is a little bit more than it has TAVR by comparison just because we still require anesthesia and some ICU stays with the mitral procedure. So, some of it is that, but probably new sites is a bigger contributor than the increased adoption in existing sites. And so hopefully that gives you a little color on what we're expecting.

That's helpful. And then just in terms of your TMTT, the sales force build out that you've talked about in U.S., can you just walk through where you are at this point and expected future investments over the coming quarters ahead of launch? Thank you.

Yes. So, we're in the process of building that U.S field team. And we're building with the idea that we really want to ensure that we do a great job of training our own team, and trainings of physicians, and really doing this in a very deliberate fashion. So, it's going to be a pretty gradual and deliberate build out for us. And we're going to focus on having excellent procedural success and clinical outcomes. And so, we're taking a pretty thoughtful approach to this, rather than broad base. We're going to try and stay in accounts that already do quite a bit of a transcatheter and have real experience in doing it and are likely to be able to attain a high level of competency and maintain that. So hopefully, that gives you some sense of how we're thinking about it.

Thank you for taking the questions.

Sure.

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

Hi. Good evening, Mike, Scott and Mark. Just wanted to ask a follow-up on question pertaining to SAPIEN X. Hopefully, if you could maybe share the drive behind some of the design enhancements so that the as you start the ALLIANCE trial, with the design enhancements focused on eliminating mild PVL facilitating future TAVR and TAVR procedures or coronary access or anything you can share would be helpful. And my follow-up is just on the Alterra Transcatheter Pulmonary valve, the Medtronic Harmony valve recall today was announced or at least hit the tape. How big is that transcatheter pulmonary valve market, and what do you have baked into guidance for Alterra this year? And then could there be upside with this recall? Thanks for taking both questions.

Sure. Well, we have -- we certainly have design intent and SAPIEN X4. We believe that it's going to have improved paravalvular leak performance. We also think that it's going to have RESILIA tissue on it, which we think is a big plus and add durability. And it also just has a chance to address some of the variability that's in patients. And so, we think it has a number of advantages and we look forward to trying that out. In terms of the pulmonic opportunity, I really haven't gotten into the news today that's happened on that. We're just now rolling out the Alterra product. We've been pleased with that. This isn't a really large group. I think compared to the overall TAVR market, it probably gets lost in the numbers. It's not really that big of an opportunity, but boy, these are patients that really, really need the help and so we feel a real obligation to be able to help them through a tough time.

Understood. Understood. Thank a lot, Mike.

Yes.

Thank you. Next question comes from Rick Wise with Stifel. Please go ahead.

Good afternoon, Mike and Scott. One question for each of you. Mike, you're conveying very clearly your excitement about PASCAL and the acceleration you expect throughout the year. You said it's really going to take off. I was just hoping you could give us a little more color. Is this about the sales force expansion? Is it the number of centers opened, is it about training? All the above I'm sure, but just maybe help us better understand the fundamentals behind your optimism?

Yes. Thanks, Rick. Well, maybe it's something that just a clarifying point is, remember, we're just selling in Europe at this point.

Exactly.

And so, when you talk about this transcatheter edge-to-edge therapy, the supporting evidence in Europe hasn't been overwhelmingly positive, it's been somewhat mixed. And so that's led to a growth rate in Europe, that's been probably less than what it should be. And we think there's going to be a real contribution when the family of class trials become apparent, we think has a chance to really lift market adoption. And that's going to be one of the pluses. And then as I said earlier, adding new sites is going to be a positive us growing, the team is going to be positive and all those are going to be additional add ons.

Great. And maybe just last for me and I'm guessing this for Scott. You bought $400 million worth of stock, clearly balance sheets in excellent shape, free cash flow strong. Given the market, the pressure is on the group on Edwards stock price, what's your appetite now? How are you thinking about stock repo as we move through the second quarter? And is there anything else on your mind from a cash use perspective? Thank you so much.

Sure. Thanks for the question. Thanks for bringing us home a little bit over the time. So, I'll try to go quickly here. But our cash priorities have not changed at all. First and foremost, we invest in the business. But eventually, we're also going to end up with a lot of cash. And we intend to at least offset the impact of incentive compensation dilution. But beyond that, we've been gradually over time buying down the overall share count. And we're going to continue to look for opportunities to do that. We got off to a good start with a $400 million repurchase this year, we'd like where the stock was from a repurchase standpoint. And we still have over $700 million left in repurchase authorization. So, you should expect that that's going to be just part of our long-term capital deployment plan.

Thank you so much.

Okay. Thanks so much for your continued interest in Edwards. Scott and Mark and I are going to welcome any additional questions by telephone later on.

Thank you. This concludes today's conference. All parties may disconnect. Have a good day.