Edwards Lifesciences Corp (EW) — Q2 2022 Earnings Call Transcript

Good afternoon, and thank you all for joining us. With me on today's call are Mike Mussallem, Chairman and Chief Executive Officer; and Scott Ullem, Chief Financial Officer. Also joining us for the Q&A portion of the call today will be Larry Wood, our Global Leader of TAVR; Bernard Zovighian, our Global Leader of TMTT; and Daveen Chopra, our Global Leader of Surgical Structural Heart. Katie Szyman, our Global Leader of Critical Carriers, is out of town today, but she'll be with us on future earnings calls. Just after the close of regular trading, Edwards Lifesciences released second 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, including but not limited to, those associated with the pandemic that could cause actual results to differ materially. Information concerning factors that could cause these differences and the 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?

Thanks Mark. In the second quarter, total company sales reflected year-over-year and sequential growth across all four of our product groups on a constant currency basis, despite several challenging factors. Sales were lifted by strong performance outside the U.S., with double-digit underlying sales growth in Europe and Japan. On a constant currency basis, total company sales grew 5% compared to the extraordinary second quarter of 2021, when sales increased 44%, lifted by the treatment of patients who had postponed their care. Nevertheless, second quarter sales and EPS were at the lower end of our expectations as a result of U.S. hospitals struggling with staffing shortages, as well as the stronger U.S. dollar. We now anticipate that these challenges are likely to persist throughout 2022, and as a result, we are lowering our second-half outlook to more realistically reflect the current operating environment. Although the near-term environment remains uncertain, we are unwavering in our long-term pursuit of groundbreaking innovations. We're investing to achieve breakthrough therapies that create significant value for patients in the healthcare systems, enabling strong organic sales growth. We continue to make meaningful progress on our pipeline and expect to achieve important milestones by year-end. As the global population ages and cardiovascular disease remains the largest health burden, we continue to believe the opportunity to serve our patients will nearly double between now and 2028. Now, turning to the quarterly results by product group, in TAVR, second quarter global sales of $907 million increased 5% on an underlying basis, despite approximately 50% growth in the year-ago period. Sales were below our expectations due to the ongoing U.S. hospital staffing constraints and foreign exchange headwinds, but still represented our highest quarter of TAVR sales. We estimate global TAVR procedure growth was comparable with Edwards' growth in the second quarter. In general, local selling prices were stable, although the average global selling price declined slightly due to the weakening euro and yen. In Q2, we continued to advance two pivotal trials aiming to expand indications. First, our EARLY TAVR trial is studying a large group of patients with severe aortic stenosis and no diagnosed symptoms. Second, our PROGRESS trial is evaluating patients with moderate AS, which represents a group that is much larger than those with severe AS. Last month, we also began treating patients in our ALLIANCE pivotal trial for our next-generation SAPIEN X4. In the U.S., our TAVR sales were approximately flat with the elevated prior year but increased in the high single-digit range sequentially. We estimate that our share of procedures was stable. As previously mentioned, our second quarter U.S. TAVR sales were impacted by slower-than-expected improvement in the U.S. hospital staffing and temporary contrast agent shortages. Also recall in Q2 of last year, our U.S. TAVR sales increased over 50% on a year-over-year basis, as COVID vaccines became more widely available and patients who had waited were treated. On a three-year compounded annual basis, our U.S. TAVR sales increased 10% compared to the strong second quarter in 2019. Outside the U.S., in the second quarter, our underlying TAVR sales grew in the mid-teens on a year-over-year basis, and we estimate total procedural growth was comparable. This strong growth outside the U.S. was consistent with our underlying three-year compounded annual growth rate also in the mid-teens. Long term, we see excellent opportunities for OUS growth as we believe international adoption of TAVR therapy remains quite low. In Europe, Edwards' sales growth was driven by the continued strong adoption of our SAPIEN platform. We estimate that our competitive position was stable. Localized hospital staffing disruptions impacted second quarter results, although this headwind was less pronounced than in the U.S. Fifteen years after commercialization, it's encouraging to see the resilience of the TAVR programs in Europe, despite the challenging backdrop of today's environment. In Japan, we experienced continued strong TAVR adoption as we remain focused on expanding the availability of TAVR therapy throughout the country. Similar to last quarter, the number of TAVR procedures performed exceeded surgical aortic valve replacement following approval last year for patients at low surgical risk. In summary, we continue to be very optimistic about the long-term potential of TAVR because of its transformational impact on many patients suffering from aortic stenosis and because many remain untreated. Recall that we had previously assumed an improvement in the U.S. hospital staffing shortages throughout the year. We're now anticipating a slower improvement. And as a result, we are adjusting our full-year outlook. We expect underlying TAVR sales growth of around 10% in full year 2022 versus the previous expectation for 12% to 15%. Longer term, we remain confident in this large global opportunity and that it will double to $10 billion by 2028, which implies a compounded annual growth rate in the low double-digit range. Now, turning to TMTT. To transform treatment and unlock the significant long-term growth opportunity for mitral and tricuspid patients, we remain focused on three key value drivers: a portfolio of differentiated therapies; positive clinical trial results to support approvals and adoption; and favorable real-world clinical outcomes. At the TCT conference in September, we expect the first results of the Class IID pivotal trial evaluating patients suffering from degenerative mitral regurgitation. This first of its kind head-to-head randomized pivotal trial, powered for non-inferiority, will be the first of several key pivotal trials evaluating the PASCAL technology. Additionally, at TCT, we expect three-year data from the earlier class study. This growing contemporary body of clinical evidence will be important for the physician community considering transcatheter edge-to-edge repair treatments for mitral patients. We remain on track for U.S. FDA approval and CE Mark approval of PASCAL precision by year-end. This next-generation system is designed to facilitate precise navigation and an intuitive user experience, extending our differentiated platform. This will allow us to expand PASCAL adoption in Europe, and we're pleased that we'll be launching the newest generation of PASCAL in the U.S. In mitral replacement, we continue to broaden our experience with both of our transcatheter mitral replacement therapies through the in-circle pivotal trial for SAPIEN M3 and the MISCEND study for EVOQUE EOS. Growing evidence with these Sub 30-French transfemoral therapies furthers our confidence in both platforms. Turning to tricuspid, we also continue to make progress on enrolling the TRISCEND II pivotal trial for the EVOQUE replacement system and the Class II TR pivotal trial with PASCAL in patients with symptomatic severe tricuspid regurgitation. While we remain hopeful for year-end approval in Europe, uncertainties exist regarding the new MDR approval process for novel technologies seeking a CE Mark. We remain committed to bringing the EVOQUE therapy to these tricuspid patients who have a very poor prognosis and few treatment options today. As we continue to build a body of compelling clinical evidence, we're pleased with the recent data from several late-breaking presentations. One-year results from our CLASS TR study, presented at the American College of Cardiology Conference, demonstrated significantly reduced TR, improved quality of life and maintained TR reduction. Also, at the EuroPCR meeting, 30-day post-market data from our tri-class study was presented with 90% of the patients showing improvements in their quality of life. At upcoming medical conferences this year, we plan for contemporary evidence to be presented on both our PASCAL and EVOQUE platforms. Turning to results. Second quarter global sales were $28 million, driven by the continued adoption of the PASCAL platform and activation of more centers across Europe. Our Q2 commercial performance was tempered by lower-than-expected market growth related primarily to COVID headwinds. We are now updating our full-year guidance to $110 to $140 million, which represents approximately 60% underlying growth over the prior year and reflects a stronger-than-anticipated impact from foreign exchange, as the vast majority of TMTT's business is in Europe. Bigger picture, we continue to be pleased with our progress forward on three key value drivers. We're advancing our comprehensive portfolio of differentiated therapies combined with contemporary clinical evidence and favorable real-world patient outcomes. Together, this demonstrates the promise of these therapies for this significant unmet patient need and will help unlock this large market potential. In Surgical Structural Heart, second quarter 2022 global sales of $229 million increased 2% on an underlying basis over the prior year. We are encouraged to see global growth despite sales headwinds from the planned discontinuation of certain non-core cannula products, as well as the COVID shutdown in China, which combined growth by approximately 500 basis points. Our growth continues to be driven by increased penetration of our premium RESILIA products. We've seen strong adoption of the MITRIS RESILIA valve in the U.S. since its initial launch in April. Building on the commercial success of INSPIRIS, we believe hospitals value the intuitive product features as well as the benefits of this innovative RESILIA tissue technology. Physician feedback in regions where MITRIS has been launched has been positive and initial clinical outcomes have been favorable. In the second quarter, we continued to bolster the overall body of RESILIA evidence. This includes a commenced trial sub-analysis which demonstrated the excellent performance of this tissue technology when treating bicuspid aortic valve disease, which was presented at the 2022 Annual Meeting of the American Association of Thoracic Surgeons in May. In a cohort of more than 200 patients averaging a relatively young 60 years of age, structural valve deterioration was zero at five years. In summary, we remain confident that our full year 2022 underlying sales growth will be in the mid-single-digit range for Surgical Structural Heart, driven by market adoption of our newest premium technologies and global surgical market growth. In Critical Care, second quarter sales of $211 million increased 3% on an underlying basis. As expected, growth was moderated by strong prior year comparisons. Sales growth was driven by increased adoption of our hypotension prediction index algorithm and our broad portfolio of sensors. Additionally, we continued enrollment in the HPI Smart BP trial focused on generating additional clinical evidence to support further adoption. Demand for the HemoSphere monitoring platform remains strong with a healthy pipeline of future opportunities. In summary, we continue to expect mid-single-digit underlying sales growth in 2022. We remain excited about our pipeline of Critical Care innovations as we shift our focus to Smart Recovery technologies designed to help clinicians make more informed decisions for their patients. And now, I'll turn the call over to Scott.

Okay. Thanks, Mike. Despite several challenging factors, best hospital staffing and foreign exchange headwinds, our business fundamentals remain strong. We achieved total sales in the quarter of $1.37 billion with double-digit underlying sales growth in Europe and Japan. We expected our underlying growth in the second quarter would be our lowest of the year, given our strong prior year sales performance. Our higher than expected gross profit margin, lifted by the positive impact from our foreign exchange program, contributed to an adjusted earnings per share of $0.63. We are adjusting our guidance to more accurately reflect the continuation of the more pronounced FX headwinds and slower than expected improvement in COVID-related hospital staffing. We expect total company underlying sales growth of approximately 10% in the second half of this year. For full year 2022, we now expect total Edwards sales of $5.35 billion to $5.55 billion. We expect TAVR sales of $3.5 billion to $3.7 billion; for TMTT, $110 million to $140 million; for Surgical Structural Heart, $870 million to $950 million; and for Critical Care, $820 million to $900 million. Now expect full year adjusted earnings per share guidance at the bottom end of our original guidance range of $2.50 to $2.65. For the third quarter, we're projecting sales to be between $1.30 billion and $1.37 billion and adjusted earnings per share of $0.58 to $0.66. I'll now cover additional details of our results. Our adjusted gross profit margin in the second quarter was 80.5% compared to 75.9% in the same period last year. The improvement was driven by the higher than expected positive impact from our FX program, which includes natural hedges and hedge contract gains that offset the sales impact from the weakening of the euro and yen versus the dollar. At current foreign exchange rates, we now expect our full year and second half 2022 adjusted gross profit margin to increase to approximately 80%. This guidance range reflects our assumptions of a favorable impact from FX hedge gains and an improved product mix, partially offset by supply chain inflationary pressures. This year's forecasted gross margin rate includes approximately 350 basis points of benefit from foreign exchange versus 2021. At current FX rates, in 2023, we expect an approximate 250 basis point reduction in our gross profit rate. Selling, general, and administrative expenses in the second quarter were $409 million, or 29.8% of sales, primarily due to a resumption of in-person commercial activities, partially offset by the weakening of the euro and yen against the dollar. We continue to expect full year 2022 SG&A expenses as a percent of sales to be between 28% and 30%, as we continue to invest in our high-touch model for TAVR and the ongoing build-out of the TMTT commercial team. Research and development expenses in the quarter grew 11% compared to the same period last year to $251 million, or 18.3% of sales. This increase was primarily the result of continued investments in our transcatheter innovations, including eight currently enrolling pivotal clinical trials. For the full year 2022, we continue to expect R&D expenses to be between 17% and 18% of sales as we invest in developing our new product pipeline and generating evidence to support TAVR and TMTT. During the second quarter, we recorded a $21 million net reduction in the fair value of our contingent consideration liabilities, which benefited earnings per share by $0.03. This benefit was excluded from our adjusted earnings per share of $0.63. This reflects an accounting adjustment from assumptions regarding potential milestone payments for previous acquisitions. Turning to taxes, our reported tax rate this quarter was 12.5%, or 12.9%, excluding the impact of special items. Due to last quarter's new regulations that potentially limit the amount of our foreign tax credits, combined with an estimated reduced tax benefit from stock-based compensation accounting. We now expect our full year tax rate, excluding special items, to be at the high end of our previous 11% to 15% range. Foreign exchange rates decreased second quarter reported sales growth by 4.6 percentage points or $60 million compared to the prior year. At current rates, we now expect an approximate $250 million negative impact or 4.5 percentage points to full year 2022 sales compared to 2021, of which approximately $170 million impacts the second half of the year. FX rates positively impacted our second quarter gross profit margin by 380 basis points compared to the prior year. FX rates had a minimal impact on second quarter earnings per share. We mentioned at the investor conference, in periods of a strengthening dollar like this, sales are negatively impacted. But as a result of financial and natural hedges, margin rates benefit resulting in a minimal impact to the bottom-line in the calendar year. Free cash flow for the second quarter was $289 million, defined as cash flow from operating activities of $332 million less capital spending of $43 million. Before turning the call back over to Mike, I'll finish with an update on our balance sheet and share repurchase activities. We continue to maintain a strong and flexible balance sheet with approximately $1.5 billion in cash, cash equivalents, and short-term investments as of June 30, 2022. Average shares outstanding during the quarter were $627 million, down from the prior quarter as we repurchased 3.7 million shares during the second quarter for $355 million. In the first half of the year, we repurchased 7.3 million shares. In July, we obtained Board approval to increase the authorization under our share repurchase program, consistent with our long-time practice of seeking new authorization when the prior authorization has been diminished. We now have $1.9 billion remaining under the program. Given our repurchase activity in the first half of the year, we now expect our average diluted shares outstanding for 2022 to be between $625 million and $630 million. With that, I'll pass it back over to Mike.

Thanks, Scott. Our strong foundation of technology leadership, combined with a robust product pipeline, positions us well for continued success. As patients and clinicians increasingly recognize the significant benefits of transcatheter-based technologies reported by the substantial body of compelling evidence, we remain as optimistic as ever about the long-term growth opportunities. And with that, I'll turn it back over to Mark.

Thanks a lot, Mike. Before we open it up for questions, I'm excited to announce that Edwards is planning to host an investor update at TCT on Saturday, September 17. This event will include a recap of pivotal trial data, updates on our latest technologies, and views on longer-term market potential. We hope to see you there. But please note this meeting will be webcast for those who cannot attend in person. More information will be available in the coming weeks. With that, we're ready to take questions now. To allow for broad participation, we ask that you please limit the number of questions to one plus one follow-up. If you have any additional questions, please re-enter the queue and management will answer as many participants as possible during the remainder of the call. Diego?

Great. Thanks for taking the questions. Maybe to start, TAVR is such a necessary procedure for these patients. And it's sad to see it slow down like this, but it's understandable given how many steps are involved in the patient population involved. What's your sense of what the early funnel is like? How are, you know, how's the early funnel with patient visits to doctors, diagnosis? Where is really the bottleneck that you're seeing? And how do you expect the funnel to play out in third and fourth quarter, both U.S. and outside the U.S.?

Thanks, Robbie. What we are experiencing now is different from the initial days of the pandemic. Initially, there was an impact on hospital capacity, but many patients were hesitant to come into the system and avoided it. Now, patients are entering the system and are waiting for care, but in some cases, hospitals lack the capacity to treat all of them. As a result, some care is being delayed. Given the severity of this disease, it's concerning because we know that these patients do not wait well, and there will be some casualties. Larry, do you have anything to add?

No, I think that's a good summary. When the pandemic first happened, hospitals, the beds were all filled up with COVID patients, and we don't see that today. Hospitals have beds, they have capacity. They just don't have staff. And I think some of what we're challenged with a little bit is as people test positive for COVID, they're not getting hospitalized, but they have to leave the workforce where they isolate. I think that's exacerbating a little bit of staffing challenges. But you're right, the patients don't wait well. We were already dealing with the undertreatment of AS before the pandemic hit, and certainly, this hasn't made it better. But these patients deserve therapy, and we're hoping this returns back to a more normal state soon.

Okay. And maybe as a follow-up on MTT, it's not surprising given the euro exposure to see the guidance move down there on a dollar basis. But this is also a market that's recovering probably slower than we had thought at the December Analyst Day. So, maybe you could walk us through how much of it is PASCAL and your product set versus the competition? And how much is the market? And how we should think about cadence there in the third and fourth quarter? It still requires a step-up to reach the midpoint of guidance. Thanks a lot.

Yes. Thanks, Robbie. So, yes, a couple of things. As we mentioned, because most of the PASCAL sales are in Europe, we do get affected by currency in a more dramatic way than we would otherwise. But the other issue is less of a competitive issue as we're really feeling like the market didn't grow. It really slowed down in TMTT. And Bernard, why don't you provide some color on that.

Yes. Yes, exactly, Mike. So if you think about on a short-term basis, the TMTT procedures are more resource-intensive. They require general anesthesia and ICU stay for the patients. So therefore, they have been impacted more than any other procedure that we know here.

Good afternoon. Thanks for taking the question. One for Larry, one for Bernard or whoever wants to jump in. Just on TAVR, just Larry, any color on trends in the U.S. TAVR market in Q2? How much do you think the contrast shortage impacted you? And I'd love to hear why you think the U.S. has been softer than Europe? And I have one follow-up for Bernard.

Yes. Contrast, I think, was more of an issue here, early in the quarter than late in the quarter. It seemed to get better as the quarter went on. But certainly, there was an impact. It probably impacted smaller hospitals more than the bigger systems that probably had more reserves. So that was that. In terms of trends, as much as we get frustrated by it, we did grow sequentially. So we did see an improvement in hospital staffing, just not as much as we were anticipating. And we obviously have a tough comparison to a year ago when we grew almost 50%. So that's just kind of where it is. We still anticipate it's going to get better over the course of the year. It's just been more slow than we would have hoped.

Yes. And just to add on, Larry, your question about Europe versus the U.S., we did see staffing shortages in Europe but they were more isolated in nature. We saw them in particular countries or regions, whereas the U.S., it really felt more widespread, more broad. And so, it turned out to be more pronounced. We were able to more or less swamp those in Europe.

That's helpful. Mike, regarding PASCAL and CLASP IID, should we assume your expectations for PASCAL approval by year-end are positive? You feel confident about the trial meeting its endpoints. Additionally, there have been significant changes to both PASCAL and MitraClip since the trial began. PASCAL A's precision has improved, and MitraClip has advanced from Gen 2 to Gen 4. How might these changes affect the results? Do you anticipate a mix of different devices in the trial? Thanks for addressing this question.

Yes, thanks. You did perceive it correctly. We feel like we're on track for our year-end approval in PASCAL. We're going forward to that. As I'll remind you, that trial is designed as a non-inferiority trial. And so, but that's what the target is. But you also brought up another interesting point. If you look at what's available for clinicians today, some of that data is kind of old, right? It's for patients that were treated maybe five years ago and sometimes even further back, and there have been a lot of improvements in our system and competitors as well. And so what it will be also interesting about the data that we see is we'll see more or less a contemporary update of how edge-to-edge procedures are going; anything to add to that, Bernard?

No. You're right, Larry. What you're going to see is a number of analyses done with these pivotal studies. We have the original PASCAL and ACE, a number of mitral generations also. But as you can imagine, like in any pivotal randomized study, you have the first result that will represent the data necessary to support approval and adoption. And what you can expect is additional presentations over time with more analysis.

Thanks for taking my question. Regarding PASCAL, with the revenues coming from Europe and considering that Europe seems to be less affected by labor shortages, did we possibly misunderstand the adoption curve? Could you discuss what has changed in the revenue projections for Europe related to PASCAL?

Thanks for the question. So in Q2, we continue to grow sequentially quarter-over-quarter, year-over-year. We continue to grow our presence, our teams, we open new sites both in Germany and outside of Germany. We feel good about our meaningful presence in Germany, even though there is more to do. Beyond Germany, there is still a lot to do. So the adoption is going at the pace we want in terms of site adoption and PASCAL adoption for sure, the market growth was less than anticipated in Q2. We expect that to last and to improve gradually in the second part of the year.

Yes. And I might just add, Vijay, that because our business is more concentrated in TMTT, in certain regions, like, for example, there's more business in Europe or in Germany, in particular, than other parts of Europe, some of those labor shortages and strikes in Germany probably had a little greater impact on this. So that combined with the point that Bernard made earlier that these procedures still require anesthesiologists and ICU space are probably why the market slowed. And you'd also argue in Europe, they're not fully convinced, right, because they have the mitral FR data that also is out there. And so it's another reason why we're kind of excited about bringing a new data set later on this year.

Thanks for taking my question. One on the EPS guidance, I think the implied fourth quarter EPS, depending on third quarter assumptions, it could either be flattish or down sequentially. Is that just a function of how the FX hedges roll off or anything else that's going on that drives the fourth quarter EPS? Yes, thank you for the question, Vijay. To respond, we can look at the midpoint of our initial guidance of $2.58 compared to the current guidance, which is closer to the lower end of the $2.50 to $2.65 range. The shifts are primarily due to changes in sales from the original forecast, influenced partly by sales figures and some of the challenges we've previously mentioned, as well as the effects of foreign exchange on sales and its eventual impact on EPS. We are also observing a higher tax rate than expected; currently, we anticipate it will be around 15%, which is at the top of our original range of 11% to 15%. This adjustment may cost us about five cents. On a positive note, we expect to see a small increase in interest income due to market conditions, and a few cents reduction in share count resulting from our ongoing repurchase activities. While we're not revising our fourth quarter EPS guidance downward, this provides insight into how we see the overall year compared to our previous projections.

Good afternoon or evening. And thanks for taking the question. As we think about 2023, I appreciate the commentary on the FX hedges slipping and the impact to gross margins next year. Is there anything in particular that you would like to comment on? Because I think generally, people are starting to make sure the 2023 numbers are somewhat a ballpark based on what we currently know.

Yes, it's still early to discuss the specific line items of the P&L for 2023. We will cover that in detail at the investor conference. However, due to the significant impact of foreign exchange on gross margin this year, we want to provide some insight into what to expect as these hedges expire in 2023. Based on current FX rates, we anticipate losing around 250 basis points of the 350 basis point advantage we have this year, which is compared to 2021. This means we still expect to gain approximately 100 basis points from FX in 2023 since we've secured some hedge gains during the first half of this year. For modeling purposes, you might consider using around 77.5% as a good assumption for next year's projections.

And then as a second question, assuming FDA approval by the end of this year for PASCAL, how do we think about launch, again, going into next year? Thank you.

Yes. So maybe Bernard, you best to go through that, you can go through the particulars of how we plan to launch.

Yes. First, let me express our satisfaction with our progress in Europe. We are currently working on our U.S. launch plan, taking into account our success with TAVR in the U.S. We are in the process of establishing the U.S. TMTT field team, focusing on ensuring high-quality training so we can effectively implement our high-touch model, similar to what we have achieved in Europe, while prioritizing excellent patient outcomes. We anticipate that our U.S. launch will be supported by clinical evidence, which we did not have during our European launch, marking a significant difference. Additionally, it is important to note that we will only have a DMR approval for the U.S. launch.

And maybe just to add a little bit more, Joanne, this is going to be a step-wise launch. We're not going to try and serve all hospitals at once. We've really prioritized the group, and that will be our first step, but we're trying to make sure that we have a well-trained team that assures great outcomes right from the beginning. It will be more of a ramp than a step function.

Great. Good afternoon, and thanks for taking the questions. I wanted to ask just if you could provide some color on both the COVID, the staffing shortage impact on enrolling some of the trials in the U.S., both the CLASP studies, ALLIANCE. And then, if you have an outlook right now just around export timing, approval timing, above some color how you're thinking about that as well?

Yes. Thanks, Cecilia. Maybe I start, and I'll let Larry and Bernard jump in to add some additional color about the trial. Just broadly, the fact that COVID has been persistent is a burden on hospitals. In any way, you slice it, because what happens is even though we don't consider today's COVID so deadly. When someone tests positive, they're out. People they've had contact with are out and miss five days. So it really is disruptive to a team and that can help and have some impact. Having said that, overall, we feel pretty good about our clinical research. Larry, why don't you update us on the TAVR side, and Bernard, you can talk about TMTT.

Sure. Well, we have three big trials. We have EARLY TAVR, which is fully enrolled. And we have our PROGRESS trial, which is our trial where we're studying moderate aortic stenosis. While we certainly see some impact, we've been actually pretty pleased with how that's going so far, and there's a lot of clinician interest. We just started enrolling last month in our ALLIANCE trial, which is our X4 trial for our next-generation SAPIEN platform. We've been pleased with the enthusiasm there. You always start the trial a little bit slow as you're getting sites up and you're getting them trained in a brand new valve platform. But overall, we've been pleased with the start.

Yes. And for TMTT today, we completed enrollment. We have CLASP IIF, CLASP II TR. We have TRISCEND II for EVOQUE. So yes, Mike, procedures are more resource-intensive and they require more staffing. But we have seen a little bit of an impact, but not so much. We are pleased with the kind of enrollment we are having across all of the TMTT trials.

Great. Thank you. And if I could ask as well, just going back to your Analyst Day, you talked about your DTC TAVR initiative. Just would love some color in terms of and what you've seen out of that, where you are in that process at this point? Thank you.

Yes. So thanks. I mean, I don't know, Larry, if you want to update that. We continue to be very focused on trying to make sure that we help patients come off the sideline just because it is such a big issue. It is going to be an important source of growth.

Yes. We continue on these efforts even though the hospitals are struggling a little bit to train the patients they have. It takes a while for these patients to move through from diagnosis to screening and to treatment. And so, we just think it's important to keep raising awareness around aortic stenosis because it remains woefully undertreated. Only about 10% to 15% of patients with severe aortic stenosis actually get treated today. And again, we're running the trials to prove the point with EARLY TAVR and with PROGRESS, but we know these patients don't wait well even though some people may think they wait better than they actually do. So we're committed to the evidence, and we're committed to making sure patients are aware, and we continue to execute on those programs.

Thanks for taking my question. Just looking at Q3, you've said some of the Q2 staffing issues either the contrast is more of a Q2 issue. But in Q3, there's usually some seasonality. So if you look at U.S. TAVR, I was curious if you think TAVR could be up sequentially at this time around or if it's probably down sequentially in Q3?

Yes. I'll just start out by reminding you that across Edwards, business, it's very normal for us to have Q3 be seasonally down compared to all the other quarters of the year because our procedures are generally done in teams and people take their summer vacations. That's routinely going to be down. The other factors that are in there, they just add to that. So no, we probably expect Q3 to be lower than Q2 and then Q4 to rebound to a higher level yet, but that would be a more typical seasonality. I don't know, Larry, do you have anything to add on U.S.?

Yes, I agree. People still seem eager to travel. Recently, securing hotel or airline reservations indicates that travelers are indeed taking vacations. The good news is that the contrast issue appears to be mostly resolved, if not entirely. We're not encountering as many problems with that anymore, which is beneficial. However, as Mike mentioned, we usually experience some seasonality in the third quarter.

Yes. I'll just add, as we look outside of the U.S., we also expect that some markets will show seasonal trends, especially those following the U.S. standard pattern. So it will be a nuanced view as we look across the globe.

Good evening. Thank you very much. I have a couple of follow-up questions. First, regarding the contrast media shortage, Scott, I appreciate your insights. Could you provide some quantifiable impact for the quarter? That information would be helpful. Additionally, I have a question about capital investment from hospitals. We've received varying feedback from different management teams over the last few weeks about the pressure on capital expenditures, especially in the U.S., and I was curious if there have been any effects on Critical Care or if you're noticing any signs of that. Thank you.

Okay. Well, thanks. On the contrast media, I don't know that I can specifically characterize the size. As Larry mentioned, we saw it more in smaller hospitals. We saw more early in the quarter than anticipated. Do we think it had an impact on Q2? We do. But it was a smaller impact than overall hospital staffing. So you can almost think of it as an 80-20 thing, something like that. Contrast media was relatively small by comparison. On the capital spending trends, our only lens that is the Critical Care business. So compared to some others in the medtech industry, they may have a better handle on this because they are more exclusively capital. We're in a very limited segment, and it's hard for us to know whether it's the capital budget in hospitals, our own performance. We've had pretty significant demand and we've been able to meet that. We continue to be pleased with the pipeline of orders that are ahead. So we feel pretty good about the really being capital spending. It's nothing like it was when it was constrained early on in the pandemic. We feel like hospitals are indeed spending, at least from our narrow perspective.

Good evening. My first question is, in terms of the U.S. TAVR and the number of centers, I think on the fourth quarter call, you said you had about 850 centers. I was wondering where you ended at the end of June? And kind of how should we think about center growth going forward? And then my second question is just on your SG&A spend was pretty high. It's a big jump sequentially. And I guess is a lot of that kind of the prebuild or the build of the infrastructure for PASCAL? And thanks for taking my questions.

Sure. Maybe I'll start out here. In terms of U.S. TAVR centers, yes, the addition of centers wasn't necessarily a big deal in terms of a growth driver. Larry, you might be able to characterize it more if growth came from large centers or smaller centers this last quarter.

It's really two aspects to consider. When we add new centers, the cases they handle contribute to our growth. However, the new centers we have at this time are relatively smaller programs and they grow at a slower pace compared to larger centers, so they don't significantly impact our overall growth. We do monitor the performance of larger programs against smaller ones. We've noticed a trend where an increase in COVID cases and the emergence of new variants tend to boost growth in smaller programs. This could be because people are staying closer to home. In contrast, individuals may be less willing to travel longer distances for our larger programs when COVID cases rise. This has been a consistent pattern as COVID has fluctuated, and this quarter was no exception.

Sure. Bill, on SG&A, it was pretty close to what we expected, actually. Remember, in the fourth quarter of 2021, we ended up having pretty high SG&A relative to our plans. It ended up being lower as a result in the first quarter. So it might have looked like a bigger jump just artificially because of the timing and sequencing of Q4 to Q1. But year-over-year in the second quarter, SG&A grew high single digits, pretty close to what we expected. You're right that we are investing pretty aggressively for long-term positioning of TAVR and TMTT in particular, both outside of the U.S. and in the U.S. So we're feeling good about where we are just in terms of our overall SG&A load.

Hi, good afternoon. And thanks for taking the questions. I'll keep it to just one. Maybe just on a bulk tricuspid, would love to get some additional color there. It sounds like you're still hopeful that product could come to market in Europe by year-end 2022. Just what are the expectations in the marketplace? And then just more broadly, how do you think about the repair versus replacement debate in the tricuspid setting? Thanks so much.

Yes. Thanks very much for that, Adam. Indeed, you did read correctly into our comments that we have introduced some uncertainty into whether we actually will get EVOQUE approved by the end of the year for CE Mark. Bernard, do you want to talk a little bit more about that?

Yes, Mike. As you know, there is a new process in Europe called MDR, which creates a lot of uncertainty for innovative technologies like EVOQUE. Since this process is new, there may be additional requests for clinical data, possibly even randomized data. That's the situation we are currently facing. We are working closely with our notified body to ensure they have everything needed for approval. Regarding your second question about repair versus replacement, we see value in both options. Mike mentioned our presentations at ECC and EuroPCR, where we introduced the PASCAL tricuspid CLASP study. This single-arm study demonstrated some benefits for patients. We are also very excited about the results we are achieving with EVOQUE. Ultimately, the choice will depend on the patient's specific anatomy and health condition.

Okay. Well, thanks, everybody, for your continued interest in Edwards. Scott, Mark, and I are going to welcome any additional questions by telephone. And with that, I'll turn it back over to Mark.