Q1 2022 Edwards Lifesciences Corp Earnings Call
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. If anyone should require operator assistance. During this conference. Please press star zero on your telephone keypad.
Please note that this conference is being recorded.
I will now turn the conference over to our host Mark Walter Deng 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 Michelle I'm, Chairman and Chief Executive Officer, and Scott All I'm 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 fine.
Actual 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.
Please 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 Dot 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 and with that I'd like to turn the call over to Mike for his comments Mike.
Thank you Maher, 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 at our field team continued to support the skilled clinicians and patients who calling on Edwards.
We continue to believe that 2022 will be an important year for Edwards life Sciences, 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 also motivates our employees around the world and our R&D targets breakthrough therapies that can create significant value for patients and health systems, enabling.
<unk> organic sales growth.
As we were 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.
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.
<unk> 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 <unk> 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 the global tab Herb procedure growth was comparable with our own growth and average selling price.
Those were stable globally.
In the U S. Our first quarter <unk> sales grew approximately 10% versus the prior year and we estimate total procedure growth was comparable.
Tamara adoption was broad based across hospitals, and our SAPIEN valves continued to demonstrate distinguished clinical performance.
Outside the U S. In the first quarter, our underlying <unk> sales grew approximately 20% on a year over year basis, and we estimate total procedure growth was comparable we continue to see excellent opportunities for O U S growth as international adoption of <unk> therapy remains low.
In Europe Edwards sales growth was driven by the continued strong adoption of our SAPIEN platform and was broad based across all countries are treatment rates recovered nicely throughout the quarter, although they differ by country, reflecting variable COVID-19 impacts, we estimate that our competitive position.
<unk> was stable.
In Japan, we also experienced strong <unk> adoption and the number of tap or procedures performed exceeded surgical aortic valve replacement.
Following reimbursement approval last year for the treatment of patients at low surgical risk, we remain focused on expanding the availability of tableau therapy throughout the country.
And broadly across the globe, we continue to see encouraging Tamara adoption in many underpenetrated countries.
In addition to geographic expansion, we remain focused on helping more patients gain access to tap a therapy in Q1, we continued to advance two pivotal trials aimed at expanding indication.
First our early tavern trial for the large group of patients with severe E S and no diagnose symptoms and second our progress trial that is evaluating patients with moderate a S which represents a group that is much larger than those with severe E. S.
We also remain on track to begin treating patients this quarter in our alliance pivotal trial for our next generation <unk> technology, SAPIEN <unk> X four.
In summary, assuming no new Covid had woods and a gradual improvement in U S Hospital staffing shortages throughout the year, we continue to plan for underlying tavern sales growth to be in the range of 12% to 15%. We remain confident that this large global opportunity.
Will double to $10 billion by 2028, which implies a compounded annual growth rate in the low double digit range.
Now turning to T M T T.
To transform patient care and unlock the significant long term growth opportunity. We continue to make steady progress on three key value drivers our portfolio of differentiated therapies.
Positive pivotal trial results to support approvals and adoption and favorable real world clinical outcomes were.
We're pleased with our high procedural success rates and we continued our strong momentum with more patients than ever treated with our T. M. T T technologies this quarter.
In mitral repair we continue to achieve excellent clinical outcomes with Pascal as we expand commercially and treat more patients in Europe . We remain on track for U S approval of Pascal precision for patients with the degenerative mitral regurgitation late this year so.
Appointed by our class two D pivotal trial.
We continue to advance the enrollment of class two F pivotal study for patients with functional mitral regurgitation.
And later this year, we expect European approval of our new Pascal precision system, which is engineered for enhanced navigation and an intuitive user experience extending our differentiated platform.
In mitral replacement, we continue to broaden our experience with both of our Transcatheter mitral replacement technologies through the circle pivotal trial for SAPIEN, three and the my son study for evoke iOS.
This early experience with these sub 30, French transfer Emerald therapies gives us confident that these platforms have the potential to transform treatment for the many patients in need.
Turning to Transcatheter tricuspid therapies as we continue to build a body of clinical evidence for Pascal in the tricuspid position. We're pleased with the recently presented late breaking data at the ACC meeting last month.
We're encouraged by the sustained significant reduction in tricuspid regurgitation and improvements in quality of life measures experienced by patients and look forward to bringing additional clinical evidence through our class two T. Our pivotal trial, which is currently enrolling.
In addition, we continue to make progress in enrolling our Tri son, two pivotal trial of the evoke system. We expect a late 2022 approval for evoke tricuspid replacement in Europe and remain committed to providing solutions for these patients who have a very poor prognosis and <unk>.
Few treatment options today.
Turning to our results first quarter Global T. M. T. T sales were $27 million driven by the continued adoption of the Pascal platform in Europe .
Although there was an impact from Covid early in the quarter, we exited March with positive momentum.
As we expand in Europe physicians continue to achieve high procedural success rates and excellent clinical outcomes.
Assuming a diminishing COVID-19 related impact we are planning a gradual ramp in Q2 and a significant acceleration in the second half of the year to reach our 2022 sales guidance of $140 million to $170 million.
We look forward to continuing our progress toward advancing our vision to transform the lives of patients with mitral and tricuspid valve disease.
In surgical structural heart first quarter 2022 global sales of $221 million increased 6% on an underlying basis over the prior year. Despite.
Despite a soft start to the year associated with Covid, we were encouraged by the steady improvement across most regions over the course of the quarter driven by increased penetration of premium technologies and procedure growth.
Although hospital staffing shortages remain a concern we believe that lifesaving surgical therapies continues to be priority prioritized.
At the end of March we announced the U S FDA approval and commercial launch of our mitral <unk> resilient valve, which adds to the portfolio the portfolio of durable resilient tissue products with a valve designed for the heart mitral position.
Built upon previous generations of proven mitral valve technology, Microsoft offers greater ease of use and is designed to facilitate potential future transcatheter interventions.
Today, nearly 60% of the world's surgical mitral valves are mechanical resilient tissue should allow patients to thrive without the quality of life compromises that may come from having a mechanical valve initial feedback from U S. Surgeons has been very positive.
In summary, we remain confident that our full year 2022 underlying sales growth will be in the mid single digit range for surgical structural structural heart driven by market adoption of our newest premium technologies.
In critical care first quarter sales of $212 million increased 11% on an underlying basis driven by balanced contributions from all product lines demand for our state of the art Haemus, We're monitoring platform remained strong and lifted our sales.
Our broad portfolio of smart recovery sensors, and our true waived disposable pressure monitoring devices supported the increased number of patients in the ICU in the first quarter. Additionally.
Additionally, we continued enrollment in the H P. I smart B P trial focused on generating additional clinical evidence to support the adoption of our hypotension predictive index software.
In summary, we continue to expect mid single digit underlying sales growth for 2022 which are moderated by the strong prior year comparisons over the remainder of the year. We remain excited about our pipeline of critical care innovations as we continue to shift our focus to smart recovery technologies.
Designed to help clinicians make better decisions for their patients.
And now I'll turn the call over to Scott.
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 million, which represents 12, 7% year over year underlying growth.
This strong sales performance that.
Sell through to our operating income and we achieved adjusted earnings per share of <unk> 60 <unk>.
Assuming no new COVID-19 headwinds and a gradual improvement in U S Hospital staffing shortages.
We're projecting second quarter sales to be between 1.36, 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 are also projecting second quarter adjusted earnings per share of 61 to 69 cents.
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 caviar three seven to 4.0 billion for T. M. T T $140 million to $170 million for surgical structural heart $870 million to $950 million and for critical care 820 to 900 million.
Dollars.
We're also maintaining our full year adjusted earnings per share guidance of $2.50 to $2 65 reps.
Representing mid teens growth over 2021.
And now I'll 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 dollar against the euro and the yen.
We continue to expect our full year 2022, adjusted gross profit margin to be between 78 and 79%.
This guidance range reflects our assumptions of a favorable impact from foreign exchange hedge gains and improved product mix and partially offset by supply chain inflationary pressures.
Selling general and administrative expenses in the first quarter were $370 million or 27.6% of sales, reflecting field based personnel related costs and commercial activities in support of our growth.
We continue to expect full year 2022, SG&A as a percent of sales to be between 28 and 30% as we continued to invest in our high touch model for Teva and the ongoing build out of the T. M T T commercial team.
Research and development expenses in the quarter grew 10% to $229 million or 17% of sales.
This increase was primarily the result of continued investments in our transcatheter innovations, including increased clinical trial activity.
For the full year 2022, we continue to expect R&D to be 17% to 18% of sales as we invest in developing new technologies and generating evidence to support Teva and TMT.
Turning to taxes, our reported tax rate this quarter was 14, 3% or 14.4%, excluding the impact of special items.
This is slightly higher than the midpoint of our full year guidance range because it included the unplanned impact of U S tax regulations published in Q1.
These regulations potentially limit the amount of foreign taxes that are creditable against U S income taxes.
We continue to expect our full year tax rate, excluding special items to be 11% to 15%, including an estimated benefit of three percentage points from stock based compensation accounting.
Foreign exchange rates decreased our first quarter reported sales growth by two and a half percentage points or $27 million compared to the prior year.
At current rates, we now expect an approximate $170 million negative impact or about 3% to full year 2022 sales compared to 2021 versus our previous expectation of a $100 million negative impact.
We forecast this additional $70 million negative impact to sales will occur over the remainder of the year.
FX rates positively impacted our first quarter gross profit margin by 240 basis points compared to the prior year.
Although this benefits our operating margin rate relative to our January guidance FX rates had a minimal impact on first quarter earnings per share.
As 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 little impact to the bottom line.
At current rates, our operating margin in 2022 is benefiting by approximately 200 basis points from foreign exchange.
Free cash flow for the first quarter was $221 million defined as cash flow from operating activities of $294 million less capital spending of $73 million. We continue to expect full year 2022 free cash flow will be between one point too and $1.5 billion.
This includes approximately $200 million of accelerated tax payments due to a change in the tax treatment of research and development expenses.
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 March 31 2022.
In the first quarter, we repurchased approximately $400 million in stock through an accelerated share repurchase agreement.
And pre established <unk> one programs as a result average diluted shares outstanding during the quarter declined by approximately $3 million to $629 million. We continue to expect average diluted shares outstanding for 2022 to be between $630 million to $635 million.
And with that I'll pass it back over to Mike.
Okay.
So I'm 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.
<unk> 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.
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.
Thank you and if you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You May press. The star followed by the number two to remove your question from Q for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Our first question comes from Larry <unk> 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 of the recovery and one on the guidance. So I'll ask them both upfront so for Mike just a little more color on the recovery and what you've seen in March and April .
Different geographies, particularly in your Tam or business.
Got you know regarding the guidance should we should we be thinking about the midpoint of the revenue range, a little bit lower because of the currency incremental currency impact and regarding Q2, Scott you know I heard your comments.
It looks like about 6% underlying growth.
Do you mean.
Effects headwind of about 4%, but it's only up about 4% sequentially, which seems conservative based on the historical quarter over quarter trends in the on the cloud impact you talked about in January So just help us understand how you're thinking about the year.
In Q2, thanks for taking the questions guys.
Yes, Thanks, Gary So let me start out with the progress of the recovery.
It's 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 is the U S recovery and I think that probably has the biggest impact on Edwards results.
Why would be meaningful.
Big picture, we're not sure that U S hospitals are really fully recovered from COVID-19 theirs, so a bit of a hangover of protocols and more importantly, we this this issue that relates to the.
The significant labor crunch and churn in the workforce is meaningful those how those workforce shortages are real.
They're having an effect on staffing in their costs and they're just a front of mind of a lot of the health care industry.
And you know some of this is churn in and some of this is just the openings that are yet to be filled now in our conversation with hospital executive systems or are aggressively working to address these challenges.
And they expect the dynamic to improve but were anticipating gradual improvement.
In our forecasts and.
And I'd say overall edwards' procedure growth, we fared pretty well on a on a relative basis.
We're mindful that these systems have been extraordinarily challenge, but we're still able to grow pretty handily in this tough environment.
Larry on your second question regarding guidance.
Yeah, you know we always are.
Guide people to the middle of our range just for modeling purposes. So at 13, 60 or $1.360 billion to $1.440 billion. The mid point of that is $1.4 billion. So that's a that's a good modeling assumption your math is right, which is year over year underlying growth for Q2 without ray.
<unk> in the range of about five 5% and yes, it's four 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 in our guidance of low double digits and so while FX is impacting our dollar guide.
<unk> ranges it hasn't had a big impact or 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.
You know I was hoping to get a better sense of.
Where some of the bottlenecks are in the patient recovery here, you know and in some of let's call. It the easier to schedule, an end diagnose and procedures were seeing a little faster recovery or maybe a little more positive commentary. So you know maybe walk us through where you see.
The biggest bottlenecks here and I imagine, it's not a patient demand issue, it's probably more of a logistics issue. So I think that'd be helpful. Just.
Just to hear from you.
Yeah, Yeah. Thanks Robby.
You know, we don't have perfect visibility into the patient funnel. It's there's just kind of limited and we get a lot of our data from conversations with health care providers that our own frontline clinical specialists that really help give us some perspective and certainly we believe that there's a small COVID-19 related backlog at this point.
But we think that that's relatively small by comparison. So if you were to go to turn the clock back to Q2 of last year. We think there was a much larger backlog of patients there might've been a year's worth of patients that were in the backlog, whereas maybe we have a backlog that looks a little bit more like happened during omicron over those few months.
And so we don't think the backlog is so big but really it seems to be impacting the system is the capacity of hospitals to be able to really handle a handle the patient inflow and we were saying that one gradually improve but we're not seeing it improve instantly they're still constraints in the system.
<unk>.
Got it and.
Maybe for Scott on the P&L.
You mentioned in gross margin that our supply chain and costs were a little bit of a headwind but.
The way I look at Edwards is I don't I don't necessarily see a lot of pain points for the big ticket items for inflation or costs. So.
Maybe if you could just size that for us and how youre thinking about inflation and supply chain for the rest of the year not sure in terms of sizing you know its probably less than 50 basis points of gross profit margin for the full year.
So think of something like 2% impact to our cost of sales in that neighborhood and while challenges exist certainly we've been able to manage those through.
A whole bunch of really concerted activities and efforts from our global supply chain.
And partners in that supply chain and as a result, we've had a minimal impact to Edwards and most importantly, minimal disruption to customer deliveries, which is a real focus we've seen broad based wage and materials inflation, we've seen inflation in areas like semiconductor chips resins shipping.
In logistics and we expect these conditions to continue or maybe even worsen during the course of the year and looking forward.
Yes.
It's fair to say you've got so far we've been able to handle those pretty well and we're hopeful we'll be able to do it but you know, it's it's not clear what what the future holds.
I appreciate the thoughts thanks, a lot guys.
Thank you. Our next question comes from Vijay Kumar with Evercore ISI. Please state your question.
Hey, guys congrats.
Yeah.
Thanks.
Maybe my first one.
On the guidance here Scott.
Actually I read you correctly on the underlying.
Ranges haven't changed.
If I look at that the Tam.
Our guidance for <unk> X.
Ex FX underlying I think perhaps it's implying high singles.
I'm curious.
To get to midpoint of the guidance of 12 to 13, it would imply a meaningful pickup in back half I'm curious.
Am I thinking about it the right way, indicating and now what would cause the second half acceleration.
I didn't hear the last part of your question, but yes, youre thinking about it right generally you know, we said that the second quarter is likely to be our lowest quarter for underlying growth largely because of what Mike talked about earlier, where we had this big second quarter in 2021.
As this COVID-19 backlog cleared and as vaccine became available and so yes, we're expecting a bigger second half and growth to continue to increase in <unk> and for the whole company as the year goes on yes.
And something just to be mindful of Vijay as you know.
We're expecting to tablet sales for example, our tablet sales in the U S. Almost anywhere you want to slice it to be greater in the second quarter than it is in the first quarter. So it's not like it's going to be a peak quarter, even though the sales rate itself is going to look lower.
The absolute sales are going to be all time highs for us.
That's helpful. Mike and then maybe one on the gross margin Scott here I know you said FX benefited operating margins by 200 basis points how.
How much was that was that gross margin versus operating.
Expense benefit.
So.
Overall in the first quarter, we had about 100 and 180 basis point increase in gross profit margin.
Versus Q1 of 2021 in terms of FX, we're expecting for the full year FX.
<unk> benefits of over 200 basis points.
And operating margin benefit to be comparable to that which is similar to what we talked about at the Investor Conference last year, maybe even a little bit more because we're now expecting more FX impact than.
And then we did back in December did that answer your question Vijay or do you have something in addition to that now so so basically the 200 basis points was that it was all gross margin benefit there was nothing on the operating expense line.
That's correct in the first quarter it was almost all foreign exchange.
Fantastic. Thank you guys.
Okay.
Our next question comes from Joanne Wuensch with Citi. Please state your question.
Good afternoon, and thank you for taking my question just a follow up on the previous call.
Do you have a 200 basis point benefit to margin our operating partner to me.
So we should assume I would assume that that online next year.
Yeah. So just to go back to go back a little bit in time, our operating margin for the full year 2021 was 35% our guidance for this year was 31% to 34% and as we said in December a big chunk of that increase from 35% was gonna be foreign exchange.
And so just take the middle of our range of 32, 5% for gross for our operating margin this year and assume that a good chunk of that is foreign exchange benefits, we're seeing maybe a little bit of pickup in operating margin, excluding FX and so if FX didn't change we'd be able we think to project that those opera.
Margins will be sustainable going forward, we've said that longer term. Our objective is to gradually incrementally increase our operating margins is not our number one priority, but we do think that operating margins will tick up excluding foreign exchange.
Ill just add.
No.
Got went out of his way to try and quantify this for 2022, we're thinking that the foreign exchange impact really bumps us up by 200 basis points on operating margins and Theres No reason to believe that Thats reproducible.
Going going forward right.
Okay. Thank you just as a follow up question.
It sounds like everything is on track to get Pascal data at TCT.
How do you think once the data is received and.
Product approved uptake looks.
Again, I'm thinking forward for 2023, thank you.
Yeah, Thanks, very much Joanne.
No. We're working this pretty hard right that a lot of this is going to depend on what that data looks like.
You know we have in.
In our in our own minds really perceived.
The Pascal product as a as a superior technology, and where we're hoping to demonstrate that with our data. It's too soon for us to forecast 2023 in terms of what the impact is going to be but we continue to feel comfortable with our timing that we should have approval by the end of this year and that it will have meaningful impact because obviously.
It's our first entre to the U S and 23.
Thanks.
Thank you. Our next question comes from Travis Steed with Citi. Please state your question.
I'm just trying to stay with bank of America. Please state your question.
Hey, everybody.
Congrats on the good quarter.
On the backlog it sounds like the backlog is probably a lot smaller than it was last year, but curious if you've got any of that baked into the Q2 guidance or if youre, leaving that as upside from here.
Yeah, we do we do and it's hard to size this exactly Travis and I hope I'm unclear on that we don't have perfect visibility on how to size that backlog and.
We didn't call it correctly, so much last year, so all I'll call ourselves out on that one.
It surprised us in terms of how big the backlog was but in our mind the backlogs much smaller.
Probably just.
We felt like we had a cleared before omicron hit so it was a backlog that didn't go back that very far.
We expect that to get bled off during the course of the year not just in the second quarter.
Our second quarter forecast, certainly anticipate the recovery, where we're anticipating moving to procedure per day kind of levels that we are we have not experienced in the past. So you can see that we are a beneficiary of some of that so that's already in the forecast.
That's helpful. Thank you and looking at U S versus O U S travel trends its kind of a <unk>.
Second quarter in a row, where you guys have done a bit better than U S at least versus what the street models. So I don't know I know, there's COVID-19 impacting that too, but curious how you're seeing in the U S versus O U S. Dynamic October and if you think we could still see an inflection from low risk alright, that's still on the table.
Yeah. Thanks, very much travels so you know it just felt to us that COVID-19 had less impact.
In the first quarter outside the U S than it did inside the U S. It impacted us much for much more.
There might have been even more COVID-19 in the previous year for O U S. So all U S pretty consistently almost all of our geographies around the world clocked in the in the range of almost up to 20%, so really strong growth or U S. But you have to remember that the type of penetration outside the U S has a long way to go we just had.
Many untreated patients and so some of this is just catching up to where we think that we ought to be the the U S is a different story and I think we've talked about that quite a bit so.
Is there anything more that I can answer on that one.
Im just curious if you have any thoughts in general on the lowest the lowest penetration if thats still above.
That can be worked through or.
So it's a it's a good point so low risk was approved in the U S. In 2019. It was approved in Japan, just last year and clearly we get some kind of a lift that goes from it but it's interesting that we don't feel like it's just low risk patients that enter the system when we got a low risk approval.
I think it's almost more validation of the therapy being really great therapy and it causes even patients that are intermediate risk and high risk to feel more confident entering the system and so it's a it helps overcome some of the biases that are in the system today.
So we're still going to be the beneficiary of that for some time to come.
So when we talk about what we think long term tower as we talk about this moving from $5 billion to $10 billion and so that doubling is gonna be many of these patients coming off the off the sidelines and being diagnosed like they haven't been diagnosed before and moving through the system like they haven't moved through the system before.
That's great color, thanks for taking the questions.
Our next question comes from Adam Mader with Piper Sandler. Please state your question.
Hi, Brian Good afternoon, and thanks for taking the questions and congrats on the good start to the year. Maybe first question is on TNT and.
If I heard the commentary correctly. It sounds like you expect a gradual ramp in Q2 relative to Q1 and more of a significant ramp in the back half of the year, maybe just talk about kind of the go to market strategy in Europe .
And what you had.
Planned for the back half of the year is that purely just becoming more aggressive in a field or are there specific activities initiatives that you're going to really kind of undertake to steepen the curve and trajectory and then I had one follow up. Thanks, Yes, it's it's a it's a good point. Thanks for the question. Adam you know, it's a combination of both the environment and our actions first time.
In the environment, we felt like we got off to a slow start in Q1, and then recovered and had some pretty good momentum and much of that was COVID-19 driven we think that there's somewhat of a hangover that still continues into Q2 and so just the recovery of the hospital system is still a factor in Q2.
Do we expect that to be less of a factor next year now at the same time Edwards is continuing to activate more more sites and we're getting increased adoption of Pascal and existing sites.
And so we're we've moved outside of where we initially launch which was Germany.
And moved into.
How many countries at this point I think it's more than 10 so.
It gives you a sense for its combination of things that's going to cause it to pick up we've been increasing our staffing at the same time no impact from the U S is anticipated to really show up that's meaningful in 2022, that'd be more of a 'twenty three impact, but this would be more growth in Europe .
That's helpful color, Mike appreciate that and then just one quick follow up on the <unk> pipeline. It sounds like SAPIEN X for the U S. Pivotal trial is expected to commence this quarter just anything you can share at this point in time on trial design, whether its number of patients length of follow up and then just any early.
I guess clinical feedback you can share on X four I'm, assuming there was some first in human work, that's presumably been done. So just anything that you can share on clinician feedback would be great. Thanks. So much yes. Thanks, Adam no. We don't have much to share on X for at this point are we really we are we.
We really don't have experience to speak of the that we can share and so this will mostly occur as we start this trial. It's a it's a technology platform that we're very excited about and brings real advancements and I'm sure that you'll be hearing more about it I understand we have not posted I'm, putting trials dot gov.
But that should be happening over the next couple of months and we'll we'll make sure that that gets out there in a fulsome way so that you're able to get a good look at the trial.
Okay, Great we'll stay tuned thanks, Mike.
Our next question comes from Danielle <unk> with SDB Leerink. Please state your question.
Hey, good afternoon, everyone. Thanks, so much for taking the question.
Just to clarify something you mentioned on Pascal and the data here coming in the USA you do well.
As you refer to it as a superior product.
Howard.
And in theory already my understanding so I would just love to get your thoughts on number one how it's being received in Europe is it being received as a superior product and then remember Q. What do you think we need to see from the clinical data.
Temporary at TCT to justify.
Your marketing here.
Thank you so much.
Thanks, Danielle and I didn't mean to imply that I expect us to demonstrate superiority in the trial as you as you appropriately pointed out it was a it was a really powered for non inferiority and we expect that to be the case now we have consistently tried to position this as a <unk>.
Appear your product and you know, we priced that way and we also have gone out of our way to make sure that the results not just in our clinical trials, but in our in our commercial experience are at a very high level. You know we have a high touch model and we work very hard to make sure that we get great results and we hope to be able to see.
That and the data the adoption is continuing to increase just because of I think the positive experience of the clinical outcomes that people are having but this is a this is a story yet to be told and so we're gonna have to we're gonna have to love. This one.
That's it for me thanks.
Thank you. Your next question comes from that mix It with credit Suisse. Please state your question.
Yeah.
Hi, Thanks, so much for taking the question. So maybe just one if I could on Tam for centers, where where you stand now I know, we're sort of getting to maybe capacity of potential centers in the U S.
Where you're at now and what the pace of new centers looks like and then I just have one follow up.
Okay. Yeah. We've we think at this point, we're starting to approach us about 850 centers in the U S. And you know at this point, it's possible for there to be additional centers added we still have some centers that approaches, but we think are going to be relatively.
The 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 but but hopefully that gives you a sense of where we're at and what we're projecting.
Sure Yeah, no that's super helpful and then on.
Just the tavern capacity I know you've been labor intensive model.
<unk> 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 even when it looks like this year and.
Going forward.
Yeah. So.
No.
It's easy to get lost in the pandemic because we've added so many ups and downs, maybe what I'll do is just remind you of you know what the company's been able to do over this period since 2019.
And if you look at there whether youre looking at the first quarter or full year 2022, where we're looking at a 10% growth rate compounded annual growth rate, so 10% each year from 2019 and now on the.
So three 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 tab or treatment rates and again <unk> 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'll be more gradual in nature.
Super Thanks, so much Mike.
Our next question comes from Bill <unk> with Canaccord. Please state your question.
Great. Thanks, Good evening, Thanks for taking my question.
Just wanted to circle back on one of the comments just on the international Tavern business I think approaching 20%.
It'd be a little surprised that that would be a pretty significant change for Europe . If it's starting to approach 20% I was just wondering if you could give us a little more clarity on kind of how that.
Hum.
That that growth rate between Europe , Japan, and maybe rest of the world works.
Yeah, you know, we typically don't give country by country growth rates, but you know that we did experience too.
20% constant currency growth outside the U S and that most of the geographies around the world. We're all in that 20% range and that included Europe , and Japan and other places of the World. We are dramatically underpenetrated. So all that is a big positive and in the case of Europe . It was broad based across many countries.
I mean every country just grew in the first quarter and I'll start with that might've 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.
That was 15 years later and still growing at this kind of pace tells you that the in some ways. The system is still catching up with what the demand is there 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.
Very pleased if Europe could continue to be an important contributor to growth. We haven't tried to parse our long term growth rates out but I.
I have to tell you that it's it's exceeded our expectations in the recent past.
I would just add to that Mike you know one of the benefits of having this now significant tavern business with a global footprint is we do have different regions are.
Contributing to growth at different times and show, we've got new technologies get introduced to different markets, new indications that are issued on a.
Teva devices in different markets and so it really helps to have this broad footprint and if one business is performing.
Not as we 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 as we're looking at the.
Comps seemed pretty tough as we get into Q2 on U S to ever use.
Yes, the first quarter for U S was it looks like it was kind of flattish sequentially and I'm just.
I'm trying to figure out do you expect something similar that youre seeing in <unk> TMT T is where we will get more of a kind of keep recovering in Q2, <unk> and then maybe that really steps up as we get into the back half of the year even in the U S.
Is that is that how we should think about it well.
Your point is a good one about tough comp in Q2 for <unk>.
You know, we we saw really strong growth in a.
I mean, it was it was buying bought or 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 Tapper and you know again, we're going to see what we think is probably at all time record for T. M. T T in the second quarter as well, but.
And we say T. M. T. T is really going to take off in the second half to ever us is not going to come down probably from Q2, we expect that probably to just continue to increase <unk> be a little stronger in Q3 and stronger yet in Q4. So we expect a continuous ramp there of you know really setting all time highs.
Thank you.
Next question comes from <unk> 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 you'll 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 9th despite a pretty dramatic shift in the operating environment, you know just given omicron inflation.
Supply disruption staffing shortages or worse FX environment.
And so I'm just wondering you know what's improved on an underlying basis. Since your December outlook is that international Delbert D. M D D or with your guidance just conservative.
Well, it's a good question you know 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 Amazon in the U S and we talked about it a little bit on our fourth quarter call.
We talked to 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.
Just to pile on there.
I don't have exact numbers behind this but.
Even though we've seen a pretty nice recovery here I'm not sure that the the hole that was created for omicron has been filled at this point and that's still in the future. So we are we have a pretty good sized guidance range and so we continue to feel comfortable that we'll be within that guidance range, but we.
We haven't fully filled the hole for mom a problem yet.
Got it and just a 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 you know just generally as you talk to hospital customers are you worried about slowing capital purchasing environment, you know, especially in the Miss Smith stuff, you know labor cost inflation.
And high interest rate Oh, that's ongoing thank you for taking the questions.
Yeah. Thanks for the question, we're not maybe the perfect barometer for capital we have a we have a pretty good capital business, but it's only about 20% of overall critical care.
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 what's been pretty impressive and that we think can we expect it to repeat.
This year, but not be greater than it was last year was a pretty it was pretty significant last year and so from our view at least the way people are purchasing haemus Spears, we saw quite a recovery from what we saw in the early days of the pandemic.
You.
Thank you. Our next question comes from Cecilia furlong with Morgan Stanley . Please state your question.
Hey, Thanks for taking the questions I wanted to ask on TMT cheese items for 'twenty two when the expected acceleration in the back half that really how much of that is coming from current sites and further penetration in those states versus either additional pay an expansion or geographic expansion that you talked about.
Yeah. So it's a it's a great point there.
You know part of this is.
Not to have Covid interfere just it seems as though COVID-19 is traditionally impacted mitral is a little bit more than it has tab or by comparison just because we are we were still require anesthesia and some ICU stays with the mitral procedures and so some of it is that but probably new sites as a as a bigger contributor.
And then the increase adoption in existing sites and so hopefully that gives you a little color on what we're expecting.
No. That's helpful. And then just in terms of the TMT T. The sales force.
Build out that you've talked about in the U S. Can you just walk through where you are at this point and expected future investments over the coming quarters ahead of lunch and thank you.
Yeah.
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 training physicians and.
And really doing this in a very deliberate fashion. So it's gonna be a pretty gradual and deliberate build out for us and we're going to focus on getting having ex excellent procedural success and.
Clinical outcomes and so we're taking a pretty thoughtful approach of 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 in Maine.
Pain that so hopefully that gives you some sense of how we're thinking about it.
Oh, Thank you for taking my questions.
Sure.
Our next question comes from Josh Jennings with Cowen. Please go ahead.
Hi, good evening.
Scott and Mark just wanted to ask a follow up on Adam's question pertaining to SAPIEN XT.
Hoping you could maybe share.
The drive behind some of the design enhancements.
Not to be let out of the bag as you start the alliance trial, but with the design enhancements focused on eliminating myelin PDL facilitating future tavern, <unk> tap or procedures or coronary access or anything you can share would be helpful. As my follow up is just on the Alterra Transcatheter point I'm trying to get at Hanmi about vehicle today, it was announced or at least.
Hit the tape.
Big is that Transcatheter valve market and what do you have baked into guidance for a pair of this year and could there be upside with this recall thanks for taking both questions.
Sure.
Well, we have we certainly have design intent and unsafe X four we we believe that it's gonna have improved para valvular leak performance.
We also think that you know, it's gonna have brasilia 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 Oh, the pulmonic opportunity yeah.
I really haven't gotten into the the news today that's happened on that we're just now rolling out the altera product we've been pleased with that.
This isn't a really large group I think compared to the overall power market at 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. Thanks, a lot Mike.
Yep.
Thank you next question comes from Rick Wise with Stifel. Please go ahead.
Yes.
Good afternoon, Mike and Scott.
One question for each of you Mike.
You know youre conveying very clearly your excitement about Pascal in 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 as the number of centers opened is it about training all of the above I'm sure, but just maybe help us better understand.
The fundamentals behind your optimism.
Yeah.
Thanks, Rick or maybe something that just a clarifying point is remember we're just selling in Europe at this point and so when you talk about this this transcatheter edge to edge therapy, the supporting evidence in Europe hasn't been overwhelmingly positive, but it's been somewhat mixed and so.
That's led to a growth rate in Europe , that's been a probably less than what it should be and we think there's going to be a real contribution when the the the family of class trials become apparent we think it has a chance to really lift our market adoption and that's going to be one of the pluses and then as I said earlier.
We're adding new sites was going to be a positive for us growing the team is going to be a positive and all of those are going to be additional add ons.
Okay, Great and maybe just last for me and I'm guessing. This is for you Scott.
You bought $400 million worth of stock.
The balance sheet in excellent shape and our free cash flow is strong.
Given.
The market.
The pressures on the group on at risk 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.
A cash use perspective. Thank you so much sure. Thanks for the question thanks for bringing it home a little bit over the time. So I'll try to go quickly here, but you know our cash priorities have not changed at all first and foremost reinvest 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 repurchased this year, we like where the stock was from a repurchase standpoint, and we still have over $700 million.
Left and repurchase authorization. So you should expect that that's going to be just part of our long term capital deployment plan.
Okay. All right. 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.