Q4 2022 Edwards Lifesciences Corp Earnings Call
Greetings and welcome to the Edwards Lifesciences fourth quarter 2022 earnings Conference call.
At this time all participants are in a listen only mode.
<unk> 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 this conference is being recorded.
I will now turn the conference over to our host Mark Walter named Senior Vice President of Investor Relations and Treasurer. Thank you you may begin.
Thank you very much Diego and good afternoon, and thank you all for joining US today with me on today's call are Mike Solomon, Chairman and Chief Executive Officer, and Scott All of them are Chief Financial Officer also joining us for the Q&A portion of the call our Bernard's of Aegean President of Edwards Life Sciences, Larry Wood, our global leader of Tam.
<unk> and surgical structural heart Devine Chopra, our global leader of T. M T T and T D Zyman, our global leader clear critical care.
Just after the close of regular trading Edwards Lifesciences released fourth quarter 2022 financial results. During today's call management will discuss those results included in the press release and the accompanying financial statements and then use the remaining time for Q&A.
Please note that management will be making forward looking statements that are based on estimates assumptions and projections. These statements include but aren't limited to financial guidance and expectations for longer term growth opportunities regulatory approvals clinical trials litigation reimbursement competitive matters and foreign currency fluctuations. These.
Statements speak only as of the date on which they were made and Edwards does not undertake any obligation to update them. After today. Additionally, the statements involve risks and uncertainties that could cause actual results to differ materially information concerning factors that could cause these differences and important product safety information may be found in the press release.
2021 annual report on Form 10-K, and Edwards' other SEC filings all of which are available on the company's website at Edwards dotcom.
Finally, a quick reminder, that when using the terms constant currency 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.
Thank you Mark.
During 2022, our company's stayed focused on the long term, making meaningful progress on strategic milestones with the potential of transforming patient care.
While the challenging environment negatively impacted sales, we still grew 8%.
Looking forward, we remain optimistic that the health care environment will gradually improve and we expect 9% to 12% sales growth in 2023.
We didn't pull back on investing in innovation because of the pandemic and we didnt pull back because sales fell a little short we continued to aggressively invest during this challenging period, which positions the company for sustained leadership in a new era of structural heart and critical care innovation.
Looking back at 2022 in Tampa, we made important strides in executing our long term strategy, we received approval and launched the innovative SAPIEN three ultra resilient valve and T. M. T T. Each of our platforms demonstrated promising clinical performance and we receive approval for Pascal precision.
In the U S and Europe in surgical structural heart, we extended our leadership position through the launch of mitral in the U S and in critical care, we continued to drive adoption of our transformative smart recovery technologies.
Although our initial sales expectations for 2022 anticipated a better environment, we delivered balanced contributions across each of our product groups and regions.
We achieved 12% growth in adjusted earnings per share, while maintaining R&D at more than 17% of sales, which reflects our commitment to driving durable organic sales growth.
Consistent with our cash deployment strategy, we opportunistically repurchased stock at an accelerated level in 'twenty 'twenty. Two we continue to invest in our production capacity in anticipation of future growth and we made a series of external investments in promising early stage technologies.
Turning to our fourth quarter financial results consistent with our guidance total company sales grew 7% on a constant currency basis to $1.3 billion, our broad portfolio of innovative therapies drove this growth. Despite the health care disruptions in a number of our key geographies.
In Tampa full year, 2022 global copper sales of $3 $5 billion increased 7% on a constant currency basis building on nearly 20% growth in the year ago period.
Sales were below our original guidance of 3.7 to 4.1 billion due to foreign exchange headwinds and Covid induced health care challenges in key countries.
In 2022, we announced the approval of SAPIEN three ultra resilient in the U S. Separately, we continued to advance enrollment in our progress pivotal trial for moderate patients and gained significant learnings from our alliance pivotal trial to study the next generation tablet technology SAPIEN.
These transformative developments reinforce our long term confidence in the strong growth of Transcatheter based aortic valve interventions.
In the fourth quarter, our global Taverner procedures were comparable with Edwards' growth, our global I should say global tableau procedures were comparable with Edwards' growth, our global <unk> sales of $868 million increased 5% year over year on a constant currency basis, consistent with our expectations.
Patients sales were up slightly over Q3 in dollars and on a constant currency basis and local selling prices were stable.
In the U S Tavern for Edwards fourth quarter Tavern procedures grew in the mid single digit range as expected our fourth quarter U S. Traveler procedure volumes were impacted by the U S Hospital staffing contract constraints and the holiday season slowdown we.
We estimate that our share of procedures was stable.
Growth in the U S was higher in larger volume centers and in states with fewer COVID-19 restrictions as measured by the experts containment and health index. We were encouraged by recent hiring trends, which suggests that hospital employment is rebounding.
As we mentioned we began the introduction of SAPIEN three ultra resilient in the U S. The resilient shoes anti calcification technology addresses one of the primary causes of reentry adventure and following heart valve replacement and is demonstrating a strong track record of performance and Edwards surgical valves as of now this.
Newest valve has been introduced in approximately 10% of U S. <unk> centers and physician feedback has been encouraging.
Outside of the U S. In the fourth quarter Edwards Tapper procedures also grew in the mid single digit and we estimate total procedure growth was comparable.
In Q4 geographies outside of Europe , and Japan grew even faster in the quarter.
Long term, we see excellent opportunities for growth as we believe international adoption of <unk> remains quite low.
In Europe fourth quarter procedures grew in line with the global rate market growth continued to be impacted by a bump in the COVID-19 cases, and staffing shortages, which reduced hospital capacity, particularly in larger countries, such as Germany and.
And even though there are a broad range of competitors, our leadership position in local selling prices remained stable throughout the year.
Importantly, our cost effectiveness study published earlier this month demonstrated the tavern with SAPIEN three was economically beneficial when compared to surgical aortic valve replacement in treating German patients with low surgical risk. The data suggests the tavern enhances quality of life and <unk>.
There is a cost effective option over the long term. These findings are consistent with the cost effective outcomes for the use of SAPIEN three in France, Italy and Spain.
In Japan fourth quarter procedure growth was much slower than expected due to an extended COVID-19 wave and continued restrictions, which limited hospital staffing and capacity. We expect these factors factors to diminish substantially over the course of 2023 and look forward to launching <unk>.
APN three ultra resilience in Japan later this year.
We remain focused on expanding the availability of <unk> therapy, driven by the fact that Aes remains a significantly undertreated disease amongst this large elderly population.
In summary, our outlook assumes COVID-19 related challenges improve during 2023 and as hospital resource constraints decrease we remain positive on our outlook for 2023 underlying <unk> sales growth of 9% to 12% consistent with the range. We shared at our December Investor Conference.
We remain confident in this large global opportunity.
Turning to T M T T <unk>.
Since launch we have proudly treated more than 10000 patients with the Pascal repair system, we achieved significant milestones in 'twenty to 'twenty, two and made meaningful progress towards achieving our vision to transform care for patients with mitral and tricuspid disease.
Following the class two of the presentation at TCT and FDA approval in Q3, we initiated the introduction of the Pascal precision system in the U S. Initially.
Initial feedback from clinicians has been positive and we're pleased with the patient outcomes to date.
Class two D full cohort of 300 patients with one year follow up will be presented in the second half of 2023.
In Europe , the Pascal precision launch is ongoing with a focus on bringing this latest advancement to our existing centers as well as expanding into new centers.
Also aligned with our commitment to generate high quality scientific evidence, we continue to advance enrollment in our class two F pivotal trial for patients with functional mitral regurgitation.
In mitral replacement, we're making good progress on the enrollment of the circle pivotal trial for SAPIEN, three and expect to complete enrollment of the main cohort around the end of 2023.
French transferable valve leverages, the SAPIEN three platform with the recapture will reposition a bolt dock.
Separately, we've completed enrollment in the mice and early feasibility study with the E O swell and are incorporating the learnings from this early experience into our next iteration. We believe the <unk> platform has the potential to be an excellent option for mitral patients who have a poor prognosis and limited treatment options.
Yeah.
Shifting to tricuspid and our strategy of advancing the body of clinical evidence. We are currently enrolling two pivotal trials studying both tricuspid replacement and repair try sun too and the class two T R.
We prioritized enrollment in our Tri sudden two study that started a trial that is studying evoke as it addresses the large population of patients who are suffering from debilitating symptoms and have few treatment options.
My son, two was on track for completion of enrollment in the first half of 2023, and we expect the evoke CE mark by the end of this year.
In the U S approval around the end of 'twenty four.
We're very pleased with the recent tricuspid data presented at PCR, London valves meeting, which were which we reported favorable results from both our <unk> study of revoke and the Tri class post market clinical follow up for Pascal.
In Europe clinicians are very positive about the performance of our differentiated Pascal precision system in their tricuspid patients and we're looking forward to bringing this therapy to patients in the U S. Following the class two T. Our trial.
Turning to the sales performance of T. M. T T fourth quarter sales of $32 million were consistent with our latest guidance and driven by the continued adoption of Pascal in Europe supported by the early initiation of Pascal precision in the U S.
Full year global sales were $116 million up nearly 50% on a constant currency basis versus the prior year.
In 2023, we expect T M T T sales of $160 million to $200 million, we look forward to advancing our vision to transform the lives of patients with mitral and tricuspid valve disease through the milestones outlined at our recent Investor Conference, we remain committed to bringing this differ.
She did a portfolio of therapies to patients with these life threatening diseases and believe our strategy positions us well for leadership.
In surgical structural heart full year global sales were $893 million up 6% on a constant currency basis versus the prior year.
Fourth quarter 2022, global sales of 224 million increased 8% on a constant currency basis over the prior year. We were encouraged to see strong global growth driven by the increased penetration of our premium resilient products. Despite COVID-19.
<unk> in certain regions.
Although hospital staffing shortages continued to be a concern we believe that heart valve surgery was prioritized.
We have seen strong momentum of the resilient portfolio globally, we believe that surgeons value of the features and benefits of this advanced tissue technology for both aortic and mitral surgical valve replacement procedures, we saw adoption of the mitral resilient valve in the U S increase in the fourth quarter.
And built upon previous generations of proven mitral valve technology mitral offers greater ease of use and is designed to facilitate potential future transcatheter interventions.
We are growing the large body of brasilia evidence with our new momentous clinical study to demonstrate the durability of this tissue in the mitral position enrollment in this study was initiated earlier this month.
In summary, we remain confident that our full year 2023 underlying sales growth will be in the mid single digits for surgical structural heart driven by the adoption of our most advanced technologies and growth of overall heart valve surgeries.
Turning to critical care full year global sales of $855 million increased 7% on a constant currency basis versus the prior year.
Fourth quarter critical care sales of $225 million increased 13% on a constant currency basis over the prior year growth was driven by contributions from all product lines and regions led by humans fear and smart recovery.
And our smart recovery portfolio adoption, all flow track and clear sight sensors, featuring our unique hypotension prediction index algorithm remains strong.
A man for our pressure monitoring devices used in the ICU also increased in Q4 due to elevated hospitalizations in the U S.
As discussed on our recent Investor Conference the integration of a full range of technologies creates a unique offering of enhanced recovery tools and predictive analytics to further strengthen our leadership in hemodynamic monitoring.
In summary, we're encouraged by the strong momentum in critical care and continue to expect mid single digit underlying sales growth in 2023, we remain enthusiastic about our pipeline of critical care innovations highlighted by smart recovery technologies designed to help clinicians make better decisions.
And get patients home to their families faster.
And now I'll turn the call over to Scott. Thanks, a lot Mike today, I'll provide a wrap up of 2022, including detailed results from the fourth quarter as well as provide guidance for the first quarter and full year of 2023.
So as Mike mentioned, our sales of $1 $3 billion in the fourth quarter grew 7% on a constant currency basis. Despite the health care disruptions in a number of our key geographies. Our gross profit margin was healthy even excluding the temporarily inflated rate.
FX combined with sales growth and disciplined spending this resulted in adjusted earnings per share growth of 25% to 64 GAAP earnings per share was <unk> 65 cents.
Obviously, we were disappointed with our stock performance last year, the only upside to the poor stock price performance was that it provided an opportunistic time to repurchase shares more aggressively.
During the fourth quarter, we repurchased $750 million of stock through an accelerated share repurchase program and in total we repurchased one $7 billion of stock last year.
Average shares outstanding during the fourth quarter fell to $616 million, we have approximately $900 million remaining under our current share repurchase authorization.
For the full year of 2022 sales increased 8% over the prior year on a constant currency basis to $5 4 billion adjusted earnings per share grew 12%.
And we generated nearly $1 billion of free cash flow.
We expect our sales growth rate to expand in 2023 with a gradual improvement in hospital staffing.
Although still early in the year, we saw encouraging signals during Q4 and a good start so far in Q1, which reinforces our confidence about the 9% to 12% full year range.
We are maintaining all of our previous sales guidance ranges for 2023.
Absent big moves in FX, we expect total company sales of $5.6 billion to $6 billion tab or sales of $3.6 billion to $4 billion.
T M T T sales of a 160 million to $200 million surgical structural heart sales of $870 $970 million in critical care sales of $840 million to $948 million.
For the first quarter, we're projecting sales of $1.37 billion to $1.45 billion and adjusted earnings per share of 58 to 64 cents.
Now I'll cover additional.
Details of our results.
Our adjusted gross profit margin in the fourth quarter was 81% compared to 76, 8% in the same period last year.
This improvement was driven by the expected positive impact from our FX program, which includes hedge contract gains and natural hedges that offset the negative sales impact from the weakening of the euro and the yen against the dollar.
At current foreign exchange rates, we continue to expect our full year 2023, adjusted gross profit margin to be between 76 and 78%.
At current exchange rates the reduction in this year's forecasted gross profit margin versus 2022 reflects 250 to 300 basis points of reduced benefit from FX plus some incremental inflation.
SG&A expenses in the fourth quarter decreased 3% over the prior year to $411 million or 35% of sales primarily due to the weakening of the euro and the yen against the dollar and partially offset by continued investments in the ongoing build out of the U S. T M T T commercial team.
Our high touch model for Teva.
We continue to expect full year 2023, SG&A expenses as a percent of sales to be between 29 and 30%.
Research and development expenses in the quarter were consistent with the prior year at $232 million or 17, 2% of sales. We continue to expect R&D expenses in 2023 to be between 17, and 18% of sales as we invest in developing new technologies and generating evidence to support <unk>.
Ever in TMT tea growth.
Turning to taxes, our reported tax rate this quarter was 13, 3% or 14% excluding the impact of special items, we continue.
To expect our 2023 tax rate, excluding special items to be 13% to 17%.
Foreign exchange rates decreased fourth quarter reported sales growth by six percentage points or $73 million compared to the prior year at current rates. We now expect approximately flat year over year impact from foreign exchange to full year 2023 sales.
Foreign exchange rates positively impacted our fourth quarter gross margin by 230 basis points compared to the prior year.
Relative to our October guidance FX rates had a minimal impact on fourth quarter earnings per share.
Finally, before turning the call back over to Mike I'll finish with an update on our balance sheet and cash flow. We continue to maintain a strong and flexible balance sheet with approximately $1 $2 billion in cash cash equivalents and short term investments as of the end of the year.
Free cash flow for the fourth quarter was $214 million defined as cash flow from operating activities of $283 million less capital spending of $69 million in 2023, we expect free cash flow to grow to $1.0 billion to $1.4 billion.
Yeah.
Yeah.
Transformational therapies.
Deliveries.
We expect higher.
Meaningful progress.
Right.
Yeah.
Major reason.
Yeah.
Asia.
Alright.
We believe the opportunity.
Yes.
Yes.
No.
We are confident in our patient focused innovation strategy.
Bring value to patients.
<unk> systems worldwide.
I'll turn the call back tomorrow.
Thank you Mike. Thank you Scott with that we're ready to take your questions. As a reminder, please limit the number of questions to one plus one follow up to allow for broad participation. If you have additional questions. Please reenter the queue and management will answer as many participants as possible during the remainder of the call Diego.
Thank you and at this time, we will.
Ducked our question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
[noise] formation tone will indicate that your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Our first question comes from Robbie Marcus with Jpmorgan. Please state your question.
Oh, great. Thanks for taking the question and before I ask.
Mike we couldn't hear your closing remarks before so I don't know if you're a little far away from a microphone or not.
Okay, but there we are okay.
If you like I'd be happy to give you the conclusion one second.
Thanks, Robbie and I will be first in line here I just said in conclusion, we're proud of the significant progress we've made in advancing 2022, and the new transformational therapies for patients and delivering solid financial performance, we expect higher growth and meaningful progress in 'twenty three with a gradual improvement.
<unk> and hospital staffing and growth across all major regions and as the global population ages and cardiovascular disease remains the largest health burden, we believe that the opportunity to serve our patients will nearly double between now and 2028 and we're confident that our patient focused innovation strategy can transform care and bring value.
Patients and healthcare systems worldwide.
Alright, Thanks, Rob your backup.
Great. Thanks, Mike.
Maybe to start you talked about.
Improving trends in and tap her and what Youre seeing so far in first quarter, maybe you could spend a little more time and give us detail on exactly what some of those improvements were throughout the quarter, how the quarter trended and what gives you confidence in the 2023 have a guide based on what you've seen so far.
Yeah, I mean, I'm not going to get really deep into the quarter as Scott mentioned, we had some really positive times during the quarter, where we saw some weeks were really strong we had the normal seasonality that we see in a quarter, where things got soft around the holidays, but if I just elevate Uh huh.
What's on the minds of of of some of our investors that we had a few quarters of single digit growth, but that certainly does not dampen our enthusiasm for our strategy.
Could just cover it just wasn't kind to structural heart patients and we know that there are many consequences of COVID-19 affected.
Global growth companies, including Edwards. So if we just replay you know 2020 COVID-19 drove pretty much flat sales growth for us in 2021. It was a big growth year Edwards grew 18% and then 'twenty two although we experienced the lingering impact of Covid tough comparisons and all of that we have.
Still grew 8% and more importantly in 'twenty three we remain confident that sales are going to grow 9% to 12. So we just think the environment is going to improve we feel strongly the COVID-19 impact is transit and that treating these structural heart patients is going to again become a priority.
Yeah.
Great and maybe as a follow up you're a couple months into the Pascal launch in the U S. I'd love to get the initial feedback of what Youre hearing from and planners from hospitals and how the first quarter has gone for yourself are thanks.
Yeah sure Robbie this is divina I'll I'll take that question. So so far at a high level feedback from physicians physician to the Pascal launch precision launch has been really positive right I think people love the ease of use the navigation improvements of this new system.
And we know that we received early approval in the U S and Europe . So we're ramping inventory to kind of improve. These these these launches I think really in the U S are our mantra is all about patient outcomes and so we are really focused on our high touch model, we're really focused on getting great clinical outcomes gradual introduction have a really strong training.
Graham So so far to date, we've been really impressed with that and find out and say I think we got two great class II <unk> data that came out obviously at TCT and were convinced that they will have a positive impact in the tier market overall, and we think that more and more physicians, who would be interested in using the Pascal precision system.
Great. Thanks, a lot.
Thank you. Our next question comes from Larry <unk> with Wells Fargo. Please state your question.
Good afternoon, and thanks for taking the question I wanted to start with a high level question, obviously theres a lot of concerns on the U S tower market.
Mike as you mentioned earlier among investors I wanted to ask about actually next year 24, because it looks like you have three major trials being presented essentially early caviar very symptomatic unload trial for moderate at try 10 two.
For tricuspid, how do you guys rank these opportunities and do you expect these three trials to accelerate your growth that Juan Pablo.
Yeah. So Matt this is Larry.
Related to early cavalry in there just as a reminder, that trial has a two year endpoint. So we just completed the one year follow up at the end of last year. So we haven't done. These patients have another year to go so that data wouldn't be available really till 2020 for I loaded in Ias study. So that's really kind of out of our hands.
We provide funding for that but that's really up to.
The investigators in terms of when they present that data and maybe I'll turn it over to <unk> for <unk> and are Bernard.
Just maybe a comment on trice and silver the Tri City. Two study we expect obviously released the the information and in the second half of the year.
Released the information in.
In the second half of the year. So we are.
Cited by the data that we think to help it but if you pull up here I think this all helps us make us feel good about this year and then driving into 2024, yeah and I'll just add this is Mike again, Larry Yes.
We're feeling positive about 2024, its a long way off so too soon to give guidance at this point, but when we look at the road ahead.
Do you really think of us as the as the system learns to deal with Covid in it.
Back into the rearview mirror that structural heart patients are going to get prioritized again, and we think that theyre going to be anxious to treat these patients.
We love our lineup of technologies, our lineup of clinical trials that are appointed an indication expansion and so we see that's why we feel confident in that 2028 outlook, yeah, and just to just to add on to that.
We did see as Mike mentioned, we saw some weeks in Q4 and were really strong and I think it's just evidence that staffing is gradually improving maybe not as fast as we wanted and we certainly sorry, if I may in fact, especially around the holiday period, but we still have to SAPIEN. Three you are launch we have we have other things that we're really excited about.
We feel very very good about next year.
Alright, that's helpful.
Just a quick follow up I didn't hear anything sorry, if I missed it on the alliance trial and safety and explore is there an update there. Thank you.
Yes, no. We don't have any update there I think what we said at the Investor conferences, we expect to be back in clinic. This year and we still anticipate that but we don't have anything you'd add.
Alright, Thanks, Larry.
And our next question comes from Vijay Kumar with Evercore ISI. Please go ahead.
Hey, guys. Thanks for taking my question.
For the first question now Mike on <unk>.
These tabard trends I think U S was up mid singles overall have are up mid singles.
Implies international with a mid single so maybe talk about was there any china impact or what happened in international.
And I think on the last call you know noted half the centers in the U S were up double digits half of them were flattish well is that a trend that you saw this quarter as well or how you're thinking about <unk>.
Progression here.
Yeah, I'll I'll talk a little bit about Oh U S. And then Larry can get a little deeper in the U S. So outside the U S procedures grew in the mid single digits and as we mentioned are outside of Europe , and Japan grew even faster.
In Q4, we experienced some challenges that resulted in sort of if you will the U S and Europe and mid single digits and as expected Japan was worse than we thought and the rest of the world was better than we thought so that's sort of the way that things kind of netted out we expect contributions from.
All the regions to be better in 'twenty three.
We are projecting about 9% to 12% growth rate.
Yeah.
Other question was trying to differentiate what was different in the U S. Sorry.
Sorry half the centers were up double digits I think last quarter was that a trend that you saw this quarter as well.
Yeah, we we saw significant variation on a site basis going from centers and I think it mainly reflects you know kind of localized COVID-19 restrictions some centers certainly did better than than other centers.
Gradually we see that improving you know overtime, but larger centers, probably did a little bit better than the than the smaller centers.
And you got a question on China as well.
China was certainly impacted bad for our type of business. It's it's such a small base, it's not our strategy.
Huge driver one way or the other.
Thats helpful. Larry It's Scott maybe a quick one for you I think Q1 guidance here at the midpoint almost I think its.
At 10% organic close to high singles low doubles organic.
What's driving the sequential acceleration from from the high single organic we saw in Q4.
Has the visibility improved or just talk about the assumptions around each one.
Well it ties to what we've been talking about so far on the call. Our guidance for Q1 is $13 70 to $14 50, So call. It 1.410 billion in sales at the midpoint of the range.
Which is you know if you just sort of think about how the year is going to play out at the lower end of the 9% to 12% underlying growth rate guidance that we've given for sales. So your question is you know what happened between Q4 and Q1 and it ties back to were just seeing generally.
Favorable environment Hospital.
Staffing levels in health care disruptions gradually getting a little bit better.
And it's really very similar to what we talked about at our Investor Conference and reinforces our confidence about the 9% to 12% growth rates that we can achieve for the full year and 2023.
That's extremely helpful. Scott Thanks, guys.
Thank you. Our next question comes from Matt Taylor with Jefferies. Please state your question.
Matt Taylor your line is open.
We'll move onto the next question. Our next question comes from Matt <unk> with Barclays. Please state your question.
Hi can you hear me okay.
Yeah.
Yes, we can hear you okay. Thanks, so much thanks, so much.
So I'll keep it to one question just.
Some of the comments that you talked about Scott.
On your comments around.
Starting to see encouraging trends early this year, a gradual improvements maybe towards the end of Q4.
Given the sort of many things that have been talked about as potentially having this.
Slowing impact that U S or trends.
Staffing availability nurses.
The confusion around some centers being.
Double digits, some being slower can you maybe.
Talk about a few things that you are seeing that.
That's sort of bring you to sort of point out that this encouraging trend.
These things are getting better.
What gives you that encouragement.
Well, it's a it's a good question and it's tough to isolate all of the elements that are going on to just the first couple of weeks of the year, but generally speaking overall it seems like you know the the trends are favorable and this is what we expected to happen in 2023 with hospital staffing constraints abating.
Overall disruptions in the health care system, getting a little bit better in the U S and outside of the U S and just the multiple different signals that we see and anecdotes that we hear give us confidence that we're on the right track and again I'm looking to the 9% to 12% growth rate guidance for 2023, you know January it's pretty early to say.
But obviously we wouldn't.
The signals that we've seen in January are reflected in the guidance that we've given in the 13, 7% to 14 50, a sales range for the first quarter.
Okay I'll leave it at that thank you.
Thank you.
Our next question comes from Joanne Wuensch with Citibank. Please state your question.
Good evening and thank you for taking the questions I have two quick ones.
Looks like you have 81% gross margins in the fourth quarter Your guide for 'twenty three.
The reversal of your FX hedges.
Can you walk us through.
Can we just straight line is down over the next couple of quarters, how we should think about that and then the second question. It sounds like things are getting better are you seeing waitlists cropping up in different places.
Well why don't I take the first piece and then I'll, let somebody else jump in on the Waitlist question. Just in terms of gross margin, it's pretty simple I mean, there are a bunch of little moving pieces, we always get a little bit of benefit from mix, we get a little bit benefit from all of the activities, we have to improve efficiency and global supply chain, but really the difference between the gross margin in the fourth.
Quarter of 2022, and the full year of 2022 versus the guidance. We've given for 2023, it's all FX and FX hits us with false hedge contracts that we have as well as inventory valuations outside of the U S and that's really the the source of the decline from 2022 to 'twenty two.
23 gross margins.
And on the backlog question Joanne as we've mentioned before we don't have great analytics on backlogs and so a lot of it we just hear anecdotally from customers, but what we do here. So yes. Indeed, there is there is backlog, that's a spotty and across the U S and other countries for that matter right.
Thank you.
Thank you. Our next question comes from Chris Pasquale with Nephron. Please state your question.
Hey, Thanks, guys I wanted to go back to the children related headwinds in the U S and one hypothesis that I think concerns investors.
Do you guys really haven't talked much about is the idea that excess mortality in your patient population.
Depleted your pool and that that might take longer to normalize than something that's a little bit simpler like hospital staffing do you see that isn't a significant factor or do you still view it as a bottom of the funnel issue with capacity.
Yeah.
So at the highest level.
Sadly for these patients it's true there has to be some mortality that goes on they they just don't wait well and we know that that's a very serious consequences of the environment that we're in having said that.
This isn't a small pool.
Really really big pool, and so even the sad.
Mortality that comes from this is not close to really putting a dent in the number of patients that could legitimately use help through having their severe as treated.
Okay. That's helpful and then just one on mitral.
Any line of sight into class two F into TR completing enrollment of studies have been going on for a while and I don't think you guys had provided a timeline there.
Yeah. So this is devine, so I'll I'll follow up a little bit on class two T. Our first in all cost about two F. Separately. So first off on class two T ours, if you remember.
We think that in our prioritization, while we think tier for tricuspid is really important we actually believe that evoke has the potential to be more important to tricuspid patients, but we know that this is a large and diverse population of people. So we got to have a portfolio of options. So we we're committed to running two different pivotal study talk to you.
Trace into for evoke as well as the class II T. R for Pascal and many of these sites are actually many of our clinical sites, especially you have to actually have both trials at that site. So what we did is we actually asked sites to prioritize trice into enrollment and actually drive that fastest and so that's on track to kind of complete enrollment here in the first half.
2023, as we've kind of talked about before so now as that finishes up for asking kind of sites to kind of drive enrollment and class two tier. So we hope you will then see enrollment in that trial then pick up.
And then moving onto class two class two asked right our functional kind of trial a randomized trial, we haven't yet kind of you know a shared expectation for kind of approval or commercialization yet on that that trial is enrolling right now it's a really important trial for us and again a lot of the sites that were actually in class two D.
Again, the other mitral. We're also sites that were also in class two app and as you imagine. We initially said hey, guys, let's really drive enrollment and class II deem wishes sites did really well they helped drive our approval and now we again asked them to kind of switch their prioritization to class to act. So we see kind of the enrollment in that trial, which is again, it's a larger trial of 450 person trial kind of.
Enrolling right now so that's a it's kind of an update on those two those two trials.
That's helpful. Thanks.
Our next question comes from Cecilia furlong with Morgan Stanley . Please state your question.
Good afternoon, and thank you for taking the question I wanted to ask just a follow up question on <unk> in Japan, how youre thinking about bounce back cadence in 'twenty three filing a bit more pressure it sounded like in four Q and then just as you think about the impact from low risk patients and additional.
Additional patients coming into the funnel there as well as Michel you roll out if you could talk just about your strategy and pricing strategy there too.
Maybe I'll start out with Japan, and then turn it over to Larry for the others. If you can sort of complete the thought you know Japan has been Oh, a real lift to our growth rate for the past few years and even earlier this year.
But when that wave of Covid came through in Q3, it really was a setback for that health care system and the way the Japanese system deals with it is to implement a lot of restrictions.
So that really had some pretty big impact in Q3 and that continued into Q4. It was even more dramatic in Q4 than we expected.
The situation is much better in Japan, and so we see a very solid substantial improvement during the course of 'twenty to 'twenty three so we expect Japan to be a real contributor to growth going forward.
Larry.
Yeah.
Yeah.
We can't hear Larry He's as Mike is not on.
Okay.
Okay.
Sorry can you hear me okay now.
Yes go ahead.
Sure.
There's a lot of things to be excited about in Japan.
In addition to the recovery that Mike talked about more broadly you know we do have three ultra resilience that's come in.
You know probably.
Right before the probably in Q2, it will begin rolling that out low risk approval was also a big thing where you recently got approval for <unk>, which is a big thing for Japan. So we're really looking for them to recover and get back to more of their historic growth rates.
Great and if I could follow up just in Brazil in the U S. You talked about 10% center penetration at this point, but can you speak to just your strategy adoption and interest in Q1, and how you think about at this point the cadence of converting centers over the next few quarters and thank you for taking the question.
Sure Yeah. So we're really pleased with how the launch has gone so far remember this approval came earlier than we anticipated. So it felt like we had built up a ton of inventory and so we had to build up that inventory as we roll. It out so we're pretty much right I think where we plan to be and we expect the rollout to continue.
Through through the entire year, but ER, but we're happy with how it's gone so far the physician feedback has been positive and we think it's a it's good for US you know we're also going for a price increase which is the first price increase that we've done in <unk> launch, which has been over 10 years, it's pretty modest with less than 5%, but we think it reflects.
The innovation and the value that we bring with the regarding your technology.
Thank you.
Thank you. Our next question comes from Travis Steed with Bank of America. Please go ahead.
Hey, Thanks for taking the question a quick clarify indication was on FX I think the revenue guidance stayed the same but FX was a $100 million better just want to make sure I understood. The moving parts on that and then the question was also on an U S. Hover, it's hard to tell exactly but it looks like U S tower was.
Down versus Q3, so and if there's anything to call out specific headwinds in Q4 that maybe weren't in Q3.
It was actually down in Q3 versus Q4, and then how to think about Q1 in the U S. It can that still be up sequentially and grow kind of year over year in that 9% to 12% range.
Sure. So on the first question about FX, yes, you're right. We originally anticipated about $100 million headwind to sales based upon recent currency moves. We now think it's about flat, we do think there'll be a headwind to sales in the first half there'll be a tailwind to sales in the second half of 2023, but it averages out to flat so if the rates.
At the current rate.
Regarding to ever know there was actual growth and Teva in the U S Q4 over Q3 and were expecting more growth in Q1 over Q4, So we're seeing sequential growth and year over year growth expansion in U S to ever and global Terror.
Okay, Great I'll retract the modeling that and then on SAPIEN three Brasilia, Hugh you mentioned, a little bit of color on the launch curious how it's gone like price uplift versus volume discounts, you're actually getting all the price because I think the guidance is assuming stable pricing so something to make sure I'm unclear on how to think about pricing impact this year and maybe.
The pricing comes more in 2024.
Yeah. So.
We are going for a price increase and we're going for a price increase across the board what ends up happening with pricing as volume goes up we have rebates and those were built in whether it was SAPIEN three pricing or whether its SAPIEN. Three you are pricing, but we are going for a net increase on every SAPIEN. Three are you our valve that we have again it's.
It's about $1500 less than 5%, but but we are going right for that across the board.
Okay, great. Thank you.
Our next question comes from Josh Jennings with Cowen. Please go ahead.
Hi, good evening, thanks for taking the questions.
Wanted to just start with.
A question on the surgical valve business.
The higher Clifton Tavern franchise in the fourth quarter.
Just wanted to maybe get some better understanding on this prioritization of heart surgeries that you've called out do you expect that to continue and maybe be beneficial.
Understand price versus volume growth for the surgical valve business before you just have one follow up.
Sure well I'll start and then if I if I run into trouble with my body domain to help me out here, but overall you know the thing with surgical patients is they don't require the same amount of work up as a type of patient. So they can move through the system faster because they all require things such as the C. T for valve sizing, where that's starting to enter procedurally for the surgeons.
So theres just must work up that has to be done for those patients. So maybe it's a little less impacted I think theres also a mindset that when a patient needs to open heart surgery, but that just is more urgency in the system and those patients can move through a little bit quicker.
We'll see how that continues over time, but we continue to drive resilient on the surgical side as well we have the nitrous launch, which is growing and we continue to advance resilient on the aortic side as well within spirits in and those continue I don't know if you have anything to add to be yeah. The only other comment I'll make is we talk about heart valve surgery being prioritized within hospitals, we see a bit that.
As Larry said in the in the food chain, if kind of surgeries, we see that people generally if they're short in cardiac surgery resources help start moving resources to these really high acuity really important patients from other parts. Other surgery departments. So you actually see a little bit of resource moving which I think has helped cardiac.
<unk> keep its volumes overall, you know that being said you know what the macro picture right. We always expect that tavern is going to increase in the Arctic valve replacement, but we also expect at the same time. The AVR market is going to continue to grow and they'll always be these patients with complex disease that need need surgery.
Thanks for that and just a follow up.
<unk> covered.
So our.
Very near term, but.
Thinking about the asymptomatic severe aortic stenosis bucket and just the percentage of total severe aortic stenosis patients in the United States you guys have any new kind of.
Estimates in terms of is that it.
30% of total 40% of total or lower.
To better understand.
But purely tavern could unlock thanks a lot.
Yeah.
Difficult question, because the literature is all over the place on this topic and there's not great studies on this in terms of how it gets looked at.
There's a lot of studies out there that say for every asymptomatic patients for every symptomatic patient theres an asymptomatic patients. So that's probably you know probably the higher end. There's other studies that says that it's a little bit lower but I think regardless, it's significant but I think the bigger issue here is it impacts outpatients flow through the system.
Patients come in and the Doctor says how are you feeling and maybe that day, the patient feels fine, but two weeks ago. They they were struggling and that doesn't necessarily get picked up I think if we could take the symptom ascertainment just out of the equation for patients and if Youre Echo says that you have to vary as you move directly to therapy I think it would just be a game changer for outpatient.
Through the system and it's one of the reasons. We took an early <unk>. We think we need to have the definitive data that shows what happens when you really stress echo. These people what happens when you really followed patients are asymptomatic and that's really the purpose of the trial, but we think it's a significant opportunity to change how aortic stenosis is true.
<unk>.
Appreciate it thank you.
Our next question comes from Adam <unk> with Piper Sandler. Please go ahead.
Great. Thank you for taking the questions. The first question is on ACC, which is coming up in a couple of weeks I'm wondering if there's anything that you'd call out from an Edward standpoint in terms of notable clinical data and then there was a competitor study in the tricuspid space with try illuminate do you think that study could potentially Canada.
<unk>.
The Transcatheter tricuspid market, both repair and replacement and then I had one follow up thanks.
Yes, it does.
A little bit on the AR, obviously, the tricuspid trial, specifically that trial illuminate study, we actually wouldn't be surprised if try eliminate shows positive results and gets approved by ACC around ACC I mean to me this would be an amazing opportunity and great opportunity for patients to.
To continue to get more data and have better patient treatment, but that being said you know we see actually in Europe right now that our clinicians are actually very positive about the performance of our differentiated Pascal precision device, there and seem to really like it for tricuspid patients. So we look forward that to obviously bring that technology to the U S. In the future, but we think for.
The therapy overall, obviously more data is helping a patient care.
And then at a high level, we'll be at ACC in full force, it's a chance for us to be close to customers, but we don't have any real groundbreaking trials that are going to be introduced at that time.
Okay. Thanks, Mike and then just for a quick follow up one actually on capital allocation.
Clearly youre going to remain focused within structural heart, but I also think you've talked recently about having interest in a potential new adjacency and I think referring to heart failure.
You have an internal atrial shot program.
And you also have some investments in external asset so.
When should we expect to learn more here about these initiatives and just the broader path for it. Thank you for taking the questions.
Yeah.
Thanks for that out I mean, we don't end up talking about these until some of the risk has been taken out at these early stages. These are big transformative therapies that have big potential, but they also have a pretty big risk at the early stage of the program and we feel like it's more appropriate to share it with investors one area more uncertainty so for.
Example, like we're already in a human trials. So we're not likely to talk about this for competitive reasons, but it is something that's very much a priority for our company. We think the kind of skill sets that Edwards has could be applied really really well to this big group of <unk>.
Patients that's the the number of health number one health care burden and costs than mortality both.
Thank you.
Our next question comes from Richard <unk> with true of Securities. Please state your question.
Hi, Thanks for taking the question.
Thank you Scott for the color on the quarter over quarter growth U S patent or expectation in <unk>, but I'm, hoping to just parse out the expectation around cadence for improvement U S versus international in 'twenty three it seems like international a little bit more kind of COVID-19 surge impacted maybe up a little more visibility into it.
Turn a turning of the tide there U S. More hospital staffing I feels more gradual a is that is that correct and do you think it's right for us to be modeling a little bit faster recovery, an acceleration perhaps in <unk> in the first part of the year internationally, and then maybe a little bit more of a of an acceleration for the U S. In the.
The back half and keep it more gradual in the first half is that a good way to think about it and do we have the pieces right around your visibility.
So Rick first on the on the sequential growth I want to go back to something Travis asked about before Q.
Q3 to Q4 and 2022 zero sequential.
Sequential growth globally, I said U S. It was true globally Q4 through Q to Q1 in 2023 sequential growth in the U S and globally.
As it relates to the full year 2023, and I'll start and then others chime in we're expecting contributions both in the U S and outside of the U S. It's tough to pin down exactly which regions are going to grow at what rates, but we think that we're gonna get contributions from all of our major regions to that 9% to 12% underlying growth in 'twenty three.
That's right I mean, if we just look at what's happened here in the recent past, whether it's the U S or Europe or Japan. Our three biggest regions are they've been they've been lower than what they should be based on the struggles that they've had with the aftermath of COVID-19 and we expect that to improve throughout 2023.
Okay I guess.
Like you have better visibility into the into the two factors the COVID-19 surge impact and Youre challenged areas in Germany and Japan.
<unk> ability there versus hospital staffing and it feels like Youre, saying, you expect all of them to move more or less together.
Yeah, I would say we have similar visibility on all of them were very close to our customers very close to our centers and we feel like we know what's happening on a center by center basis, and we just feel that the environment has and will continue to improve.
Okay. Thank you and just following up to <unk> question.
Our our half of your centers are still doing double digit growth in the U S. I know, it's variant, but do you still see that level of growth from at least a cohort or half of your centers.
Yeah, I I don't know if I could pay.
Pay down exactly the percentage, but certainly we see a large portion or a large a section of our centers that are still doing double digit growth.
And again I think it's it's not so much COVID-19, but it's the COVID-19 restrictions that that happened and I think the the parts of the country, where those restrictions have been.
Released sooner I think we see those centers doing better, but we expect the rest to come along I mean, if you look broadly those restrictions are easing you know really across the globe and I think that's what is one of the things that helps us in 2023, and Larry you might add that you saw some weeks during Q4, where there was some <unk>.
In Africa volume dump it made it made us feel good about the fact that there must be some capacity out there yeah. We had some of the biggest weeks that we've had in our history. In Q4. So you know a week doesn't make a year, but the fact that they were able to do it for you know for several weeks indicates that staffing is getting better and capacity is coming back into the system.
It's one of the things that gives us confidence that our guidance for 2023.
Thank you very much.
Thank you and that concludes our question and answer session for today I'll turn the floor back to management for closing remarks. Thank you.
Okay well. Thanks, all for your continued interest in Edwards, Scott, Mark and I welcome any additional questions by telephone.
And with that.
Thanks for thanks for participating.
Thank you that concludes today's conference all parties may disconnect have a great day.