Q2 2023 Edwards Lifesciences Corp Earnings Call
Greetings and welcome to the Edwards Lifesciences second quarter 2023 year 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 the 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 Lang, Senior Vice President Investor Relations and Treasurer. Thank you you may begin.
Thank you very much Diego good afternoon, and thank you all for joining US with me on today's call is our Chief Executive Officer, Bernard <unk>, along with our Chief Financial Officer, Scott All them also joining us for the Q&A portion of the call are Larry Wood, our group President of hover in surgical structural heart and Devine Chopra, our global leader of T. M. T. P T.
Zyman or global leader of critical care is out of town today, but she'll be with us on future earnings calls.
After the close of regular trading Edwards Lifesciences released second quarter 2023 financial results. During today's call management will discuss those results included in the press release and accompanying financial schedules and then use the remaining time for Q&A.
Please note that management will be making forward looking statements that are based on estimates assumptions and projections. These statements include but aren't limited to financial guidance and expectations for longer term growth opportunities regulatory approvals clinical trials litigation reimbursement competitive matters and foreign currency fluctuations.
These statements speak only as of the date on which they are 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, our 2022 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 <unk>.
Finally, a quick reminder, that when using terms constant currency 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 this call are available in today's press release and with that I'd like to turn the call over to Bernard for his comment Bernard Thanks.
Marc and Hello, everyone I am pleased to share with you the work that the team did to help more patients than even before without life saving therapies.
Hey.
I'm going to talk about the strong second quarter performance across product groups.
Glass in advance you got patient focused innovation strategy and our confidence is the outlook for EDA walls the yield that.
In the second quarter, we achieved double digit sales growth driven by increased adoption of our innovative shy piece.
Put them off 153 billion.
The request person on.
On a constant currency basis slightly higher not all expectation, we experienced broad based growth across your debatable off before you.
Do you have on improving health care staffing in our first half performance. We continue to expect strong results in 2020 free as a result, we have leased it up 40 F. 'twenty 'twenty, if we sense and EPS guidance.
Longer term we are confident.
Focus and differentiated strategy given heart valve failure is largely been done.
<unk> knows and under treated we remain committed to increasing our awareness and providing innovative lifesaving therapies. So even more patients can benefit.
Now I will provide an overview of our second quarter performance by product group.
In tablet.
We continued to see strong demand for our leading seed pin platform, we sense of $992 million up 10% year over year on a constant currency basis.
Our U S and O U S growth rates were comparable.
Local selling prices were stable.
In the U S a second.
Second quarter sales were aided by improved hospital staffing level.
And the continued successful launch of SAPIEN three ultra Brasilia.
He made that total procedure growth was in line with our wheel sales growth.
Additionally, we will it be a restocking enrollment to this quarter too you know pivotal trial Alliance designed to study on next generation technology sapiens export.
Outside of the U S. We had positive constant currency sales growth from all regions.
In Europe , and while sales growth were driven by the broad based adoption of our <unk> platform.
Sales in Japan grew sequentially and year over year on a constant currency basis, although our results continued to be impacted by lower than expected market growth and competitive trialing in the first half of this year.
As a result, we estimate overall all U S have you posted your raws in Q2 was slightly higher than it was O U S growth.
During the quarter.
The European Medical Congresses data on the benchmark city, we have presented on 2400 patient twitchy do we shaped involves across 28 European centers.
It was very encouraging to note that patients experienced a 50 free person reduction in the median hospital length of stay while maintaining felt she did clinical outcomes.
The study showed that by implementing best practices with the CPA platform Santos can be more efficient without compromising patient outcomes.
Turning to T N T.
We remain focused on three key value driving us to unlock the support GDT or.
Our portfolio of differentiated.
CRA piece.
How's your teeth clinical trial results to support approval and adoption and build a real world clinical outcomes.
T N T. Two second quarter global sales of $48 million increased nearly 70% on a constant currency basis versus the prior year.
Growth was driven by continued strong overall procedural volumes.
The option of a differentiated Pascal precision platform and activation of more centers across the U S and Europe .
We continue to hire train and grow the field team to deliver on our high touch model as we expand.
In my total enrollment is going is ongoing in the class two F pivotal trial for function in bipolar patients.
We are also pleased with the enrollment in the pivotal trial for the C. P and M free mitral valve replacement and remain on track to complete enrollment around the end of this year.
In FICA speed the class two TR pivotal trial with Pascal continues and avoiding winter.
With the completion of twice in two environments continue with accessible evoke allows U S centers to continue to offer this therapy for patients.
We remain on track for European approval by the end of 'twenty 'twenty free.
And U S approval around the end of 'twenty 'twenty four.
In surgical.
Second quarter sales of 256 million dollar increase.
On a constant currency basis, driven by the adoption of our premium reserve you have products across all regions.
It shouldn't in patients.
Value the future benefit of this advanced tissue technology for both aortic and mitral surgical valve procedures.
Patient enrollment continues in the second quarter for our momentous clinical study designed to demonstrate the durability of Cordelia tissue in the mitral position.
We expect that confidence from all of it from the recently presented seven year data.
Cummins clinical trial will continue to support adoption of our resilient family of products.
In critical care second quarter sales of 200 million and $55 million increase fell 10% on a constant currency basis, driven by country Britian from all product lines.
Growth was led by our smart recovery portfolio and healthy adoption of our acumen IQ Cynthia.
Sales momentum for all he's he must see a monitoring platform was also positive in the second quarter with a healthy pipeline of future opportunities.
Before I turn it over to Scott I also want to mention all expectation for the upcoming TCT conference in October .
During the conference we expect several unimportant presentation regarding our Transcatheter technologies in Tahoe, we are expecting a presentation of five year clinical data for the TANF, we low risk a pivotal trial in.
In T N T T. We anticipate presentation of one year full cohort of the class two D pivotal trial results.
Additionally, we anticipate the presentation of the plan is generally a analysis of a price in two randomized cohort I look forward to seeing many of you at the Investor event, we plan to host a TCT.
Our investor relation team will communicate details as we get closer to the events and now I would tell him the cologuard to Scott great. Thanks, a lot Bernard.
We are pleased with our sales performance in the first half of the year posting our second consecutive quarter of double digit constant currency growth.
All product groups grew double digits and sales were balanced across regions with the exception of Japan, which was impacted by the Trialing is competitive Teva products.
We achieved total sales in the quarter of $1.53 billion, which represents 12% year over year constant currency growth.
We achieved adjusted earnings per share of <unk> 66 cents.
Contribution from our better than expected sales performance was partially offset by higher performance based compensation and investments in our transcatheter operations in support of our growth strategy.
Our GAAP earnings per share of 50 cents was impacted by the intellectual property agreement I commented on last quarter. We previously had a long term intellectual property agreement with Medtronic that expired last year.
And in consideration for the new agreement, we paid $300 million approximately half of which has been expensed and the other half will be amortized over the next 15 years.
A reconciliation between our GAAP and adjusted earnings per share for these and other items is included with today's release.
I'll now cover some additional details of our second quarter sales results and full year 2023 outlook by product group.
A continuation of double digit global tower growth reflected a more stable hospital staffing environment as well as strong adoption of the SAPIEN family of valves.
U S tower sales growth was driven by the launch of SAPIEN, three ultra Brasilia, which remains on track to represent the majority of our U S tower sales before year end.
In Europe Edwards sales growth was driven by the continued demand of our SAPIEN platform and was broad based by country. We still see some health system capacity challenges, but are encouraged that centers are adapting to continue to treat their patients.
In Japan, although growth was below our expectations in Q2, we anticipate that growth rates will improve driven by the ongoing launch of SAPIEN three ultra brasilia.
For global Tower sales, we are adjusting the low end of our outlook slightly higher to $3.85 billion to $4.0 billion and we now expect full year <unk> growth to be 10% to 13% on a constant currency basis versus previous guidance of 10% to 12%.
T M T T growth in the second quarter was driven by strong procedure volumes adoption of our differentiated Pascal precision platform and the activation of more centers across the U S and Europe .
Overall, we're pleased with our continued progress toward bringing a portfolio of T. M. T. T therapies combined with contemporary clinical data in order to achieve our vision of transforming the lives of patients with mitral and tricuspid valve disease.
We now expect full year 2023 sales of $180 million to $200 million versus our previous expectation of $170 million to $200 million.
In surgical structural heart, 13% constant currency sales growth in the quarter was driven by the adoption of Edwards premium products as well as strength in valve surgery procedures as hospital staffing levels have continued to improve.
Based on positive year to date performance, we now expect that our full year sales will be in the range of $960 million to $1.02 billion versus previous guidance of $870 million to $970 million. This revised range implies low double digit constant currency growth in 2020.
Three.
Finally, turning to critical care, we continue to expect full year 2023 sales of $870 million to $940 million.
For total Edwards based on the strong first half of the year. We now forecast full year 2023 sales to be in the range of $5.9 billion to $6.1 billion versus prior guidance.
The high end of 5.6 to 6.0 billion.
We now expect full year total company sales growth to be in the 10% to 13% range on a constant currency basis versus previous guidance of 10% to 12%.
Lastly, we now expect our full year adjusted earnings per share to be between $2 50, and $2 60.
We are projecting third quarter sales to be between 1.44 and $1.52 billion.
We are also projecting third quarter adjusted EPS of <unk> 55 to 61.
I'll now cover additional details of our P&L for the second quarter. Our adjusted gross profit margin was 77.7% as expected compared to 80.5% in the same period last year.
This reduction was driven by a less favorable impact from foreign exchange.
We continue to expect our full year 2023, adjusted gross profit margin to be between 76 and 78%.
Selling general and administrative expenses in the quarter were $469 million or 36% of sales compared to $409 million in the prior year.
This increase was driven by performance based compensation and investments in Transcatheter field based personnel in support of our growth strategy.
We continue to expect full year 2023 S. G&A as a percent of sales to be 29% to 30% as we invest in field based personnel and our therapy adoption initiatives.
Research and development expenses in the second quarter grew 8% over the prior year to $270 million or 17, 7% of sales. This increase was primarily the result of continued investments in our transcatheter aortic valve innovations, including increased clinical trial activity.
For the full year 2023, 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 <unk> and T. M D G.
During the second quarter, we recorded a $27 million reduction in the fair value of our contingent consideration liabilities, which benefited earnings per share by four cents. This benefit was excluded from our adjusted earnings per share of <unk> 66 cents.
This reflects an adjustment of assumptions regarding potential milestone payments for a previous acquisition.
Turning to taxes, our reported tax rate this quarter was 9.7% or 13.1%, excluding the impact of special items, our rate benefited from higher R&D tax credits and a 200 basis point excess tax benefit from stock based compensation.
We continue to expect our full year tax rate, excluding special items to be 13% to 17%.
Foreign exchange rates decreased second quarter reported sales growth by 70 basis points or $8 million compared to 2022.
At current rates, we continue to expect an approximately flat year over year impact to full year 2023 sales compared to 2022.
Foreign exchange rates negatively impacted our second quarter gross profit margin by 220 basis points compared to the prior year.
Relative to our April guidance FX rates had a minimal impact on second quarter earnings per share.
Adjusted free cash flow for the second quarter was $286 million defined as cash flow from operating activities of $34 million less capital spending of $48 million and excluding a $300 million payment related to the Medtronic intellectual property agreement I mentioned earlier.
We continue to expect full year 2023, adjusted free cash flow will be between 1.0 and $1.4 billion.
Before turning the call back over to Bernard I will finish with an update on our balance sheet and share repurchase activities. We continue to maintain a solid and flexible balance sheet with approximately one $5 billion in cash cash equivalents and short term investments as of June 30.
We continue to expect average diluted shares outstanding for 2023 to be between 610 and $615 million.
We have approximately $650 million remaining under our current share repurchase authorization.
And with that I'll hand, it back over to you Bernard.
Thank you Scott.
So based on our strong first half result, we have increased confidence that 'twenty 'twenty free will be an important two year firewalls, and we expect to deliver 10 to 15 person sales growth, while making meaningful progress on our innovations to improve.
For many more patients.
To them I have great confidence in our team to further extend our leadership position by bringing differentiated technologies to patients globally.
In closing, we are well positioned for success.
With that.
Pass it back to Mark to open it up to Q&A.
Thanks, a lot Bernard with that we're ready to take questions now 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. Operator. Please go ahead with additional details on accessing the Q&A portion of the call.
Sure.
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Our first question comes from Robbie Marcus with JP Morgan. Please state your question.
Oh, great. Thanks for taking my questions and congrats on a nice quarter.
Maybe to start global tablet growth around 10% a little weak in Japan.
Where do you think we are in the recovery process in terms of stabilizing the system stabilizing.
Timelines and.
In our staffing in the system.
<unk>.
When do you think we will get to a new normal in tap of procedures and diagnosis and treatment.
Yeah Robby.
Yeah. Thanks, Joe a couple of question. We all we are pleased with our global tablet result in Q2.
10% constant currency growth.
<unk> U S or U S. You know basically and it has been driven by continued strong demand for our leading SAPIEN platform.
Also you know what we have experienced is that improvement in the hospital staffing level in the U S and globally, but I'm going to let you know what Larry and I'll add some comment to you hey.
Hey, Robby yeah. It's.
You know what.
Deciding what the new normal is it's probably a little bit tricky, but I feel like the system, who has continued to get better I think when retract staffing, we're not where we should be and we're not where we would have projected to be in absence of a pandemic, but I think you know patients are certainly coming in and Theyre getting their visits and I think when we look at some of the leading <unk>.
Caters, we diagnosis are up and patients are moving through the system, we still feel constrained somewhat at the cath lab level.
That's the only place where we still are struggling I think centers, we've made tremendous strides, but it's still an adjustment coming out of Covid and we're not back to what I'd call pre COVID-19 normal levels and so I think we still have a little ways to go but to consider that and I think we see that a little bit globally. It varies a lot across Europe, and we see it a little bit in Japan, depending.
I think theyre still dealing with a little bit more COVID-19 here and there.
But I think the encouraging thing is were at 10% globally and we no. We havent, we havent fully recovered yet so I think theres still some opportunity for us to continue to do better and we know the under treatment remains remains huge and we still think there's a lot of opportunities to continue to grow this over over the long term.
Right. Thanks for that and maybe just kind of a similar.
Question TMT T. You beat in the quarter that seems like it was even a bit more impaired over the past few years, then the whole tapper complex, maybe just talk about.
Mitral and tricuspid, particularly the launch of Pascal in the U S. How do you think adoption is going versus plan, how youre seeing the competitive situation play out and just your thoughts in TMT in general relative to Tapper normalization. Thanks a lot.
Yeah. So let me start with Robbie and then I will ask you to Devine to AR.
Some comments here. So we are we are pleased about Q2 of you see globally. What we are seeing is that the market the mitral market.
Well in Q2.
Back to you know growing in almost all double digits something like that the adoption of.
Pascal precision is going very well is being very wedding dress is going to get a vehicle in Europe and we at Keybanc.
Deals across U S and Europe . So if you see you have a way to think about it you know we had some.
Great momentum from the market from Pascal precision and from US excavated grow more centel's, but David you want to add anything here, yeah definitely thanks, Bernard I think as Larry and Bernard talked about the market. We continue to see recovery from the from the staffing portion of it and I think youre right that maybe we've got hit a little bit more on the staffing side.
During COVID-19, but coming out we're also sourcing recovery, but I still think there's opportunity to keep getting better on that that component with that being said with such a large number of a such a large number of patients looking for new therapies, we continue to see a relatively strong market growth.
That being said as we dive into it we continue to open up new centers in both the U S and Europe , specifically in the U S. I think we're continuing to hear great feedback from physicians about the differentiated features and benefits of the Pascal system, we're ramping up the team we're opening up new centers each week, we're going through kind of the value add.
You know value analysis committees in the contracting processes.
With each new centre in the U S. You know weekend and week out and we're really focused as you can imagine on the largest accounts in the U S. Not you know who do the most here so far.
So I'm pretty excited about where we're going in the U S. Maybe just a comment both on Europe , I think as Bernard said, where we've been again opening up new centers in Europe , and I want to make a comment that our tricuspid, especially in Europe continued to see very strong growth at the newer therapy smaller obviously in market size, but could you see very strong growth where we're seeing.
We're seeing that the market is growing and that people are really seeing that Pascal actually in this situation. The tricuspid space is really got these differentiated features for a traumatic and tailored treatment really for tricuspid tier. So so overall you know we continue to be excited about where Pascal is going into the launch.
Thank you and then about the financial implications of everything that Bernard we just talked about which is we're feeling good about how T. MTT is developing in 2023 and you saw our original guidance for sales was $160 million to $200 million, we bumped up the bottom end of the range by $10 million last quarter bumping out another 10.
This quarter and it's an indication of how positive we feel about our progress this year.
Thank you and our next question comes from Matt Taylor with Jefferies. Please state your question.
Hey, guys. Thanks for taking my question.
So I just wanted to ask one about.
The margins basically said.
Nice gross margins here in Q2, I know, you're making a lot of ongoing.
Investments and so two things I guess, what are kind of the key puts and takes to think about in terms of gross margins and opex spending through the second half of the year in terms of.
Phasing or anything discrete to call out in <unk>.
Then just conceptually at a higher level, how should we think about operating margin progression over the course of the next couple of years, especially as you might have some of your bigger clinical study is starting to wind down.
Yeah. Thanks for the questions I'll start with gross margin your gross margin.
We're seeing some benefit of mix in 2023, but it's more than offset by the impact of foreign exchange that actually hit us last year in 2022 and is flowing through our income statement. In 2023, you asked about phasing, it's going to get more impactful negatively in Q3 and Q4 based upon.
Current exchange rates now if exchange rates change that may change a little bit as well.
But we're expecting gross margins to come down a little bit in Q3, and Q4 relative to the first half all of that said, we expect to end up right, where we thought we would in the range of gross margin guidance for 2023, So really nothing changed in terms of operating expenses, you're right, we've been putting more investment into especially feel.
Based personnel in Europe , and U S and even outside and that's weighing on operating expenses, but that's okay. It's part of a deliberate plan to really drive top line growth by making sure that we've got the right people in the right places supporting our clinician partners and making sure that patients are getting the right kind of care, especially as we're introducing these new.
<unk> in places like D. M D G, what Duane talked about earlier.
As it relates to our operating margin progression over the next couple of years, we continue to see opportunities to expand our operating margin and we're looking for ways that we can do that.
We've identified areas, where we can make changes and gradually.
Incrementally expand our operating margin, but really it's it's a secondary focus the primary focus is investing for long term top line growth, yes, some clinical trials wind down over the next couple of years, but we've got other ones spool went up you know about what trials, Larry is running and tougher and Devine is going in <unk>.
And this is a super important area of investment for US again to drive top line sales by contributing to this really robust body of clinical evidence that we have supporting the growth in those two transcatheter businesses.
Great. Thank you Scott.
Thank you.
And our next question comes from Vijay Kumar with Evercore ISI. Please state your question.
Hey, guys. Thanks for taking my question.
Bernard maybe my question on this tower guidance here I think the underlying was raised at the high end of 13% first half caviar underlying has been 10 to 11.
Curious.
Why the high end was raised was there something within the quarter that you saw some phasing or is there something coming in the back half.
Which gives you the confidence perhaps 13% is even possible.
Okay.
Go ahead, Scott, Yeah, Vijay maybe I'll jump in here and give you a sense of how we see it you know the change in guidance the expansion on the top end of the range larger largely reflects a better than expected performance in the second quarter and first half results compared to what we originally expected back at the time of the Investor Conference.
And so because we over achieved in the first half we are introducing this higher top end of the range to accommodate a potential faster growth scenario. The way we saw earlier in the year, we're still modeling and planning around the midpoint of that 10% to 13% range, but that's the reason why we expanded the top end.
Understood and then maybe one one sort of related question here.
First half we've seen safir grew mid teens, how much of that is volume versus price.
Why are we still seeing silver I'm sure cover I think I heard Larry mentioned.
The macro environment staffing is improving.
I'm just.
So it's hard for us to see Safir outgrow tower is.
It's a fundamental change in the market or perhaps.
Perhaps new product introductions, thats, driving south or some color on south where we're supposed to have or would be helpful.
Yeah. So Vijay let me start and then I will ask Larry to ads.
Coming to you so both.
Some of them are entitled business are growing nicely.
And you'll have a several cents growth as exceeded taboo because of a combination of things you know market growth several market growth, but not only premium pricing. Although you know the TV price premium technologies and because of all of that all saw a better competitive position. So again inside of me on what you obviously.
A number of things happening we're in test related mainly to get a paucity of growth. Maybe you know a lot of you want to add anything here. Yeah. I think that's right we sort of have the three components that help contribute so you can't look at the growth rates in turn it all into procedures because for the tanker side. It is overwhelmingly majority of procedures, but it's more of a combination of things on <unk>.
I will say as we move through the Covid recovery, though we probably saw hospitals prioritize their surgical programs probably most.
Think that deals are a little bit with patient acuity and and just the need to get those patients treated probably a little bit sooner. So I think cath lab recoveries, maybe lagged a little bit beyond the surgical recovery, but again, we were very happy with where we saw <unk> procedure growth this last quarter.
Thank you. Our next question comes from Larry <unk> with Wells Fargo. Please state your question.
Good afternoon. Thanks for taking the question two on the pipeline and in the TCT updates on this call. Let me start with the Tri send two comments, it's big news here.
Arguably you know evoke is your most important pipeline products. So.
Yes. My question is Bernard or you know just a couple here one is the trial stopped yet.
Second what would success look like to you given the Tri illuminate results showed only a quality of life benefit, but no positive trends on heart outcomes in.
And lastly, entrees into if positive would think approval could come in mid 'twenty four.
<unk> not late 'twenty, four and I did have one follow up.
Thank you Larry.
That you are aggressive and that's good.
You know look we well, yes did you know we completed the enrollment of our full cobalt of twice into.
We have been sharing that already in the past.
We need to where you wanted to wait one year follow up and then you know putting together a holder of a data presenting that to the FDA. So this is going to take some time, so which is why you know we we still believe that the wrongdoer twenty-twenty for approval in the U S is reasonably burn you know are we going to to go faster or for sure, but I shouldn't you know end of 2020.
You've always reasonable.
No.
I'm sure your question about hardware, how do we feel about <unk>.
Studio results is in light of what we have seen with target date is.
Tough to comment because you know tight I mean, it was using one technology pricing two is using a different technology different devices. We don't know you know very little about Qdoba tricuspid disease. So it's very tough to comment on that but I have to say that.
Quality of life, you spell important for patient. So we will have but again, we would have to see what that what the result will be sudden study N and we all know we are confident.
<unk> you want to add anything here answer two small points. Thanks for the question.
It's that this interim analysis was a part of the statistical plan. So it's already been planned out and was always a part to kind of show. These results. We're excited to share. These results with the clinical community and I'll make the other comment that you know for us I'm actually pretty excited by what we've seen actually previously with train eliminate it helps really confirm outcome.
<unk> that have come from other studies with tier technologies that we have on the Pascal device that you know that tier in direct conflict delivers great trichopteran reduction with meaningful quality of life improvements and we were excited to see randomized data. So to me. These are all a great positive tailwind in tricuspid and you know we are excited to see what the Ah trial.
Two interim planned analysis will show.
That's helpful. Just for my follow up the other one are the partner three five year.
Data.
What do you think physicians will be focused on here, there's been some concern among investors and clinicians given the curves.
Converging between taverns salver between year, one and two.
And in the two year data is there anything you can say that could allay.
<unk>. Thank you.
Well I can't speak to the kind of the data or what's gonna be presented I think what people are going to be looking at is once the trial was powered for and what we're going to do.
We have a composite endpoint of death, all stroke and re hospitalization.
Those are the three components. So I think first and foremost you you look at the primary and then I think people are going to look at the sub components of that and say you know what do they see happening.
Trends in the trial and you know I think Oh.
That's what people are going to be looking for but we're excited.
The data is coming forward and he's going to continue.
I'm pulling it in and once it's all adjudicated the clinicians will obviously take the steering wheel and they'll present the data, but I think overall every time, we have one of these data reports it just adds to our body of knowledge and adds to the body of evidence and I think that's what we do for the clinical community. So.
Again, I think primarily we focus on the primary end point just like we did in the in the <unk>.
Trial, and we see and we'll see where we are.
Oh.
Thank you. Our next question comes from Travis Steed with Bank of America. Please state your question.
Hey, Thanks for taking the question.
I was wondering if follow up on U S. Dollar growth I wanted to understand a little bit better I think you said price was stable, but it sounds like a resilient has gone faster than expected. So if there's any way to kind of parse out the U S. It sounds like 10% type of growth in the U S. How much of that was actually priced versus brasilia.
In the quarter.
Yeah.
Thanks for your question yes.
The prices are.
Pretty small factor in Europe's growth number it's overwhelmingly driven by the by the procedure growth you know when you look at.
And what we're going for is resilient.
For S. III you are you know, we're still you know what I mean.
However, I wouldn't call it necessarily the early part, but we haven't even reached halfway in the launch.
Brasilia, yet and while we we did go for a list price increase of about 1500, if you look at that as a percent of the total device got you know, it's a lot smaller than what we did on the surgical side of things. So it's certainly a contributor and it's a long term contributor for us, but it's pretty small in comparison to the procedure growth remember too there's people.
Volumes go up they continue to hit rebate tiers and they get discount them. Accordingly. So you got to you got to factor all that in as well.
Okay, Great. That's helpful. And then I just have a follow up on on the raise to have our guide for the full year.
Is there anything youre seeing in July just curious like what is going to do the confidence to raise the full year guide and when you think about Q.
Q3 should we think about this being down sequentially.
Versus Q2 and in dollars it seems like it has been historically.
Yeah, Scott a couple of things you know the increase in the guide was largely reflective of our stronger than expected first half performance and the prospect of potentially over achieving what we had modeled for the second half, although we're still modeling the midpoint of that range that we provided as far as the <unk>.
July expectation I guess, we'll just leave it as the the range that we put out for total company sales in the third quarter incorporates what we see so far month to date, but were not going to get into the month to month report you know.
In terms of what the what the later in the year trend may look like a lot of it depends upon seasonality, we get hit by the summer vacation season, and not just in Europe , but also in the U S and so we'll be able to talk more about that impact when we when we get to our third quarter call well for looking back on the third quarter and what the run rate looks like going into Q4.
And your next question comes from Josh Jennings with Cowen. Please state your question.
Good question.
<unk> two <unk>.
Questions one just on the Japan recovery.
Just talk about.
Share any insights.
And for them.
Josh you're cutting out could you pick up your handset.
Sure can you hear me now yeah much better thank you.
Sorry about that.
Two questions first from Japan recovery trajectory, maybe just help us better understand any factors that are limiting their recovery in Japan, and how you see that market shaping up in the back half of the year.
And then the second question on just on the progress trial any updates on the enrollment pace I believe first patient was enrolled in.
Because at the end of 2021, so it's been about a year and a half of enrollment in that trial completed enrollment.
2023 are in 2020 for thanks for taking the questions.
Thank you Josh.
In Japan, you know, what we have seen as a positive.
Like I said, you know sequentially and also year over year growth in end of a quarter of.
It was below our expectation.
But we believe it is transient ctenophore, followed a couple of reason.
One of the market as you know you have a market as Tino impacted you know from coffee then assuming a recovery from Covid.
And also we believe it is present because we are very pleased with the early feedback on the launch of SAPIEN three hotels resilient, Japan. So we feel like we grew year over year sequentially below our expectation, but we are confident that we are going to improve utilization, Japan. You know maybe you know Larry you want to add anything here yeah yeah.
I think that's right I think you know our Japan, certainly got more impacted during COVID-19 waves I think even in some other regions in the wireless ear, probably and so as that stabilizes. We think we think that that helps and as Bernard said, we did see growth year over year and sequential we just probably had higher expectations and I think that's what's reflected in.
Our comments, but we're optimistic in the back half of the year that we're going to continue to see recovery in Japan, and that's all factored into our into our guidance.
On progress we don't have any updates on enrollment right now I will say overall, we've been pleased with how that trial's gone, but probably investor conferences, when we'll probably provide a more fulsome update on that and probably with some more projections will have a lot more information under our belt, then that we can probably be a little more fulsome, probably a little bit more accurate about our projections.
Thank you. Our next question comes from Chris Pasquale with Nephron. Please state your question.
Thanks, Scott the <unk> EPS guidance, a little bit lower than the street was modeling it looks like operating margin is expected to contract a couple of hundred basis points versus where you were in the first half and then bounce back in <unk> is there anything in particular about the third quarter that drives that margin dip.
Well, the only thing, particularly about Q3, as we pick up the summer seasonality, which hits us on the topline and generally the expenses continue to go through and are not as seasonal that's really what it reflects.
Okay.
And then I know Katherine is not on the call today, but just looking at the critical care guidance that business has been running hot here double digit growth first half of the year. It looks like guidance assumes a pretty meaningful D cell in the back half is that just tougher comps or is there something in particular, you're looking at there.
Exactly you got it we had a great Q2 got off to a great Q1, very balanced across all product lines and would you didn't change the guidance. Even if all you know we changed the guidance at the last quarter, but it is more of a budget or a tough year over year comparison in the second part of the year.
Thanks, Tom a question.
Thank you and our next question comes from Matt mixed sick with Barclays. Please state your question.
Hey, thanks, so much for taking the question.
So I wanted to follow up on this.
Strong performances.
Sure.
Good, but not as strong performance in <unk>.
And as it pertains to staffing.
And I know you tried to price a little.
Williams.
But can.
Can you talk a little bit about.
Given that debt.
However, interventional however resource.
That sort of grew up during the clinical trial.
However across their clinical community in U S. Europe kind of lost many of those folks who are may be more proficient dinner.
Good news, replacing them with other folks, but you know.
Bad news, maybe some of those folks are still coming up the curve. If you could talk about is that is that more of an issue on the tanker side and because <unk> surgical.
Interventions are a bit more mature.
Less of an issue on we've heard that some some centers that are sort of.
We're more productive more scale more mature on one side versus the other which is kind of one of the factors but.
It'd be great to get some color and then I have one quick follow up.
Okay I'm sure I mean, let me take a shot at that.
So.
Probably the biggest place we saw turnover on the camera side of things we're about from the coordinators and you know I think we've talked before about the number of I'm Gonna coordinators retrained and I think part of that is just it's just a really demanding job.
There's a lot that goes into that in terms of screening and moving people through through the system and so I think I think theres a lot. So we feel a bit more turnover than that then certainly.
We don't really have the same level of work on the surgical side because on the Tempur side remember patients have to go to <unk>. They have to have a lot more work up and not every patient gets the most surgical patients in fact don't get a C T.
And so it's just easier to move surgical patients through the process because literally if a patient comes in and they're deem a candidate for surgery. They can move right to surgery within a matter of a few days or a week, where for time or theyre going to have to be scheduled for Cte you Gotta rule, our coronary disease and there's just other things that you have to do so is there a pressure in staffing and.
In the system that would have impacted across the whole system, but there's just more systems getting back on the on the counter side, we didn't lose our our operators it's not those aren't the people we lost we didn't lose our operators.
Don't have a lot of residents a lot of people coming up through the system. So it's not so much to be implanted.
Implanting physicians as much as it is just general support staff.
Got it that's helpful.
And then just on.
Is the question about.
Some of the investments you've made and maybe group Bernard.
Okay.
Rest of the team.
The investments that we see coming through the clinical programs.
Programs now revoking and.
Pascal or our investments in innovation.
And I'm just wondering.
Are you at a stage, where you've got what you need to address these <unk> markets and sort of more advanced.
Other.
Valvular.
Disorders or are you still are you still out there hunting for for sort of a better mousetrap or or additional technology and IP that we should expect to kind of further flesh out those programs going forward. Thanks.
Thanks, Matt you know if you see very good questions. So think about our vision and TNT T. V. Journeys. There are so many patient he needs mitel at breakneck speed and we believe that to be able to unlock this very large market opportunity we need to get them.
<unk> comprehensive portfolio and we are building these comprehensive portfolio. So.
What you can expect is us investing in innovation Nexgen innovation. So Pascal Gen. Two gen. Three Gen. Four you know the same with evoke the same with mitral replacement. So this is on the technology side that we know from our experience in tableau.
You need a technology was evidence in tablet we are there.
I don't have any kidney randomized clinical study with digital 44, 5% or even more you know potentially in the space, you'll probably close to 10 between us and our competition. So here you would we would have to think about the same way. So we are in my mind, we have not done a tour in the TMT T. No clinical evidence and we are not done.
In term of further innovating to be able to treat all of the patients might turn into like a CD patient.
We are we like definitely out your off technology, we like.
So far you know a clinic.
Can have you done so that we are that we are providing and more to come.
Thank you Andrew.
And our next question comes from Danielle and Taffy with UBS. Please state your question.
Hey, good afternoon, everyone. Thanks, so much for taking the question.
Maybe just.
Just on <unk>.
Question number one.
Thanks, everyone.
And to figure out as we move through Q2 is impacted backlog I know the high acuity nature.
Cabot procedure likely.
Not much backlog.
Marginally in Q1, just curious if you think you saw any of that work down in Q2. That's the first question second question is just.
Over the last three quarters, you gave some color on high volume versus low body centers driving a lot of that growth. Just curious if you could give some color there whether it was fairly broad based across low and high volume centers. Thanks, So much.
Yeah. Thanks, Danielle Yeah, you know.
We think.
As the front end of the funnel starts to fill back up again with referrals and that I think there is a possibility that we are actually seeing a little bit of a backlog grow as we're talking about the last mile still being probably the part that we see the most pressure on staffing.
I wouldn't be able to quantify that and its probably just sort of a more of a directional thing, but you know the fact that we've seen the growth in <unk> for the first couple of quarters of this year and we've been back into double digits and and it's not like our centers around you know.
Beating the bushes for patients we were pretty pleased with our patient flow right. Now so I think that that's obviously really positive I think you know in terms of large centers small centers, we saw dynamic throughout Covid day, when Covid would.
What's sort of the way it would come through that people, we'd start to see the smaller centers growing faster, indicating people maybe stayed a little bit more local when COVID-19 tends to go away then people tend to go back to the centers that are large centers of excellence and are willing to travel a little bit more so I think we saw a little bit more growth in the large centers in this past quarter. When we started the small centers.
But that's something that has varied a lot quarter by quarter, but just this last this last quarter would have been more in the large centers on the small ones.
Thank you.
And our next question comes from Richard <unk> with true with Securities. Please state your question.
Thanks for taking my questions.
Here. The first one just on reconciling the raise to the high end of the Teva range and Youre, Japan commentary relative to expectations do you need Japan.
And the dynamics to improve in the second cash to hit the midpoint of your guidance or is that kind of what's embedded to get to the upper end I'm just trying to reconcile those two pieces.
Yeah, we're expecting Japan to perform better in Q3, and Q4 and that's a contributor to our assumption about the midpoint of the range now Japan does better than we're expecting that could get us into the into the higher end of the range and if it does worse than in Florida. The range all of that said, Japan is still a pretty small.
<unk> of our overall sales and tower, but it's an important one and it's an important growth driver for us longer term.
Okay, and then just secondly, thanks for that and secondly, just as we think about especially in the U S or if youre at about 10% now you've got resilient pricing contributing some amount so I guess, if you're 10% with resilience.
As we just think out whether its 24 just on a normalized basis.
Should we be thinking of your view that the <unk>.
Every market has approached.
High single digit volume growth sustainably as we as we think back to normalized level is that is that the right way to think about it.
I'll try to answer that and Bernard or John can certainly jump in as well.
No. We don't think we're seeing an overall slowing of growth in our in the tanker space. We think we actually have a pretty long runway here, where do you think theres still a lot of untreated patients in the system and we continue to try to get through that and you know.
As I said earlier I don't feel like we're somewhat constrained within the system for staffing and we still.
Double digit growth on the board the first two quarters. So I feel like Theres still you know are all.
Our long term opportunity and we haven't even begun to talk about the long term impact of things like early tavern things like progress trial. Obviously go out much further so I think to try to think that this is going to go the way of population growth anytime soon that that's just not how we see it I would just add to that Larry just to reinforce that our confidence in.
$10 billion total addressable market hasn't changed one bit and 2028, and so while COVID-19 interrupted our trajectory to that larger Tam, we still feel a lot of confidence that we're at we've got big growth ahead of us not just in with current indications and our current product portfolio, but added to that our new technologies and broader.
Indications in the U S Europe and beyond.
Thank you.
Our next question comes from Peter Chickering with Deutsche Bank. Please state your question.
Hey.
So two quick questions here for the U S markets are there is there any geographical spread for this large centers that are growing in.
In markets that.
They were still coming out of COVID-19 versus the ones in the south they were faster coming out of Covid or was it broad based geographically.
Yeah.
When we were in the middle of Covid, we saw a lot of variation in the country based on where Covid was at any given point in because there was a lot of variation in health care policy for various various different state in terms of how they reacted. So we saw a lot of different variation I would say most of those restrictions have have sort of dissipate.
Now and I don't we're not seeing anywhere near that high variability from state to state or a region to region that we than we used to see and that's certainly true in the U S.
In Europe , we do see a little bit of a regional impact a little bit more one regional radio perhaps in another region, but it's not anywhere near the extremes that we saw during Covid, where we saw huge swings now they're much more muted now and I would say, we if I look back through history, we've always seen a little variation in Europe from country to country. So.
It feels like it's maybe not normal, but it's getting pretty close to normal I guess I'd say.
Okay Fair enough and then like what they see.
A competitor talking about lower U S growth in mitral and they need to restart their referral network can you talk about what you think the overall macro market grew in the market high market share is looking in any changes to your long term with the growth of that market.
So let me stop here and the Davina you cannot you know some comments you know what we have seen is a nice recovery in Q1 and in Q2 and by Mitel unit market in the U S and even in Europe , because I'm sure you do a JV do you have more precise commentary here to US yeah sure no definitely I think I'll follow up if I say the you know the overall TMT market with both truck.
So in mitral continues to grow very well on a global basis right. You know in that close to that maybe 20% kind of Mark you know globally in the U S. Though just as maybe we were just in mitral. We do see strong growth I think Bernard you were saying something like almost like double digit growth, which is about the ballpark, we kind of see in for for for U S. Micro. So we think it's there but not as strong as it is.
On a global nature do you remember in many countries of the World. These technologies are just coming for the first time in there we're still launching this technology into many many countries. We're in very few countries. There are countries in Europe countries outside of Europe that we haven't even launched into yet. So we continue to see as you launch a new countries that'll help the market grow as well as the continued adoption of of mitral in the.
U S.
Yeah.
Our next question comes from Adam Nadir with Piper Sandler. Please state your question.
Hi, Good afternoon, guys. Thank you for squeezing me in here two <unk> related questions I'll ask them both upfront.
First.
The Alliance study it sounds like Thats going to restart enrollment this quarter can you just talk about the effects of our improvements to get safety and explore back in the clinic and remind us where we are in terms of enrollment with that study.
And then the second question is just a clarification on <unk> III ultra resilience.
I know youre watching that obviously here in the states I think thats approved in Japan, and launching what is the status of that.
Of that technology in Europe .
Thanks for taking the questions.
Sure. Thanks.
Well in terms of the changes we made to export they were all delivery system related so there weren't any changes made to the valve or anything along those lines, which is why we were able to make the changes pretty quickly and get back in the clinic and so we're really pleased where we are and we were all approved to begin enrollment now all of the centers have to go back in and you know.
Go back to your diabetes and whatnot, but we have a number of centers that are there already green light and ready to go. So we expect to begin enrollment again very very shortly and I'm you know I'm not ready to give an update on enrollment are much probably like like progress, we'll probably do that at the Investor Conference. Once we have a little bit more of a run because it's not really about where we are projecting where are we.
We're going to finish and so I'd, rather give you a more fulsome answer on that a little bit later.
<unk> you are.
We're working with European regulators on that I remember theres been a huge change in the regulations in Europe to the MPR process.
And there's also just a huge bottleneck in terms of the number of devices that are working their way through the system. There. So we don't have any timing on that frankly, all the notified bodies are sort of learning about how the new regulations play and as are all the sponsors. So we don't have any timing on that yet, but we do have an approved in Japan and that launch is well underway. We do have an approved in the U S.
That's underway and in both of those markets, we expect that to be the majority platform as we exit the year.
Thank you.
And ladies and gentlemen, we have now reached the end of the question and answer session. I will now turn the call over to Bernard <unk> for closing remarks.
Thanks, Diego So let me close this meeting by saying I am excited about our performance so far in 2020 free and confident you know outlook for the rest of the year.
In addition, beyond the numbers I am pleased with our progress on pipeline development clinical trial and confident in our long term strategy to help even more patients.
In Q4, you'll continue with in pricing at all Mark or do you feel Scott Tonight, when it come any additional questions by phone.
Thank you.
That concludes today's conference all parties may disconnect have a good evening.