David K. Erickson - Edwards Lifesciences Corp. Michael A. Mussallem - Edwards Lifesciences Corp. Scott B. Ullem - Edwards Lifesciences Corp..

Larry Biegelsen - Wells Fargo Securities LLC Michael Weinstein - JPMorgan Securities LLC Robert Hopkins - Bank of America Merrill Lynch Jason Richard Mills - Canaccord Genuity, Inc. Chris Pasquale - Guggenheim Securities LLC David Ryan Lewis - Morgan Stanley & Co. LLC Matthew Miksic - UBS Securities LLC Raj Denhoy - Jefferies LLC Bruce M.

Nudell - SunTrust Robinson Humphrey, Inc. Glenn John Novarro - RBC Capital Markets LLC Joanne Karen Wuensch - BMO Capital Markets (United States) Vijay Kumar - Evercore Group LLC Suraj Kalia - Northland Securities, Inc. John T. Gillings - JMP Securities LLC Matthew Taylor - Barclays Capital, Inc..

Greetings, and welcome to the Edwards Lifesciences' First Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, David Erickson, VP of Investor Relations. Thank you. Please begin..

Welcome, and thank you for joining us today. Just after the close of regular trading, we released our first quarter 2017 financial results. During today's call, we'll discuss the results included in the press release and accompanying financial schedules, and then use the remaining time for Q&A.

Our presenters on today's call are Mike Mussallem, Chairman and CEO; and Scott Ullem, CFO. Before we begin, I'd like to remind you that during today's call, we 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 current expectations for new product approvals, clinical and regulatory milestones, reimbursement and competitive matters, as well as trends in therapy adoption and foreign currency movements.

These statements speak only as of the date in which they are made, and we do 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 our press release, our 2016 Annual Report on Form 10-K and our other SEC filings, all of which are available on our website at edwards.com.

Also, a quick reminder that when we use the terms underlying and adjusted, we are referring to non-GAAP financial measures. Otherwise, we are referring to our GAAP results. Additional information about our use of non-GAAP measures is included in today's press release and on our website. And now, I'll turn the call over to Mike Mussallem.

Mike?.

Thank you, David. We're pleased to report strong first quarter results, which continued the trend of exceptional growth for Edwards at both the top and bottom lines. In the quarter, we are also pleased with our progress on key R&D milestones as we pursue innovative solutions for the patients we serve.

Robust demand for TAVR therapy resulted in strong total sales growth of 19% on an underlying basis. It also excludes a net estimated $62 million of Germany stocking sales.

Customers in Germany elected to purchase additional inventory of SAPIEN 3 in anticipation of a potential supply interruption resulting from recent intellectual property litigation in that country.

Independent of the Germany stocking sales, we delivered results above our expectations which reflected strength in all three of our product lines across all regions. In transcatheter heart valves, adjusted global sales, excluding the Germany stocking sales, were $477 million, up 32% on an underlying basis over the prior year.

Growth was led by continued strong therapy adoption across all geographies. Globally, our average selling prices remained stable. In the U.S., Transcatheter Heart Valve Therapy sales for the quarter were $299 million, representing 39% growth on an underlying basis versus the prior year.

Therapy adoption this quarter was strong with continued increases in procedures across more than 500 hospitals. This trend continues to be driven by the extraordinary performance of SAPIEN 3 and the growing body of evidence that supports excellent patient outcomes and faster recovery.

Growth was broadly distributed across established high implanting centers as well as more recently added hospitals. We believe overall U.S. procedure growth this quarter was consistent with our growth. Outside the U.S. excluding the impact of the Germany stocking sales, the underlying growth rate was 21%.

We continue to be encouraged by the strong international adoption of TAVR, particularly where overall therapy penetration is still very low. In Europe, Edwards' underlying unit growth in the first quarter was in line with the overall procedure growth which we estimate was in the mid-teens compared to last year.

Consistent with previous quarters, growth in European countries with lower TAVR adoption rates continued to outpace countries where the therapy is more established. In the quarter, our business in France recovered faster than expected following our reduced shipments late last year.

We estimate that newer competitors continue to represent approximately mid-teens percentage of total procedures in Europe. We believe our results reflected little benefit from a competitor's product recall during the quarter and that others are likely to be the primary beneficiaries.

In the UK, we're very pleased to see that the reimbursement authority, NICE, proposed draft treatment guidelines recommending TAVR for a broader group of patients. These recommendations are expected to be considered and finalized later this year.

Following the introduction of SAPIEN 3 in Japan, we continued to see strong TAVR therapy adoption with more than 100 sites now performing procedures and new centers being qualified. We believe that most of the treatment in Japan today is centered on patients at high surgical risk.

Turning to our near term product pipeline, we continue to expect our new ultra system including an on-balloon delivery system and next-generation sheath technology will be available in Europe in the second half of 2017. Clinical trial results on our CENTERA system will be presented at EuroPCR next month and we expect to launch later this year.

After a slow start last year, enrollment is increasing in our PARTNER III low-risk trial and our goal is to have this randomized trial fully enrolled around year-end. We're currently engaged in the contracting process on our EARLY-TAVR trial and the first patients are being screened.

This groundbreaking trial is the first of its kind to study severe aortic stenosis patients without diagnosed symptoms, and therefore it's difficult to estimate enrollment timing. Turning to patent litigation.

In the quarter, the German courts ruled that both Edwards and Boston Scientific infringed each other's patents, and each company has the ability to assert an injunction although neither has done so.

As a reminder, they initiated litigation that now involves multiple patents in multiple countries, which is likely to yield numerous court actions over an extended period of time. Our guidance anticipates no disruption to the supply of SAPEIN 3 valves to patients.

In summary, as a result of the strong start to 2017, we now expect full year THV sales to be at the high end of our previously estimated 15% to 20% underlying growth rate. This full year guidance excludes the impact of the Germany stocking sales.

Turning to Surgical Heart Valve Therapy, sales for the first quarter of $200 million was up about 3% on an underlying basis compared to last year.

This was driven by strong demand of our EDWARDS INTUITY Elite valve system and the supply recovery in mitral valve sales partially offset by the continuing shift from our surgical aortic values to SAPIEN 3. Globally, our average selling price was flat.

We're really very pleased with the stronger-than-expected adoption in the quarter of our INTUITY value system in the U.S. This higher value offering is offsetting the TAVR impact on our surgical valve portfolio. We remain disciplined in our pricing strategy and are optimistic about this innovative platform and its ability to help even more patients.

A recent study published in the Journal of Comparative Effectiveness Research compared the economic outcomes of INTUITY Elite valve system versus conventional full sternotomy aortic valve replacements. They found that INTUITY procedures had a lower overall length of stay, cross-clamp time and OR time which resulted in a lower cost.

The analysis also showed lower instances of 30-day mortality, stroke and re-operation all of which are very encouraging signs.

In our surgical micro valves, sales growth was enhanced by the now largely completed recovery from the supply interruption we experienced in mid-2016 and we remain on track to begin launching our INSPIRIS RESILIA aortic valve in Europe and Japan later this year.

In summary, as a result of the strong first-quarter results in surgical heart valves, we now expect sales to be at the high end of our previously estimated underlying sales growth rate of 1% to 3%. In the Critical Care product group, sales for the quarter were $145 million and grew at nearly a 9% underlying growth rate.

Strong performance was driven by double-digit growth in our Enhanced Surgical Recovery Program, growth across all product categories and a first quarter lift from an approximate $5 million U.S. bulk order. Our next-generation advanced monitoring platform, HemoSphere, just recently received U.S. regulatory clearance.

A global commercial rollout of this platform will be commencing in the second half of the year. This all-in-one system will provide greater clarity on a patient's hemodynamic status to enable clinicians to make timely, potentially lifesaving decisions.

HemoSphere is modular in design and we plan to add Enhanced Surgical Recovery capabilities in the future. And later this year, we plan to begin launching our Acumen HPI software suite with our new FloTrac IQ Smart Disposable. This is a low blood pressure or hypotension probability indicator to warn physicians in advance of this dangerous condition.

We plan a full launch in the U.S. and Europe in 2018. In summary, as a result of our strong first-quarter results in Critical Care, we now expect full-year sales to be at the high end of our previously estimated underlying sales growth rate of 5% to 7%.

We continue to be encouraged by the opportunity to treat mitral and tricuspid patients with transcatheter therapies that have seen good momentum toward key strategic milestones during the first quarter. During the quarter, we acquired Valtech.

And while it had minimal sales impact, we're pleased with the physician interest in our Cardioband transcatheter mitral valve repair device and believe that transcatheter repair of the annulus will be an important option for many patients.

We are actively engaged in the integration, including building our European field team, simplifying the patient selection protocol and scaling up manufacturing. We are also engaging in product enhancements to improve procedure time and simplicity. And we remain on track in the CE Mark clinical trial using this technology to treat tricuspid patients.

Additionally, we're pleased with the early progress being made treating patients with our FORMA tricuspid therapy. While our experience is early, we continue to receive significant interest from patients in solutions for isolated tricuspid regurgitation. We expect updates on these programs to be discussed at EuroPCR next month.

We're receiving significant positive feedback from clinicians on our PASCAL transcatheter system, a therapy we believe is suitable for a large underserved group of patients only partially addressed by transcatheter mitral repair therapy today.

We continue to anticipate CE Mark enrollment to commence this year and expect an update on the early clinical outcomes in compassionate cases to be presented at EuroPCR next month.

As you know, we paused clinical enrollment in our trials with the Edwards CardiAQ valve for additional testing, which we completed during the first quarter and have resumed patient screening.

In parallel, we completed an in-depth analysis of the patients treated to-date in the program, including a review of patient selection, risk profile and outcomes. Working closely with our clinician partners, we have incorporated those learnings into our patient selection process and future product enhancements.

Based on our current plans, we now expect a CE mark and commercial availability of a more refined system in 2019. We continue to believe CardiAQ with transseptal delivery is a very promising therapy for resolving patients' mitral regurgitation.

In summary, we've seen greater momentum across our emerging portfolio of mitral and tricuspid repair therapies and are very focused on the clinical development of each program. During the quarter, we gained valuable experience through treating more than 50 patients with our repair therapies.

Based on our current progress and expected timelines, we believe that our transcatheter repair therapies offer the potential to address patient needs and generate sales earlier than transcatheter replacement therapy.

Overall, while still early, we believe our aggressive investments in research and development are well placed and offer the potential to help more patients and drive future growth. And now I'll turn the call over to Scott..

Thanks, Mike. We got off to a strong start for the year with sales of $884 million, or $822 million excluding $62 million of net Germany stocking sales. This represents an underlying growth rate of 19%. Our underlying sales and growth rates will continue to exclude this impact.

Adjusted earnings per share in the quarter, which also excluded the impact of Germany stocking, was $0.94, which reflects 32% growth over the last year period. GAAP earnings per share was $1.06. This earnings growth benefited from broad based strong performance in each of our product lines and regions.

I'll now cover the details behind our results, including guidance for the remainder of the year. For the quarter, our gross profit margin was 75.6% compared to 74.1% in the same period last year.

This increase was driven primarily by a more profitable product mix led by growing sales of transcatheter valves, partially offset by the impact from foreign exchange. Germany stocking sales also provided a modest benefit to our gross profit margin.

We continue to expect our full year gross profit rate excluding special items to be between 74% and 76%. First quarter selling, general and administrative expenses increased 8% over the prior year to $230 million or 26% of sales. The increase was driven primarily by sales and marketing expenses relating to transcatheter valves.

The ratio of SG&A as a percentage of sales would have been about 200 basis points higher consistent with our guidance if you excluded the benefit of Germany stocking sales. We continue to expect full year SG&A excluding special items to be between 28% and 29% of sales.

Research and development investments in the quarter increased 26% over the prior year period to $129 million or 14.6% of sales.

This increase was primarily the result of continued investments in our transcatheter aortic and mitral valve programs including the recent acquisition of Valtech and several small purchases of transcatheter valve intellectual property that were expensed as in-process research and development.

As with the selling, general and administrative expense ratio, the research and development ratio would've been approximately 100 basis points higher without the Germany stocking sales. We continue to expect our R&D investments, excluding special items, to be between 16% and 17% of sales for the full-year.

During the first quarter, we recorded $10 million in intellectual property litigation-related expenses, which have been excluded from adjusted earnings per share consistent with our convention. These expenses related primarily to intellectual property litigation in the U.S. and Europe.

Our reported tax rate for the quarter was 21.6%, a small decline from 22% in the prior-year period. This quarter's rate benefited over 300 basis points consistent with our forecast from the new accounting for employee stock-based compensation partially offset by increases associated with country income mix.

This accounting benefit will fluctuate in each reporting period making period comparisons less consistent. We now expect our full-year tax rate, excluding special items, to be between 22% and 23%. Foreign exchange rates negatively impacted first quarter sales by $6 million compared to the prior year.

At current rates, we now estimate an approximate $50 million negative impact to full-year 2017 sales compared to the prior year. This is less than the impact we estimated at our December investor conference, so at current rates our sales from outside the U.S. would make a bigger contribution than we forecasted back in December.

Compared to our February guidance, foreign exchange rates had less than a $0.01 impact on earnings per share in the first quarter. Free cash flow generated during the quarter was $112 million. We define this as cash flow from operating activities of $128 million, less capital spending of $16 million.

During the quarter, we repurchased 4.6 million shares for $437 million to help offset dilution associated with our Valtech acquisition and stock-based incentive compensation. Average shares outstanding during the quarter declined to 216 million.

We have over $500 million for share repurchase available our current authorization and we continue to expect average diluted shares outstanding for the year of $216 million to $218 million.

At the end of the quarter, we had cash, cash equivalents and short-term investments of $918 million, a reduction from last quarter reflecting our acquisition of Valtech and other repurchases. Total debt was about $850 million. Turning to our 2017 guidance.

Given our strong start to the year, we are narrowing our full-year sales guidance to $3.2 billion to $3.4 billion from $3.0 billion to $3.4 billion. This $100 million midpoint raise includes an improvement from foreign exchange. This guidance excludes the impact of Germany stocking sales.

Our sales guidance for each product line remains unchanged, albeit we now expect sales to be higher in the guidance ranges we provided at our conference. Our range for Transcatheter Heart Valve Therapy is $1.7 billion to $2 billion; for Surgical Heart Valve Therapy, $750 million to $790 million; and for critical care, $560 million to $600 million.

With a strong first quarter behind us, we now expect our full-year 2017 adjusted earnings per share to be between $3.43 and $3.55.

For the second quarter 2017, at current foreign exchange rates we project underlying sales to be between $810 million and $850 million and adjusted earnings per share to be between $0.82 and $0.92 excluding the impact of Germany stocking sales.

And finally for full year 2017, we continue to expect free cash flow excluding special items to be in the range of $575 million to $650 million. And with that, I'll hand it back to Mike..

Thanks, Scott. In conclusion, our strong start to 2017 bolsters our confidence in our focused innovation strategy. We believe there are abundant opportunities within our areas of focus to provide meaningful innovations for patients and drive significant organic growth.

Our foundation of leadership, coupled with our robust product pipeline, positions us well for continued long-term success and greater shareholder value. And with that, I'll turn it back over to David..

Thank you, Mike. In order to allow broad participation in the Q&A, we ask that you please limit the number of questions. If you have additional questions, please re-enter the queue and we'll answer as many as we can during the remainder of the hour. Operator, we're ready for questions, please..

Thank you. We will now be conducting a question-and-answer session. And thank you, our first question comes from the line of Larry Biegelsen with Wells Fargo. Please proceed..

Good afternoon, guys. Thanks for taking the questions and congratulations on a strong quarter. Mike, let me start with the intermediate risk ramp in the U.S. and then I have one follow up on CENTERA. So Q1 is the second full quarter for the intermediate risk approval.

Can you talk about how the roll out is going relative to your expectations? And I know ACC was just last month, but have you noticed any early impact from that SURTAVI data? Thanks..

Yeah. It's – as you know, when you start talking about risk profiles it's always difficult to characterize. Overall, we're very pleased with the quarter. It was a little better than our expectations, several things broke our way. I do think there was a positive impact of the SURTAVI trial.

Whenever we see these continued positive outcomes in a robust clinical study like that, I think it does help the overall awareness and therapy adoptions. But for us, we have some positive things break for us in several smaller areas across the quarter..

That's helpful. And then, I wanted to ask about CENTERA since we're going to see the CE Mark data at PCR next month.

Mike, big picture, how are you thinking about CENTERA? And you've talked about the data during – the last few months, you talked positively about what your expectations are for the clinical data, but I think investors want to see you commit to bringing that product to the U.S.

to give them confidence that you're confident in the long-term outlook for that product. So could you give us a little bit more color on how you are thinking about CENTERA? Thanks for taking the questions..

Sure. As I indicated, we continue to expect the CE Mark and to launch this later this year, so that tells you a little bit about how we feel about it. We're looking forward to having that data presented at EuroPCR, and that'll be 30-day data across the European experience. And what we've seen so far, we're excited about it.

We think it has a chance of being a best-in-class, self-expanding TAVR platform. Now having said that, we haven't yet made a decision about the U.S. SAPIEN 3 has been so successful that we really have focused our efforts on indication expansion with the existing device and think that that's more valuable than bringing a second platform right now.

But we'll keep you tuned in as this develops..

Thanks for taking the questions..

Thank you. Our next question comes from the line of Mike Weinstein with JPMorgan. Please proceed..

Thanks. Mike, let me just follow-up quickly on CENTERA, Larry's question.

The data is going to be at PCR that you said will launch later this year, is the launch at PCR or are we really talking sometime later in the year to get any benefit?.

No, we're really talking later in the year and I think most likely fourth quarter..

And what's the gating factor there, manufacturing rent?.

No, the CE Mark itself. We're going to use this data to feed the CE Mark and there's just a lot to do in that regard..

Okay, got it. As you're aware, Mike, there's been a lot of angst in the last couple of quarters about the ups and downs in the U.S. TAVR market, and every time we kind of remind people that this isn't a straight line.

Can you just talk a little bit about what you saw this quarter that might have been incrementally different if at all from the prior two quarters? And then talk about the pace at which you continue to introduce TAVR to some of those centers that are further down the curve that don't have it.

You highlighted again today that you're over 500 centers now in the U.S. Thanks..

Yeah. Thanks, Mike. So let's just start from the top. This has been difficult for us to estimate and especially with a high degree of precision. I'll just remind you, if a valve is approximately $30,000 and there's 500 hospitals, if each hospital had one more or one less procedure per quarter, that's a $15 million swing.

So I told you about the difficulty in nailing this and so here we are with 500 centers in the U.S. So what broke our way were several small things. Foreign exchange helped us, probably it was more than $3 million, we probably had a little faster recovery in France than we anticipated. As you indicated, the new hospitals in the U.S.

actually ramped up a little faster than we thought. We saw this broad base and we used to see almost all of the growth come from the big centers, but the new centers are clearly adding value. That's going to probably increase slowly over time. And then, we probably didn't see the competitive impact yet.

We probably will expect to see it later in the year, but we just didn't feel it in the quarter the way we expected to..

Okay, Mike. I just have one last question. There's been a real interesting change in kind of the long-term dynamic of the TAVR market over the last few months. Your direct flow went out of business, Symetis is getting acquired by Boston.

And so you really have, I think in the beginning, what looks like to be a little bit more concentrated market, particularly as we look out in Europe over the next several years.

Have your thoughts on what it plays out with pricing over the next few years in Europe changed at all?.

You know, we've always believed that this was more of a heart valve market than a stent market. I know people like to draw the analogy to coronary stents.

We saw our pricing in heart valves stay pretty stable, and we think this is likely – although it's highly competitive, this is a big burden on a company to be excellent in Transcatheter Heart Valves and we're going to do everything we can that continue to advance the state-of-the-art such that it's not easy for new players or small players to engage.

So now it's price playing out pretty close to what we thought, we expect it to be more competitive over time, but it's not unexpected..

Understood. Thanks, Mike..

Thank you. Our next question comes from the line of Bob Hopkins with Bank of America. Please, proceed..

Great. Thank you. I appreciate you taking the question and congrats on a great start to the year. First, just a quick one for Scott. On the earnings guidance for the year, the increase that you guys talked about, I just want to confirm that excludes Germany.

And can you just talk about besides the increase and a more conviction on revenue growth, were there any other drivers of the uptick in EPS besides just strong revenue growth?.

So to your first question, Bob, yes, it excludes any impact from stocking activity in Germany. And in terms of EPS, it really largely reflects the strong start to the first quarter. And so that's most of the driver to increasing the range of earnings guidance for the year..

Okay. Yeah, I just wanted to make sure there wasn't anything else in there that we should be aware of. And then for Mike, I was wondering if you could just talk a little bit more about U.S.

TAVR, both from the perspective of this quarter, were there any kind of common themes driving these strong results on, say, better awareness on intermediate risk? So maybe just a little bit more color on the U.S. TAVR number this particular quarter. And then on the pipeline for U.S.

TAVR, I realize – I heard your comments on CENTERA, do you plan on bringing Ultra to the U.S.? And if you don't want to talk about that, maybe just when you're going to provide a little more color on the U.S. pipeline? Thank you..

Sure. So overall, the U.S. – we didn't really get surprised by any of the trends that we see. We're not sure that there was much difference. The year-over-year share growth – or market growth or procedure growth continued to be strong. We thought it was similar to our own growth levels so that tells you you've just got a fast-growing market.

Whether that was stimulated by the SURTAVI results, I don't know, but it's continued to be strong. We look at things sequentially. We sometimes look at procedures per day, and that's had a continued march north and continually improve. But really, nothing unusual.

Pricing very stable, clinical sales were not unusual, and I'm not sure the share position's really changed very much as well. In terms of the pipeline in the U.S., yes, we would intend to bring Ultra to the U.S. We probably intend to bring that in 2018. We haven't laid out any specifics, but you should expect that..

Terrific. Thanks very much..

Thank you. Our next question comes from the line of Jason Mills with Canaccord Genuity. Please proceed..

Thanks, Mike, for taking the question and I echo everyone else, congrats on a great start to the year. Sticking first with U.S. TAVR, and then I want to follow up on mitral, Mike, if I could. You mentioned that enrollment in the low-risk trial is accelerating, you expect to have it fully enrolled by the end of the year.

Could you talk about the contribution from enrollment in that trial in the first quarter feeding into the clinical sales that you did? And also perhaps talk about – however you look at penetration of the market, whether it be relative to the number of hospitals you're in or relative to the indications that you currently are on label for getting reimbursed for, sort of juxtaposed to the number of procedures you think the market is doing, just where you are – and I know with low-risk it expands it quite a little bit, but where you are today would be helpful..

Yeah. So as I mentioned, we got a slow start last year on enrolling that low-risk trial PARTNER III. We didn't have – although we picked up and then the ramp has picked up, it was still less than $5 million in the quarter. And not really much different than a year previous, so it wasn't really a contributor to our growth, if you will.

We said that we're hopeful that we'll get this enrolled by year-end. So we – it counts on the fact that we're going to continue to get a pick-up in those rates, but this is a big trial and we're continuing to track it..

Okay.

And then anything on the penetration side of the question, just the total market opportunity?.

Yeah. You know our feelings about this. We said that there – in our view in the U.S., there are 650,000 patients with severe aortic stenosis and symptoms. and that our treatment rate is under 20%, so we think we have a very long way to go. We're just at the front end of this.

And there's lot of obstacles, a lot of issues for us to overcome and that's our challenge, but that's also our opportunity to drive growth over a long term..

Understood.

On the mitral side, Mike, you gave us some good detail about your pipeline and the product portfolio, and what you expect in terms of clinical outcomes? Has anything changed in your mind with respect to contribution to the revenue model this year from your mitral portfolio? And then you mentioned CardioAQ launch here, hoping for a CE Mark now in 2019 with a refined device.

Is that a transseptal delivery? Just a clarification there would be helpful..

Yeah. Thanks, Jason. We're going to need to let other people have a chance here, too..

Sure..

So first of all in terms of this year, we've only owned this – this is our first quarter owning it and it's too soon for us to update any estimates about what the contribution of Cardioband would be in 2017. More broadly, we've got a lot of progress that we feel good about.

But probably not a lot of sales contribution in 2017 and 2018 from the overall portfolio. In terms of CardiAQ, yes, our intention and we believe that a transseptal device will be important for these patients, and that's what we're putting all of our energy into.

Of course, we may have a transapical delivery system as well, but we think that ideally for these patients to be treated it would be transseptal. And that's what I was referring to when I said that we would hope to have a CE Mark and a launch in 2019..

Thanks. I'll get back in line. Thank you..

Thank you. Our next question comes from the line of Chris Pasquale with Guggenheim. Please proceed..

Thanks. Mike, I also had a couple of questions on the transcatheter mitral program.

First, can you talk a little more about what you learned during your analysis of the CardiAQ data and what changes you think need to made to that product?.

Yeah, sure. So first of all, there is just a lot of learning. We think it's a really promising therapy. This kind of pause probably shouldn't be unexpected at this early stage. The fact of the matter is, it's a really large valve system, it's in a high-pressure environment and these patients generally have very sick ventricles.

So as we gain experience, we've really thought about, we'd need to probably bring a more refined valve system that's likely to have the potential to have an improved safety profile when we bring it. And so there's been a lot of thought about refining the patient selection criteria as well.

So we're really trying to bring an improved system when we bring it..

Okay, thanks. That's helpful. And then second, I thought your comments on repair versus replacement were interesting and really highlight the advantage of the diversified approach you guys have taken to that market. I know you have a foot in both camps.

Can you just elaborate on what's driving your thinking that repair solutions may be ready for primetime first? And you guys actually have a number of different devices, anything right now that you see as a front runner in terms of early contribution?.

Yeah. Right now I'm not sure that I would call out a frontrunner. We'll have more clarity on that as time goes on, but we've been pleased with the current progress. We're hitting our timelines, we're having favorable conversations with regulators and feel like there's momentum.

I mentioned that we had more than 50 patients with our repair therapies that we had experienced with this quarter.

It appears to us that even though they may not be perfectly efficacious that the safety profile associated with these repair technologies is quite good, and that's an encouraging factor and probably the reason that they're likely to have an earlier impact than the replacement technologies..

Great. Thanks..

Thank you. Our next question comes from the line of David Lewis with Morgan Stanley. Please proceed..

Hi. Thanks for taking the question. Mike, just a quick clarification and one question for me.

On Cardioband, it was kind of an immaterial revenue driver frankly to 2017, but you're still comfortable at the $15 million to $20 million or $10 million to $15, the guidance that you've provided in December, does that number still stand or are we incrementally less comfortable with that number?.

No, it still stands. It really was almost a negligible contribution in the first quarter, but it's too soon for us to really offer up a view on how good to feel about the $10 million to $15 million. We'll let you know here when we get one more quarter under our belt..

Okay. Very clear. And then Mike, just you were asked some questions on pricing in the TAVR competitive environment. If we just take the ex-U.S. market for a second and move away from price and think about share, obviously Boston is both – has had some difficulties with the LOTUS Valve System they've acquired from Symetis valve systems.

The net effect you think of those moves in the 2017, 2018 timeframe, how do you think that changes the European share landscape in either certain specific countries like Germany over the balance of the year? Does it get sort of net out (39:26) pretty even or is a potential share opportunity for Edwards or potential opportunity for share degradation?.

Yeah, thanks. What we modeled at the start of the year is that we would probably grow in Europe at a slower rate than the market so we thought that we would cede some market share. There wasn't to one particular valve system, just broadly to an aggressive set of competitors.

We know there is a big difference between competitor's pricing and our pricing, often it can be more than 20% for that matter. So although consolidation might be helpful in the long term, in the near term it's not very clear.

One of the things that I wanted to – that we mentioned on our prepared remarks is that we didn't feel like we benefited from the exit of Boston. And a matter of fact, it's more likely that others would be a beneficiary of it.

And I think in particular, we think that when we speculate on this that the customers there could often be price sensitive and that they might more likely have something that fit inside their budget that comes from one of our competitors..

So just talking about pretty neutral share implications for you based on these recent moves for Europe relative to your prior expectations..

I think it's fair. We still have models that we could have some mild decline, that's what's in our guidance..

Great. Thanks so much, Mike..

Thank you. Our next question comes from the line of Matt Miksic with UBS. Please proceed..

Hi. Thanks for taking our questions. I'll ask two quick ones if I could, try to help you get through the list. So the first just on the trends in the U.S., you're entering the second quarter.

I know you don't give second quarter guidance by geography, but given the difficulty and setting expectations before we get ahead of ourselves hereof, it was a very strong and impressive Q1. I just wanted to get a sense, if you could maybe tick off a few things that we might consider as you put together U.S.

numbers, ups and downs, things that might impact the second quarter? And then I have one follow-up..

Well, I mean, we're pleased with the momentum coming out of Q1. I think in general we've seen a modest increase each quarter in sort of the procedures per day or the procedures per billing day so we expect that to incline, to increase. We know that Easter occurs in the second quarter, didn't occur in the first quarter.

So that could be a factor that affects second quarter. But other than that, I really can't put my finger on anything unusual..

Share loss maybe? I mean, you said you didn't see in the first quarter share impact from competitive U.S. products..

Yeah. No, I think, that's right. That's a good point, Matt. The same thing that we sort of said about Europe, we also assumed about the U.S., is that we would have sales growth. That's probably slightly below the procedure growth across the overall market, and so we thought we would lose some share in the U.S.

and that didn't happened much in the first quarter. That's probably more likely to happen in the rest of the year..

Okay. Then just one on product that we hear a lot of good things about from clinicians, or at least a lot of anticipation around the Ultra delivery system. You talked about bringing that to Europe.

Can you talk at all about your plans potentially for the U.S.?.

Yeah. You know what, we weren't really prepared to discuss that on this call. I think in general it's very likely that we're going to launch it in 2018, but I can't give you more specifics than that, Matt..

That's great. Thank you for the color..

Sure..

Thank you. Our next question comes from the line of Raj Denhoy with Jefferies. Please proceed..

Hi, good afternoon. Wonder if I could just may be ask you about your comments around the U.S. marketing, your expectation for you to continue to grow along with the market.

And I'm curious because we saw the core valve data a month or so ago, and while they did meet their endpoint of non-inferiority, they still shared a relatively high pacemaker rate and one could argue that the SAPIEN 3 data is still sort of best-in-class out there.

And so with that as a context, I guess I'm curious why you wouldn't be perhaps more supportive of the idea that you might be able to take share or at least continue to hold a very strong position in this market going forward?.

Well, you could imagine we're competitive and we believe in SAPIEN 3 and we believe that it's the best product out there and so that's we represent every day. We're also trying to be realistic. We have a very strong share position and we wouldn't be surprised as, for example, as Medtronic launches these larger sizes for them to have some impact..

Okay, that's fair.

And maybe just one clarification on the stocking in Germany, you mentioned you're excluding it from revenue but as we go forward in the next couple of quarters, do you anticipate we'll still see additional stocking revenue in the second quarter? And then as we move to the year, will those stocking sales sort of get consumed in the marketplace? And how do we really – how should we expect you to be reporting these numbers?.

Yeah, thanks. It's going to be a challenge. So the response was varied across the customer base. There's about 80 TAVR centers in Germany and some bought more than others. Our guess is that most of the increase or all of the increase probably already occurred and that there's more likely to be some kind of net decline or net usage as time goes forward.

And you saw that Scott's comments that what we're modeling here, that's likely or it's reasonable to assume that it's washed out by the end of the year, but it's very difficult for us to estimate how that's going to flow. What you're going to see from us though is a report of underlying growth that takes that out.

And so we're going to try and eliminate the impact of those stocking orders so that you can see more or less what same-store sales looks like..

It sounds like it's going to be fun. Thanks..

Thank you. Our next question comes from the line of Bruce Nudell with SunTrust Robinson Humphrey. Please proceed..

Good afternoon. Thanks for taking the question. Mike, just a quick question on the U.S. market and then one for Scott. Just looking at the cadence of product sales ex-royalties for the market last year, first quarter was 308 (46:08), last quarter was something like 377 (46:10). Should we be thinking about just the law of large numbers in the U.S.

where the first quarter was relatively easy compared, progressively got harder over the year or so, thinking about what sort of growth rate.

The first quarter is 40% procedure growth in the U.S., should we be thinking about 30% across the year? And is the growth still as it was namely recruitment of people who just really wanted treated before, or rather is cannibalization of surgery becoming a very big part of the growth?.

So yeah, there are several questions buried in there. So overall, we expect there to be an increase in the usage. So in other words, if we were to reduce it to how many cases are done per day, we think it would go up quarter-after-quarter throughout the year.

Now as you correctly noted, last year this extraordinary growth rate that we enjoyed, the comparisons are going to get much tougher. So the actual growth rate that we reported in the U.S. for the out quarters is going to come down significantly from where it is. But that's all in our guidance.

We feel very comfortable that we're going to have a strong year, that it's a growing market and that's very consistent with our long-term expectations..

I'll just add to that, Bruce, it's Scott, that longer-term we expect this global market to be $5-plus billion. And if you just do the compounded math on that, it gets you to a mid-teens underlying growth rate over time.

The sequential growth rate quarter-to-quarter may jump around a fair bit as we've seen historically based upon seasonality and other factors just relating to therapy adoption..

And so, Scott, my final question is just, they were stocking this quarter you excluded.

And as you work off that stocking, are you going to adjust the reported number upward to account for kind of the destocking of the original stocking?.

Yeah. So we'll show every quarter what the adjusted sales are, which looks through the stocking and the destocking. We'll also obviously show the GAAP results.

And the way we're calculating this is really going center-by-center, tabulating with the help of our field sales personnel what the order trends are and making some assumptions and decisions around inventory turns and how much of this consumption is related to new orders and how much of it is related to destocking.

But we're going to break out both numbers and be very transparent about how we arrived at the tallies..

Thanks so much..

Thank you. Our next question comes from the line of Glenn Novarro with RBC Capital Markets. Please proceed..

Hi. Good afternoon, guys. Thanks for taking my question. Mike, despite LOTUS coming, being posed to the market in Europe, you saw it really wouldn't impact your business and you would still grow slightly below European market rates, but I believe you're still launching CENTERA and that we're going to see that data next month at PCR.

So maybe talk about your plans for CENTERA. And I thought that that would be a product that you can launch into a Boston or Medtronic account and be able to take some shares. So maybe can you help us think about how CENTERA, the strategy behind the launch and what that could do to your European share over time? Thanks..

Yeah. Thanks for that, Glenn. As I try to indicate, it's probably a Q4 launch and frankly in our guidance there's not a lot of impact from CENTERA. It's going to be – it'll be newly launched in 2017 even though we're optimistic about it. We're going to be very thoughtful about that.

We're still working out, what we're going to price CENTERA at, and that probably will be an important factor and sort of nailing down our launch plan. So I don't have a lot of specifics but I can say that we don't have a big bump in the numbers for CENTERA as we stand today..

Okay.

But as we think about going into 2018, does the share, which you're now assuming you'll lose, can share actually pick up a bit from a modeling point of view for 2018 with this valve in the marketplace for you?.

I think we're going to be in better position to address questions like that after we see the data from EuroPCR..

Okay, great. I'll see you in Paris next month. Thanks..

All right, thanks..

Thank you. Our next question comes from the line of Joanne Wuensch with BMO Capital Markets. Please proceed..

Good evening and thank you for taking the question. When the third quarter was reported, everyone expected a much stronger U.S. number, they were disappointed. Fourth quarter, also somewhat disappointed. And now the first quarter is, yay.

How do we think about what may have made the first quarter a yay, and how much of this continues, or should we just sort of be trying to think about quarterly variations and not to get too caught up in any particular quarterly number?.

I hate to say this but I think it's more of the latter, Joanne, that we didn't think that the third quarter was so bad or the fourth quarter was so bad, they're actually pretty impressive growth rates. We were very pleased with what was going on in the U.S. and we continue to be pleased in the first quarter.

Again, on the margin, a few little things that might have helped in the first quarter, but overall, very much within what you would expect as a natural variability. I shared that statistic about just one valve a quarter in each center can swing it $15 million in terms of our results.

So sometimes I think we can be prone to sort of trying to explain trends too much when some of it can be just specific to some – to a given quarter or even a given month. So I think we need to be a little cautious on trying to read too much into any given quarter. We try and look at the long-term trends and we're obviously in this for the long run..

And then leveraging from that, the gross margin obviously benefited from the higher TAVR sales. Can we pull apart that margin number to think about each of the individual components to help us in modeling going forward? Thank you..

Yeah. I mean, we feel good about the gross margin. And as we indicated, one of the things that lift it is the growing TAVR sales. Because TAVR grows faster than the rest of the portfolio, that should have a favorable impact.

Now having said that, we're going to be launching hopefully some transcatheter mitral products over time, and those aren't necessarily going to be very attractive from a cost perspective early on. So it's tough to read too much into it long-term. Overall, I think it's a favorable story but it's tough to be precise about..

Thank you..

Thank you. Our next question comes from the line of Vijay Kumar with Evercore ISI. Please proceed..

Hey, guys. Congratulations on the nice quarter here. Maybe one – first one for Mike, and I have one follow-up on the guidance.

Mike, I think you made some comments on the UK NICE recommendations, right? Is it possible we could have the UK market actually expanding and if some of these changes actually happen?.

Yeah. A matter of fact, when we refer to countries that are growing at a faster growth rate, the UK is one of those that's growing faster than the rest of Europe. Now again, their penetration rate in terms of treatment historically has been lower than other countries, but it's really started to pick up some momentum. So yeah, we are seeing that..

Great. And then just maybe one quick one on the guidance. I just want to make sure, for the guidance increase, that does not assume any benefit from the Boston LOTUS recall, right? And then I think you mentioned something about FX improving, just could you quantify how much was the FX benefit? Thank you..

So yeah, it assumes nothing relating to Boston. In terms of the FX benefit, we had a little bit of a tailwind in Q1 and we're expecting that just round numbers, instead of an $80 million headwind to sales that we expected over 2017 back at our investor conference, we're now thinking it may be in the neighborhood of $50 million.

Obviously, the currency markets have been moving around a lot. Euro has strengthened, yen has weakened so we'll update that number as time goes on. But it would probably be less of a headwind in terms of sales than we originally anticipated.

For earnings per share, no real impact because we've got this foreign exchange hedging program in place that insulates our EPS, at least for the course of 2017..

Thanks, guys..

Thank you. Our next question comes from the line of Suraj Kalia with Northland Securities. Please proceed..

Good afternoon, everyone. Congrats on the quarter. So Mike, specifically, you all mentioned the 500 centers in the U.S. Mike, the rough math that I have done indicates sequentially procedures per day in the U.S. and in Europe took a step up.

When you look at – I guess, can you give us some idea, Mike, how you're all looking at new center adds as the year progresses, any contribution? I know you all mentioned in the past stocking per center. And the reason I ask is, if I exclude the stocking also from Germany, even OUS, procedures per day jumped up pretty nicely, any color would be great.

Thank you for taking my questions..

Yeah. This is something we watch on a long-term basis and we feel like procedures per day has been routinely increasing throughout the course of the past several years. Just to talk a little bit more specifically about U.S. TAVR centers, we mentioned there's more than 500. We probably added more than 10 in Q1.

We expect that number of centers to slowly increase. As a matter of fact, we've been kind of surprised that there's been an addition of these newly qualifying centers. So there is obviously a driving force and they've come up pretty fast and started to contribute to procedure growth. So it's been meaningful..

Thank you..

Thank you. Our next question comes from the line of John Gillings with JMP Securities. Please proceed..

Hey, guys. Thanks for taking the questions..

Sure..

Just wanted to hit quickly on early TAVR. I know it's a little further out, but you mentioned you are starting to screen some patients there. I'm wondering if you can give us just some color on how difficult it is to find patients for this..

We still have to learn about that. As I mentioned, this is a groundbreaking trial, really first of its kind. And even though we're studying severe aortic stenosis patients, these are patients without diagnosed symptoms so it's really tough for us to estimate what enrollment is going to be like.

We know that some centers already have patients that they've identified, but it's not clear how prevalent that is and how it's going to go. So we're going to learn a lot.

We're also going to learn something, that when somebody gets enrolled in the trial, do they drop out? Once they go on the treadmill do they actually demonstrate symptoms which would make them TAVR candidates, but they would step out of the trial, and all that. So it's going to be a steep learning curve for us and we find it difficult to predict..

Okay. And then as a follow-up, you mentioned the potential for people to step out whether it's being put into PARTNER III or something else, and you mentioned it's very early days.

But are you getting any buzz from the sales force? Is this something that doctors are thinking about? Are they starting to say hey, you know what, maybe we should put more people on the treadmill. Just any comments there would be great..

Yeah. I think it's still too new. I wouldn't say that we got any benefit, for example, in Q1. So the screening is just now taking place. The key unknown is that treadmill is in the guidance but we know that there's many physicians that are cautious about putting a patient on a treadmill.

So again, we're going to learn a lot about the practice of medicine and at this point, we just don't have much insight. But again, if the question was really, did we already get the benefit from that, the answer is no..

Yeah, makes sense. Thanks a lot guys and congrats on the quarter..

Okay..

Thank you. Our next question comes from the line of Matt Taylor with Barclays. Please proceed..

Thanks. I just want to clarify, I was curious to get some feedback on the dynamic in Germany. You talked about not assuming any disruption in your guidance, but both parties having the ability to enjoying them.

I was wondering, did your customers go for all the stocking, were they worried about what had happened in the past with an injunction and I guess why you're not assuming any kind of disruption going forward?.

Yeah. So, yeah, I mean, you're right that these customers have been impacted by injunctions of one sort or another in the past so they have that. This was a response by the customers. I mean, they made the choice to buy this additional product to make sure that they had an uninterrupted supply of SAPIEN 3 and we took that as a compliment.

We're very pleased that was done without any special discounts or anything to benefit it. It's tough for us to predict exactly how the dynamics are going to go in Germany, as you know it's not all our decisions, some of it depends on the other party. So I really don't have much else to add..

Okay. And probably the most encouraging thing here was just the uptick in the underlying U.S. utilization, and we talked about this a lot on the call.

It seems like it's hard to pin down one thing, but what were the main factors that you think helped that to improve a little bit sequentially?.

Well, I think the biggest thing for us is just the continued uptick in procedures per day. We got a little bit of lift, the same (01:00:50) from the new centers that were added. We probably would've expected that we would have been impacted by competition more and it didn't really come in the first quarter. That's probably going to come later on.

So those are maybe, some of the key contributing factors..

Okay. Thanks very much..

Sure..

Okay. Well, thank you all very much for your continued interest in Edwards and all of your favorable comments. Scott, David and I are going to welcome any additional questions by telephone..

Thank you, for joining us on today's call. Reconciliations between GAAP and non-GAAP numbers mentioned during this call, which include underlying sales and growth rates and amounts adjusted for special items are included in today's press release and can also be found in the Investor Relations Section of our website at edwards.com.

If you missed any portion of today's call, a telephonic replay will be available for 72 hours. To access this, please dial 877-660-6853 or 201-612-7415 and use conference number 13658919. I'll repeat all of those numbers. 877-660-6853 or 201-612-7415 and the conference number is 13658919.

Additionally, an audio replay will be available on the Investor Relations Section of our website. Thank you very much..

Thank you. This concludes today's conference. And you may disconnect your lines at this time and thank you for your participation..