David Erickson - VP, IR Michael A. Mussallem - Chairman & CEO Scott B. Ullem - Corporate VP and CFO.

Bob Hopkins - Bank of America Merrill Lynch Larry Biegelsen - Wells Fargo David Lewis - Morgan Stanley Michael Weinstein - J.P.

Morgan Isaac Ro - Goldman Sachs Vijay Kumar - Evercore ISI Jason Mills - Canaccord Genuity Joanne Wuensch - BMO Capital Markets Matthew Taylor - Barclays Capital Chris Pasquale - Guggenheim Securities Raj Denhoy - Jefferies Glenn Novarro - RBC Capital Markets Bruce Nudell - SunTrust Robinson Humphrey Margaret Kaczor - William Blair Joshua Jennings - Cowen & Company.

Greetings, and welcome to Edwards Lifesciences Fourth Quarter 2017 Results. At this time, all, participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded.

It is now my pleasure to introduce David Erickson, VP, Investor Relations. Thank you. Please begin..

Welcome, and thank you for joining us today. Just after the close of regular trading, we released our fourth quarter 2017 financial results. During today's call, we'll discuss the results included in the press release and the accompanying financial schedules and then we will 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, benefits and introductions, clinical and regulatory timelines, competitive matters, expectations for therapy adoption and foreign currency fluctuations.

These statements speak only as of the date on 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 safety information about products 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 robust fourth quarter results including double-digit organic revenue growth in each region driven by increased adoption of our therapies.

We ended the quarter strong with total adjusted sales of $909 million representing 16% underlying growth as we did not experience as much of a slowdown as we typically see in the last weeks of the year. Our growth rates strengthened in the fourth quarter contributing to full year 2017 results of 16% underlying growth and over $3.4 billion of sales.

Each of our product lines performed very well as demand for our innovative portfolio exceeded our expectations. Profitability was also strong in 2017 with adjusted EPS growing over 30% even as we continued to invest aggressively in our technology pipeline and infrastructure.

And we continue to bring meaningful therapies to large unmet patient needs and further strengthen our leadership positions. Turning to transcatheter heart valve therapy adjusted global sales were $540 million up 22% on an underlying basis over the prior year including the adjustment for the consumption of stocking inventory in Germany.

Double-digit TAVR sales growth across all regions was driven by continued strong therapy adoption and our average selling price remained stable overall. In the U.S. transcatheter heart valve sales for the quarter were $327 million representing 22% growth versus the prior year. We believe overall U.S. procedure growth was roughly in line with our growth.

These strong results were driven by robust therapy adoption across the more than 575 TAVR centers with particularly strong growth in lower volume hospitals. And our best in class SAPIEN 3 valve continued to provide excellent outcomes including faster patient recovery, enhanced quality of life, and exceptional value to this healthcare system.

We continue to be encouraged by the strong international adoption of TAVR particularly when overall therapy penetration is still relatively low. Outside the U.S. our fourth quarter underlying sales growth rate was 22% with all regions contributing.

Double-digit procedure growth in Europe continued this quarter and our growth was also aided by a recovery from the interruption in fresh sales last year. Growth in countries with lower TAVR adoption rates continued to outpace countries where therapy is more established.

And we continue to see strong TAVR therapy adoption in Japan driven by SAPIEN 3 and new centers continue to become qualified. As our fastest growing region this quarter we believe the aortic stenosis still remains a large undertreated disease in Japan.

Turning to our near-term product pipeline we continue to expect a CE Mark for our SAPIEN 3 Ultra system this quarter. This system features advancements designed to help TAVR heart teams simplify procedures and reduce the risk of complications.

The Ultra system also adds to TAVR outer [ph] on the valve which is designed to further improve its outstanding performance and we continue to expect the U.S. introduction of this system in late 2018. Additionally we expect to receive CE Mark for our CENTERA system this month which we will introduce as a premium self expanding system.

We remain enthused by this feature rich platform and encouraged by its excellent early clinical results and we plan to initiate a U.S. pivotal trial in 2018. As noted in our December Investor Conference we've completed enrolment in the main study of our PARTNER 3 trial for low risk patients with severe aortic stenosis.

We anticipate data from this trial will be presented at ACC 2019 and to receive FDA approval later that year. We are also enrolling our groundbreaking early TAVR trial, the first of its kind to study severe aortic stenosis patients without diagnosed symptoms.

In summary based on our momentum we now expect our 2018 THVT underlying sales growth to be at the higher end of our 11% to 15% range that we shared at our investor conference in December.

Turning to surgical heart valve therapy, sales for the fourth quarter were $205 million that are up 6% on an underlying basis driven by strong unit growth of aortic valves across all regions and share gains driven by new products. Adoption of our INTUITY valve system in the U.S.

has been impressive and aided by the CMS new technology add on payment that went into effect on October 1st. Utilization this quarter increased in centers already using INTUITY as well as new hospitals adopting this rapid deployment valve.

This therapy is becoming a meaningful portion of our surgical portfolio and remains on track to represent approximately 25% of global aortic sales in 2018. Interests in our INSPIRIS RESILIA aortic valve in Europe is increasing as it offers an attractive option for active patients.

The INSPIRIS valve features our latest RESILIA tissue and our VFit feature designed to accommodate future TAVR. Last month we began the U.S. launch and continue to expect to introduce a new class of resilient tissue valves in Japan this year pending reimbursement approval.

We're pleased to announce that we recently received CE Mark for Harpoon, our recently acquired beating heart mitral valve repair system. We are currently focused on integration activities and expect a midyear 2018 launch in Europe.

While we are enthused by this innovative therapy to treat degenerative mitral regurgitation we expect sales to ramp slowly as we focus on achieving a high procedural success rate. In summary in surgical heart valve therapy we continue to expect a full year 2018 underlying sales growth rate of 2% to 4%.

In critical care sales for the quarter $164 million and grew 11% on an underlying basis. This performance was driven by strong growth across the product portfolio and most notably in the U.S. where hospitals utilized their year-end capital budgets. Growth was also aided by Asia Pacific which grew in double-digits on a smaller base.

During the fourth quarter expansion into the global enhanced surgical recovery opportunity continued aided by our non-invasive clear sight solution primarily in the U.S. and China. As hospitals continued to adopt ESR to improve patient outcomes we expect this program to be a significant growth driver in critical care over the longer-term.

We're also pleased to expand the launch of HemoSphere our next generation advanced monitoring platform which is expected to be an important growth driver in 2018 and beyond. HemoSphere is designed to provide greater clarity on a patients hemodynamic status to enable clinicians to make timely, potentially lifesaving decisions.

In summary we continued to expect full year 2018 underlying sales growth in critical care of 6% to 8%. Turning to transcatheter mitral and tricuspid therapies we remain enthusiastic about the opportunities in our transcatheter therapies to treat patients suffering from tricuspid and mitral disease.

We have estimated this to be a $3 billion plus opportunity by 2025. Today I will cover some select updates. Beginning with transcatheter mitral repair, during the quarter we continued the enrolment of U.S. patients in the active trial for cardio band in the mitral position.

We will remind you we already have CE Mark for this product in Europe and in the fourth quarter we recorded in THVT approximately $1 million in commercial sales. In the fourth quarter we prioritized supply to our clinical trials and began integrating the Cardioband supply chain into the Edwards quality system.

We expect sales to continue at a modest level in Q1 and ramp to approximately $15 million for the full year 2018. We believe that the annual reduction provided by Cardioband can be an important first line therapy for many mitral patients.

We expect to complete enrolment this year of the class CE Mark trial for our PASCAL transcatheter mitral repair program and we're on track to initiate our PASCAL U.S. trial in 2018. We're encouraged by our early clinical experience and our European launch remains planned for 2019.

In mitral valve replacement we're strong believers in our transseptal strategy. We're making good clinical progress with both our Edwards CardiAQ and SAPIEN M3 replacement platforms that are being implanted percutaneously and we're encouraged by our learnings and the cadence of early feasibility cases.

In our tricuspid repair therapies we're pleased to report that we have received approval to begin our Cardioband tricuspid U.S. early feasibility study and we're working to activate centers in the first half of 2018. Our CE Mark trial continued to enroll and we remain on track to begin an introduction by the end of this year.

Overall we remain optimistic about our portfolio of transcatheter mitral and tricuspid offerings and achieving our significant clinical milestones in 2018. And we continue to aggressively invest to realize our goal of it launching at least one new therapy per year.

Before I turn the call over to Scott I'll remind you that in the fourth quarter we received $113 million from our successful Neovasc litigation regarding theft of trade secrets. At the same time we made a $25 million contribution to the Edwards Lifesciences Foundation whose mission is to support health and community focused charitable organizations.

And now I'll turn the call over to Scott. .

Thanks Mike. I am pleased to report that our strong finish to the year enabled us to exceed our sales, earnings, and free cash flow targets for 2017. For the full year sales increased 16% on an underlying basis to $3.4 billion, adjusted earnings per share includes 31% to $3.80 and we generated $695 million of adjusted free cash flow.

Turning to the fourth quarter our strong sales performance in transcatheter valves drove significant top and bottom line growth versus the prior year. Underlying sales grew 16% and adjusted earnings per share grew 25% to $0.94.

GAAP earnings per share was $0.17 driven by several onetime adjustments including a non-cash charge of $211 million or $0.98 per share related primarily to the enactment of the new U.S. tax law partially offset by a gain from litigation Mike mentioned.

A full reconciliation between our GAAP and adjusted earnings per share is included with today's release and I'll provide further details on the impact of tax reform a bit later. I'll now cover the details of our results and then discuss guidance for 2018.

For the fourth quarter our gross profit margin was 73.5% compared to 72.2% in the same period last year. This improvement primarily reflects a benefit of a more profitable product mix led by growing sales of TAVR partially offset by expenses associated with the planned closure of our manufacturing plant in Switzerland which was announced last year.

We continue to expect our 2018 gross profit margin excluding special items to be between 74% and 76%. Our rate should be lifted by an improved product mix but tempered by capacity investments. Selling, general, and administrative expenses in the fourth quarter were $267 million or 30% of sales compared to $234 million in the prior year.

This increase was driven by personnel related and performance based compensation expenses and a strengthening of the euro against the dollar. We continue to expect SG&A excluding special items to be between 28% and 29% of sales for the full year 2018 which includes the continued suspension of the medical device excise tax until 2020.

Research and development investments in the quarter grew 28% to $147 million or 16.5% of sales. This increase was primarily the result of continued investments in our transcatheter structural heart programs including spending on clinical trials. For the full year 2018 we continued to expect R&D as a percentage of sales to be between 16% and 17%.

Turning to taxes, our high reported tax rate for the fourth quarter was driven by a $211 million expense related primarily to the implementation of U.S. tax law changes. The expanse is comprised of $289 million of tax on unremitted foreign earnings which is payable over the next eight years.

This amount is offset by $65 million related to adjustments of tax accounts arising from a lower U.S. corporate tax rate and a $13 million discrete benefit from a tax audit settlement. Excluding the impact of tax reform and other special items, our tax rate would have been 21.3%.

This rate includes an approximate 200 basis benefits from the new accounting for employee stock based compensation consistent with our guidance. Starting in 2018 the benefit of our lower U.S. tax rate will be partially offset by a higher foreign minimum tax and other items.

We expect the net impact from tax reform to lower our effective tax rate in 2018 by approximately 300 basis points. We now expect our 2018 tax rate excluding special items to be between 15% and 18% which includes an estimated 2% to 3% point benefit from employee stock based compensation accounting rules implemented in 2017.

Foreign exchange rates increased fourth quarter sales by approximately 2% compared to the prior year. Compared to our October guidance FX rates positively impacted earnings per share by less than a penny. Adjusted free cash flow for the quarter was $174 million.

We define this as cash flow from operating activities of $364 million, less capital spending of $77 million, and excluding the receipt of the $113 million litigation payment mentioned earlier. For the full year 2017 adjusted free cash flow was $695 million.

Turning to our balance sheet, at the end of the quarter we had cash, cash equivalents, and short-term investments of $1.3 billion, the majority of which is held outside the United States. Total debt was approximately $1 billion. In November 2017 we entered into an accelerated share purchase agreement for $150 million.

In total we repurchased 2.3 million shares during the quarter for $251 million. As a result of these repurchases average shares outstanding during the quarter declined to $215 million. We continue to expect average diluted shares outstanding for 2018 to be between $213 million and $215 million. And I'll finish up with our 2018 guidance.

Given our strong fourth quarter momentum combined with the strengthening of the euro at current exchange rates we now expect to be at the higher end of all of our 2018 full year sales guidance ranges communicated at investor conference in New York in December. Those ranges are $2.1 billion to $2.4 billion for transcatheter heart valve therapy.

For surgical heart valve therapy, %810 million to $850 million and for critical care $610 million to $650 million, for total Edwards $3.5 billion to $3.9 billion. The full year 2018 adjusted earnings per share we expect to between $4.43 and $4.63 up from $4.10 to $4.30 driven by a lower projected tax rate and higher projected operating performance.

This includes the investment of a significant portion of the tax savings to accelerate growth initiatives consistent with our strategy. Lastly, we now expect full year 2018 free cash flow to be at the higher end of the $700 million to $775 million range that we shared at our investor conference in December.

For the first quarter of 2018 we project total sales to be between $900 million and $950 million and adjusted earnings per share of $1.04 to $1.14 and with that I will hand it back to Mike. .

Thanks Scott. Our strong 2017 reinforces our confidence on our focused innovation strategy and our longer-term outlook and we look forward to an exciting 2018 as we continue to aggressively invest in our future.

We expect to achieve a number of important milestone supporting progress in the development of transformative therapies across all of our product lines.

Our differentiated strategy continues to benefit patients and serve us well as we plan for future growth and value creation and we're focused on staying at the forefront by creating strong evidence for promising new therapies for patients we serve in the many years to come. And with that I'll turn it back over to David. .

Thank you Mike. We are ready to take questions now. In order to allow broad participation we ask that you please limit the number of questions. If you have additional questions please reenter the queue and we'll answer as many as we can during the remainder of the call. Operator please go ahead. .

[Operator Instructions]. And thank you. Our first question comes from the line of Bob Hopkins with Bank of America. Please proceed. .

Great, thanks very much for taking the questions and congratulations on such a stronger strong finish to the year. The first question I wanted to ask about was really the TAVR performance in the quarter because obviously it was stronger than I think most everybody was looking for and so maybe I will focus the question on the U.S. performance.

Can you just talk about what went on in the quarter in terms of both your performance in the market and really in your minds what drove the outperformance in the quarter, how broad based was it, how sustainable is it, thank you?.

Yeah, thanks Bob. The key driver was therapy adoption. Therapy adoption in the U.S. continues through rapid. We estimated it was somewhat consistent with our own growth so therefore it got over 20%.

What was a little different, the other think that I had mentioned in our comments here is the procedures sort of grew broadly across the network but particularly strength in lower volume centers. And so we take that to mean places where there may be a just a lower adoption rate around the U.S.

It seemed to grow faster and then we also didn't see the typical seasonal falloff that we see as well. And so that combination of effects was very meaningful and we were very pleased to see it..

The other thing I wanted to ask about was the pipeline because you had some really strong positive updates in your prepared remarks so I was wondering if you could just talk a little bit about the upcoming CENTERA launch in Europe, how broad it will be, and how you plan on positioning the valve, and then also if you wouldn’t mind talking about Ultra and giving us a sense for the features of that because I think that maybe a product that people don't have as good enough appreciation for it?.

Yes so, let me start with CENTERA. As you mentioned that we expect to receive that CE Mark this month and we're really looking forward to launching that. We're going to introduce it as a premium self expanding system. We're very enthused about it. It is feature rich and the early results are terrific with it.

The label is still not clear and it's going to be probably a little different by country but we're pleased to be able to launch out and then we expect to bring that to the U.S. later on this year and then begin a trial, an IBE trial later at that time.

Ultra, again we're expecting a CE Mark this quarter and it has a lot of advanced features and particularly we think it's going to help simplify these procedures and reduce the risk of complications and this [indiscernible] is not to be underestimated as well.

We are so pleased with the performance of SAPIEN 3 already we think Ultra has a chance to even take it to the next level..

Thanks very much..

Thank you. Our next question comes from the line of Larry Biegelsen with Wells Fargo. Please proceed. .

Good afternoon. Thanks for taking the question. Scott, at the Analyst Meeting you expected sales growth to ramp through 2018. Is that still the case and could you remind us why that's the case? Thank you. .

So originally we did expect sales growth to ramp during the quarters in 2018, now just given the momentum we had coming out of year-end we think that that's probably going to be more consistent growth between quarters during the year..

Okay, that's helpful. And then on the tax rate Scott, the 15% to 18% relatively wide range, could you talk a little bit about what would get you to the high end and low end on that? Thanks for taking the questions guys and congrats on the quarter..

Sure, thanks as you know there are still guidance coming out from Treasury and the IRS and the ICPA is asking questions and so there are some uncertainty. We also have the excess tax benefit that could cause fluctuations within the 15% to 18% range but as you know typically I will guide people to the middle of that range for modeling purposes. .

Thanks for taking the questions guys..

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

Good afternoon. I wanted to talk about a couple of the big debates during the Analyst Day if I could and Mike maybe one for you and one for you Scott.

So Mike I know you talked about the quarter already but as I think about the guide the real focus for investors in Analyst Day was your expectations for market growth seemed more Draconian than I think people were expecting.

I think you are obviously taking Q3 guidance to the high end of the range, so relative to your view at Analyst Day Are you clearly feeling better about the market this year so, my real question is that high end of the THVT range do you feel better about the market in 2018 or better about your relative share?.

So, I think if there is anything changed its really our view of how fast adoption will be for the market the way you say it. That's the change. Naturally as this gets large we naturally assumed it would slow down more and we saw some pretty robust growth in the fourth quarter. We're very pleased by that.

We don’t think there is going to be much of a story in terms of our market share in 2018. In 2018 we think that's going to be our relatively flat story so, I don’t know if that gets at your question. .

Thanks, it is perfect Mike. And I think Scott the second question I think margins broadly, I think people left feeling there is more room to go on the margins.

The key tree is moving higher, GMs are not so could you talk about some of those capacity investments and where they're going and sales are going higher yet relative margins are not so there is some reinvestment as you mentioned which I think most investors would support.

But where are some of those dollars going that are keeping these margins relatively stable in light of the fact that the revenue is growing faster early on the year? Thanks so much..

Sure, and we are expecting more leverage than we did at the investor conference largely because now we've got better top line growth expectations now. In terms of investments a lot of our investments are going into facilities and expanding our capacity both in the U.S. and outside of the U.S.

And so we have got pressure on gross margin, headwinds on the gross margin from that perspective. But THV is our highest margin business and we are expecting higher growth now that helps our overall margin performance and leverage to the P&L..

Thank you. Our next question will come from the line of Mike Weinstein with J.P. Morgan. Please proceed. .

Thanks for taking the questions. So I just wanted to clarify the guidance update in a couple of different ways. So, you have moved your revenue guidance to the higher end of the range but the overall reported range is not as the dollars moved.

So can you share with us on an underlying basis how your guidance's change is underlying in the remaining constant currency and then just on the FX question, so FX getting more favorable into initial guidance, how much is that adding to your 2018 EPS outlook relative to what you are assuming at the time of initial guidance? Thanks. .

Sure, so as we are moving our sales expectations higher in the ranges that we provided earlier about half of that is driven by FX and half of that is driven by operating performance mostly from THV.

And so we are expecting sales results in the higher end of the dollar ranges for all three businesses and at the higher end of the underlying growth rate range for THV but still right in the middle of the underlying growth rate ranges for HVT and critical care because more of their businesses are outside of the U.S..

Okay, just to clarify so it needed to be -- you are looking at 18% what you call underlying which is constant currency and for the other two you are still in the middle of the underlying range?.

So, higher end of that 11% to 15% range for THV and right in the middle of 2% to 4% range for HVT and 6% to 8% range for critical care..

And Scott the EPS swing from FX?.

Yes, so EPS has a number of different contributing factors and if you just isolated FX then it would be reflected by that increase in the non-FX related earnings growth in THV. So in other words about half of the sales increase is FX, the other half is actual underlying performance.

And that underlying performance would largely drop through to the bottom line. But there are a lot of other contributing factors as a result of the tax legislation and the incremental investments that we're planning to make with some of the proceeds from those tax benefits..

Yeah, I understand that the tax should be about $0.20 or there about and you reinvesting some of that but I was asking typically to FX, you don’t know what that EPS contribution is relative to the initial guide?.

Yeah, FX specifically is about $0.03. .

Okay, perfect.

And last one I will drop, just to clarify Mike you said the class trial you expected from premium enrollment in 2018 and I think in clinical trial we had at that it was supposed to complete the follow-up in 2018, just want to clarify the expense?.

Yes, we do expect to complete the class trial in -- complete enrolment in 2018 and we have continued to expect the European launch in 2019. Does that answer your question..

Yes, but we won't see the date in 2018?.

I don't know, Mike I suppose that's possible but the odds are that it will go into 2019, that's what I would count on..

Okay, congrats on the quarter Mike. .

Thank you..

Thank you. Our next question comes from the line of Isaac Ro with Goldman Sachs. Please proceed. .

Hi, good afternoon guys, thank you. Question on your comments around the updated guidance, Mike I think you said that the adoption of therapy has been going a little faster than expected.

Well there are handful of events or it seems as you move across the customer base that really drove that increased adoption that you can point to, is there an initiatives with sales, something that effected you guys were able to execute upon in the quarter that allowed you to take a more bullish view?.

Yeah, you know it was funny -- it was quite broad based. So we probably exceeded expectations in every region around the world. So we saw very strong performance out Europe, very strong performance out of Japan, and the U.S. as well and even O.U.S. in places where adoption is very low we saw a contribution.

We are making an investment as we mentioned in the past to help with awareness of the disease. And we believe that that is starting to have some kind of impact whether it had a little bit lift to the growth rate, I think our team thinks so but that's difficult to measure at this point.

But we are investing some energy and helping identify patients and position communication and trying to facilitate the pathway for patients. And do a little bit work direct to patient and direct to referral around the world.

And so that may be making a small contribution but I think it's more that we just have an outstanding procedure here where we are getting just great results and you have patients and physicians gravitating toward it..

Okay, that's helpful.

And then just as a follow-up to the extent that the rest of the year you are obviously working on all those fronts on an ongoing basis, how much do you need the low risk market to play into to achieve the high end of your range, is that something that sort of is in the cards or is it still early for low risk to move the needle this year?.

Yeah, I can tell you, in our guidance we haven’t projected any contribution from low risk. We continue to think that it is an intermediate risk to patient again with severe aortic stenosis, so low risk we would think there would be some kind of impact beginning in 2019.

The results of that PARTNER III trial which will powerful, we expect to be available at ACC in 2019 and then the approval come right around that year, so no I would think that you wouldn’t really see low risk impacts in 2018..

Got it, thank you guys. .

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

Hey guys, thanks for taking my question, and congratulation on a nice quarter here. So Mike you mentioned the -- just some thoughts around the U.S.

TAVR performance rate, I am just trying to tie a couple of comments you made, so one, we have seen that number move quite a bit and I think you guys have gone to great length in explaining don’t look at quarterly numbers it moves quite a bit, but then now we have you guys raising guidance towards the high end and I think the other comment was you saw adoption in low volume centers, is this something that we have seen in the past, is that what gives you the confidence here on TAVR, any color I think would be helpful?.

Yeah, you correctly observed that we've been trying to indicate it is difficult for us to be exact in terms of predicting our volume on a quarter-to-quarter basis and it continues to be lumpy. So that's just what it is, but maybe the more important point is the second point that you raise which is what's going on in these lower volume centers.

You know part of our theory is remember our belief is maybe only one out of five patients with severe aortic stenosis in the United States actually gets treated. And that if there isn’t a center that was actually doing therapy and let's say these large centers they've been at it for a while.

They maybe in the PARTNER trial and then we actually got approval in 2011 so they've been minding their referral base for a while. But new centers we think there may be a referral base there that the physicians and patients are hearing about for the first time.

And that maybe stimulating it and we just don’t find that patients flow to centers of excellence like you might imagine. So, new centers opening and center starting to develop their referral base seems to really make a difference. .

Yeah, that's helpful Mike.

And then maybe one for Scott on the EPS guidance So, if I had to look at the high-end of the EPS guidance range Scott I was curious, you are saying taxes being completely -- mostly reinvested in the business right, so which would imply for us to get to the high end of the EPS we are expecting margin expansion year-on-year, is it all tied to volume based leverage and our revenues coming in better or is there something going on from a mix perspective, thank you?.

Sure, so for EPS it's not the higher end rapid change in the range and it is going up from the midpoint of the prior range about $0.33.

And I know it is all precise but just to break it down in basic terms, if you were to isolate higher sales expectations and to lower tax rates from the tax legislation both would contribute about equally to that higher range..

Thank you guys. .

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

Thank you guys for taking the question. As you see in a question.

Mike, first on the broader TAVR market, I guess a multipart question, ultimately the growth at the rates that you are now projecting would you put you sort of at that 5 billion rate, that range that you projected over the longer-term maybe a year earlier, could you talk about your long-term projections for the TAVR business and whether or not the -- what you have been informed by with respect to therapy adoption including some of the volume centers and also maybe commenting on that reduction in length to stay which are checked continued to come back positively on that front, how that informs your long-term thinking about this market?.

Yeah, thanks Jason. You know what we had a great fourth quarter, we had a great year. That really doesn't change our long-term outlook. We continue to feel very good about the idea that this will be more than $5 billion opportunity by 2021 and we will grow in the mid teens.

I know we had a quarter here where it was over 20 but we really try and look at this on a longer-term basis and realize that there's going to be some ups and downs probably along the way. So I'm not trying to signal that but it certainly builds our confidence that these are solid estimates that we believe in.

Separately you are right about length of state coming down. We find it remarkable the kind of success that we're seeing in the marketplace. Clinicians continue to do procedures very efficiently and length of state has been averaging maybe around three days. It is beginning to decline.

There was a study at TCT that showed that they could have outstanding results in just one and two day length of stays. And so I thinks that's a momentum that is building, that doesn't consume so much capacity in hospitals and also has very favorable health economics for them.

So we think that's a nice tail wind if you behind this but I didn't try to indicate here that we're necessarily going to get to those goals sooner. We'll keep an eye on that but really no change at this point..

Thanks, it certainly doesn’t seem like it is going to take longer to get to those goals I guess was my point. But just maybe on a more specific question on CENTERA, can you talk a little bit more about how you are positioned.

I have to assume obviously that you expect it to augment your overall franchise instead of cannibalize but I suppose there maybe some cannibalization within some regions or some hospitals through SAPIEN 3, but maybe a higher price you are positioning at a premium product, I guess two questions, is it premium to SAPIEN 3 from an ASP standpoint and then generally speaking the expected to be share accretive as well? And thanks for taking the question.

.

Yeah, thanks, so they were primarily going to bring this to those clinicians that are already using self expanding systems and we're going to go there with a simple argument to say we believe that this is the best in class self expanding system. There are some external data and it is a feature rich platform.

If they like what they are using now we think they are really going to like CENTERA. Now of course people that are using SAPIEN 3 for the most part they're very happy and obviously it's a leading platform and we think it's best in class and balloon expandable but if those customers wanted to try CENTERA we won't deny that to them.

But that's not really going to be the focus of our introduction.

It is going to be priced more like SAPIEN 3 at a premium price and so we are not going to try and be competitive with prices and I think we have mentioned in the past prices for self expanding systems in Europe probably run a good 20% lower than what Edwards SAPIEN 3 price is and we're going to be not in that pact but we're going to be more like where we priced our other premium products SAPIEN 3..

Thank you..

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

Thank you for taking the question and good evening. You added roughly 75 centers this year, implanting centers, little bit more than we had expected originally.

How much or how many more do you have to go and what is the stocking pattern if any in the centers?.

I'm sorry, we just heard a noise there, Joanne if you could….

Didn’t you hear any of my questions or just….

Yeah, I guess, we did hear it thanks very much Joanne. So, I think your estimate is right, it's probably around 75 centers that were added and it is probably a little bit more than we thought. This has turned out to be pretty organic.

This isn’t necessarily driven by Edwards these are hospital that I think in many cases already have surgical valve programs, they think about their future and they say boy if I'm going to be an asset to my community going forward I'm going to need to offer capital base system as well.

And so there's a strong driving force for others to be able to move toward it. Stocking is pretty minimal, that's really not part of the equation here. So we do a fair amount of consignments. So I think this is really organic growth that you're seeing. .

That's very helpful.

My second question as you talked about if I heard you correctly that you think your market share will remain flat in 2018 but I would love your view of what the competitive landscape is looking like and why do you think yours would stay flat?.

Well, I mean I don't know. We can see -- we can look back at what happened in 2017, there was probably I don't know in the U.S. we may have lost a point or two a share and that was at a time when our competitor had the approval of intermediate risk and introduce larger sizes. And we think for the most part that's done.

And when we look at what's going on in Europe there aren’t so many competitors anymore and those competitors that are there are probably having mid teens market share. So, when we look forward we say what is the share picture going to look like, we think probably it is close to we're going to grow about where is the market.

Remember we have two new platforms that we're going to be introducing and that's probably some of the most novel products that will be introduced by anybody in 2018. So we think it's a reasonable estimate to say that share position stay pretty stable..

Sounds great. Thank you and have a good evening. .

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

Hi, thanks and good evening.

So, I wanted to ask a follow up question on some of your earlier mitral comments, you talked about Cardioband sales in the fourth quarter and seeing a little bit of a slower ramp in the first half and then jumping up in the second and so the question is, is that just moving further and how do we acquire that kind of a ramp to let's say PASCAL next year.

Could you give a little bit more into the dynamics there?.

Sure, so probably on Cardioband at this stage it is probably less about the demand from customers and more about us. So, we are preferentially following units to our clinical trials which are very important from a long-term perspective.

And then in terms of gee, why don't we just make more we're also in the process of migrating Cardioband to the Edwards quality system. We think this is -- it causes a little bit of short-term pain but it's for a lot of long term gain.

We think it’s a good move for us and so it is going to limit how many units we have available for commercial sales in fourth quarter and first quarter. But we think that we should clear that hurdle and get this product line moved into Edwards facilities in pretty short order and as we do that it will allow us to get on a more normal ramp.

By comparison PASCAL was not an acquired product but a product line that was built within the Edwards system. So, we won't have those same kind of system migration issues and I would expect not to go through the same sort of process..

Okay, thanks.

Any meaningful data in the first half of the year at PCR in mitral and any of your pipeline programs that you are looking forward to?.

Yeah, we don’t think that there is going to be a lot of new information at ACC this year. There may be some minor things that are coming and PCR there could be more, it is a little early for us to project. But bigger picture I think there's going to be information that becomes available on our system routinely throughout the year.

We've got a lot of big milestones in 2018 including related to Ultra and CENTERA and transcatheter heart valves, and then PASCAL and the tricuspid's Cardioband in the mitral system. And then even more in clinical care and surgical heart valve.

So, I think there is going to be no shortage of news but I don't know how much news will there be at ACC or PCR. .

Okay, thanks very much. .

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

Thanks. Mike, U.S. growth was particularly impressive this quarter and by my math the non-TAVR portion of the business really saw a big jump first in the first nine months of the year.

We've seen something similar with some other companies this quarter too so, when you look at that is there anybody that thinks you may have underestimated the impact of some of the weather events in 3Q and that may have played a role in what we saw this quarter?.

Yeah, I suppose that's possible. This is difficult for us to estimate. And again we don't call on 6000 hospitals in the U.S. We have a smaller universe in total so yeah, it's possible that we underestimated the impact of weather in the third quarter. But clearly we saw a robust fourth quarter across the board.

So your observation is correct Chris but we probably were too focused of a company to be a good barometer for the entire market. .

Okay, that's helpful and then circle back on the opportunity for CENTERA in Europe, so you touched on a lower pricing of some of the competitive systems there and my sense was that historically some centers may have gravitated to self expanding products in part because of that lower price point.

So, first do you think that's accurate and then if so what portion of the roughly half of the market is self expanding today, do you think it is really open to you with a premium priced product?.

Yeah, so thanks. You are on a great point Chris. To be honest with you we are not positive, exactly why that part of the market is buying what they are.

Might it be on price, it could be their primary motivator, might it be they just happen to have a great relationship with the company that's serving them, that's possible and it might be that they learned on self expanding systems or have a preference for self expanding systems. And that's the bigger issue.

So we're going to find that out but from Edwards they're not going to get self expanding at the same kind of low price. So we will figure that out pretty soon..

Thanks. .

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

Hi, good afternoon.

Just wanted to ask on Pascal, I know you answered the question about kind of the pace of adoption but when you think about that market sort of already being so much established with mitral in Europe have you started to maybe give some thoughts around your expectation for what sort of share you could capture from that other product in 2019 and 2020?.

No, you know that would really be getting ahead of ourselves. At this point we're really looking forward to having high quality clinical trials and trying to make sure that we have some outstanding outcomes. And once we get a chance to actually see a body of clinical data then we'll have a better understanding of what that ramp might look like.

But it's just premature right now. .

Okay, but I'm guessing your expectation it would be relatively high in terms of the share you would expect to take or hope to take with PASCAL?.

Well I mean we're continuing to pursue the programs. We're not going to abandon it, we like the program a lot. We think that clinicians are going to like it a lot. The early feedback is good. But it's too soon for us to estimate what it will mean. .

Fair enough and then maybe just on the surgical balance side on INTUITY, you had a very nice quarter and I guess the new technology add on payment is helping there and so I am just curious why you didn't raise the guidance for that segment as you look into 2019, I know it's relatively small given some other things you're doing but you did put up a very nice quarter and you had that nice tailwind on reimbursement so why not increase the guidance?.

Yeah, so we're very excited about what's going on in surgical heart valves and the INTUITY growth is particularly exciting and I think as we mentioned we think this could become a quarter of our sales here in 2018.

But you have to also understand what's going on there which is this is a big part of this business is aortic valve implantations and with the tremendous growth of TAVR there's a natural cannibalization that takes place.

And so and you see our continued optimism in TAVR is a headwind for the surgical business and I think surgical business are very well prepared to deal with that and how really forward leaning have great innovations for surgeons. But that's one that causes us to be little bit moderate in terms of getting in front of ourselves. .

Okay, but I guess one would expect given we won't see low risk for addition of the year or year and half or so, you should have another kind of nice season here of surgical valves I would think?.

Yeah, we are pretty pleased with all of Edwards business. The critical care feels pretty good right now too but at this point we're not changing our estimates and it builds our confidence that we'll be able to put two to four up in surgical and six to eight in critical care.

At the same time we're gravitating towards the high end of what we had previously estimated in transcatheter heart valves..

Sounds great, thank you..

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

Hi, good afternoon. Three real quick question for you Mike, first, in the U.S.

how many TAVR centers you think will open up new centers in 2018, that's one? Two, the imaging study in the low risk SAPIEN trial, has that finished enrolling and will that also be at ACC? And then is there anything we should be paying attention to on the litigation front particularly seeing you in Boston Scientific -- versus SAPIEN and the sturdy shoes? Thank you.

.

Sure, so first on the number of centers, difficult for us to estimate. I don't know it might be in the 25 to 50 range in 2018, something similar to what we saw in 2017. Let's see what was your, I've forgotten your second question. .

Yeah, the imaging study that….

Yeah, the imaging study is yet to enroll. So we are still engaged in enrolling that. That's something that we're very focused on. In terms of upcoming events we have U.S. IPR hearing on the validity of the Boston patents that were in December and we expect a decision in Q1.

But just bigger picture, there is going to just be a number of court actions over an extended period of time. So I don't know that there's going to be anything decisive here in the near term..

Okay, and then just the imaging study, does that finish enrolling in 1Q and do we see that in ACC as well next year?.

No, I think we were thinking of that more of a midyear kind of things and so, you may see something presented again with a subset of that study and I never know exactly if somebody might do a presentation that's an interim one. But more likely we think that it is going to be at least mid year for that to be fully enrolled. .

Okay, so it is the main body that we see at ACC next year. .

That's correct. .

Okay, thanks Mike..

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

Thanks for taking my question. Mike to fully exploit and cannibalize the surgical tissue of valve market it seems like you need longer study and kind of unencumbered ability to go after patients with bicuspid valves.

Do you feel that the low risk label will be in anyway restrictive with regards to bicuspid valves, then I have a follow-up?.

Sure, well I mean there's a couple of directions here. First as it relates to the surgical valve business, we think people with isolated aortic stenosis many of those are going to become great candidates for TAVR.

But there are also a number of great surgical candidates, those that have complex conditions that are going to need surgery that address a number of issues including their aortic valve and they're also going to be the younger more active patients that are not going to be naturally great candidates for TAVR.

So, we think both the combination of those and our innovations is going to keep the aortic side growing at the same time we're growing mitrals. As it relates to your question about bicuspid it's not contraindicated now.

There's debate in the clinical community about it but we are running a bicuspid registry that matured further and formed that question..

And then my second question pertains to M3 which was kind of released at the Analyst Day and could you just talk about your optimism about that approach, the strength of that approach, and any particular technical hurdles that that approach presents to you?.

Yeah, so right now it's just early Bruce. And so we're involved in early feasibility and we're trying to evaluate that. From an optimism point of view I think we mentioned that we have quite a bit of experience with SAPIEN 3 in the mitral position and so that gives us some confidence that we can do a great job of anchoring and being leak free.

It could be an interesting platform but it's just early and we're pleased to have two platforms. I mean we're optimistic about M3, we're also optimistic about the CardiAQ platform and making nice progress there and we are pleased with our cadence of implants and the results that we're getting.

And again all the cases that Edwards is doing today we're doing transseptal so through percutaneous procedures..

Thanks so much. .

Thank you. Our next question comes from the line of Margaret Kaczor with William Blair. Please proceed. .

Hey, good afternoon guys. Thanks for taking the questions. Two from me, first, I wanted to call up on the U.S. TAVR growth that you guys are seeing and you referenced some of the low volume centers seeing some nice growth and maybe that is due to referral networks.

Any idea whether that is being driven by you guys through meeting some of the DTC marketing that you have done and maybe will you increase that or do you think its investments on behalf of the hospitals that understand the profitability of TAVR?.

We think that the contribution that is coming from our direct to physician and direct to patient is still relatively small. And so we think that there is a real contribution that when centers add TAVR that they open up a referral network that hadn’t been tapped into in the past and that's been a helpful driver.

And so whether it’s a brand new center or centers that are still relatively new only been at it for a few years that's where we are seeing some significant growth. .

And then two part guidance question, in terms of your guidance if you are looking out, how much do you assume for CENTERA and Ultra in 2018 and then when you reference staying more steady growth throughout the year given the momentum in Q4 were you referring global TAVR or were you referencing U.S. TAVR? Thanks. .

So, in terms of CENTERA we really haven't penciled in very much. If we had success there, that could be a positive for us. It is relatively small in our guidance. In terms of where did we see the growth in the fourth quarter, it was everywhere. I mean of course the U.S.

is our biggest region and so that stands out but we saw a strong momentum we think in all of our geographies. .

And just to add to that just carrying forward we think that's probably going to be the case in 2018 as well as you look out quarter-by-quarter and start to predict each quarter but the increased and less of the ramp is probably just because we're getting contributions around the world..

And I am sorry, just a follow up on that, when you look at 2018 and that steadier growth is that specifically to the U.S., global or both? Thanks. .

That's what I am saying, I think it is going to be really broad based. It's tough to predict each geography but in the fourth quarter both of those regions grew over 20% and so we're expecting that we're going to get good growth from all of our major cities in 2018..

Great, thank you guys. .

Thank you. Our final question will come from the line of Josh Jennings with Cowen and Company. Please proceed. .

Hi, thanks gentleman.

I wanted to ask about the PARTNERS III continued access program and just to make sure that that's up and running and any details you can provide just in terms of number of patients per year, the restrictions per quarter per year if we think about a thousand patients we saw on the intermediate caps?.

Yeah, so this point focuses on completing the CT study. We don’t have any kind of CAP program. Once we enroll at CT sub study we will evaluate the CAP program at that time and we will let you know if that's in the cards..

Understood, thanks and just on the international performance, I mean clearly the European performance that you mentioned was aided by the comp in the absence in France last year but still if you exclude for that you still have at least high teens growth by our calculations.

Are you seeing anything in Europe particularly in intermediate risk and attrition, are they moving down I guess the intermediate risk curve into that lower end of younger, less sick patients if you will with low risk --? Thanks for taking the question. .

No, I think generally not. You have to remember that Europe is this combination of many countries, some of the countries that just didn’t have reimbursement in place in the early days are starting to have it in place.

So, that may help but just broadly if those places that were less penetrated so the smaller countries if you will they are probably making the bigger contribution to growth in Europe..

Thanks a lot. .

Okay, well thanks so much for your continued interest in Edwards. Scott, David and I will welcome any additional questions by telephone and with that back to you David. .

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 and to access this please dial 877-660-6853 or 201-612-7415 and use conference number 13674893. Let me repeat those numbers dial 877-660-6853 or 201-612-7415 and the conference number is 13674893.

In addition 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. You may disconnect your lines at this time. Thank you for your participation..