Greetings, and welcome to the Edwards Lifesciences' Second Quarter 2022 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note that this conference is being recorded.

I will now turn the conference over to our host, Mark Wilterding, Vice President, Investor Relations and Treasurer. Thank you, sir. You may begin..

Good one, Diego. And good afternoon, and thank you all for joining us. With me on today’s call are Mike Mussallem, Chairman and Chief Executive Officer; and Scott Ullem, Chief Financial Officer.

Also joining us for the Q&A portion of the call today will be Larry Wood, our Global Leader of TAVR; Bernard Zovighian, our Global Leader of TMTT; and Daveen Chopra, our Global Leader of Surgical Structural Heart, Katie Szyman, our Global Leader of Critical Carriers out of town today, but she'll be with us on future earnings calls.

Just after the close of regular trading, Edwards Lifesciences released second quarter 2022 financial results. During today’s call, management will discuss those results included in the press release and accompanying financial statements, and then use the remaining time for Q&A.

Please note that management will be making forward-looking statements that are based on estimates, assumptions and projections.

These statements include, but aren’t limited to financial guidance and expectations for longer-term growth opportunities, regulatory approvals, clinical trials, litigation, reimbursement, competitive matters, and foreign currency fluctuations.

These statements speak only as of the date on which they were made, and Edwards does not undertake any obligation to update them after today. Additionally, the statements involve risks and uncertainties, including but not limited to, those associated with the pandemic that could cause actual results to differ materially.

Information concerning factors that could cause these differences and the important safety information may be found in the press release, our 2021 Annual Report on Form 10-K and Edwards’ other SEC filings, all of which are available on the company’s website at edwards.com Finally, a quick reminder that when using the terms underlying and adjusted, management is referring to non-GAAP financial measures.

Otherwise, they are referring to GAAP results. Reconciliations between GAAP and non-GAAP numbers mentioned during the call are included in today’s press release. With that, I’d like to turn the call over to Mike for his comments.

Mike?.

a portfolio of differentiated therapies; positive clinical trial results to support approvals and adoption; and favorable real-world clinical outcomes. At the TCT conference in September, we expect the first results of the Class IID pivotal trial evaluating patients suffering from degenerative mitral regurgitation.

This is -- this first of its kind head-to-head randomized pivotal trial, powered for non-inferiority, will be the first of several key pivotal trials evaluating the PASCAL technology. Additionally, at TCT, we expect three-year data from the earlier class study.

This growing contemporary body of clinical evidence will be important for the physician community considering transcatheter edge-to-edge repair treatments for mitral patients. We remain on track for U.S. FDA approval and CE Mark approval of PASCAL precision by year end.

This next-generation system is designed to facilitate precise navigation and an intuitive user experience, extending our differentiated platform. This will allow us to expand PASCAL adoption in Europe, and we're pleased that we'll be launching the newest generation of PASCAL in the U.S.

In mitral replacement, we continue to broaden our experience with both of our transcatheter mitral replacement therapies through the in-circle pivotal trial for SAPIEN M3 and the MISCEND study for EVOQUE EOS. Growing evidence with these Sub 30-French transfemoral therapies furthers our confidence in both platforms. Turning to tricuspid.

We also continue to make progress on enrolling the TRISCEND II pivotal trial for the EVOQUE replacement system and the Class II TR pivotal trial with PASCAL in patients with symptomatic severe tricuspid regurgitation.

While we remain hopeful for year-end approval in Europe, uncertainties exist regarding the new MDR approval process for novel technologies seeking a CE Mark. We remain committed to bringing the EVOQUE therapy to these tricuspid patients who have a very poor prognosis and few treatment options today.

As we continue to build a body of compelling clinical evidence, we're pleased with the recent data from several late-breaking presentations. One year results from our CLASS TR study presented at the American College of Cardiology Conference demonstrated significantly reduced TR, improved quality of life and maintain TR reduction.

Also at the EuroPCR meeting, 30-day post-market data from our tri-class study was presented with 90% of the patients showing improvements in their quality of life. At upcoming medical conferences this year, we plan for contemporary evidence to be presented on both our PASCAL and EVOQUE platforms. Turning to results.

Second quarter global sales were $28 million, driven by the continued adoption of the PASCAL platform and activation of more centers across Europe.

Our Q2 commercial performance was tempered by lower-than-expected market growth related primarily to COVID headwinds We are now updating our full year guidance to $110 to $140 million, which represents approximately 60% underlying growth over the prior year and reflects a stronger-than-anticipated impact from foreign exchange as the vast majority of TMTT's business is in Europe.

Bigger picture, we continue to be pleased with our progress forward on three key value drivers. We're advancing our comprehensive portfolio of differentiated therapies combined with contemporary clinical evidence and favorable real-world patient outcomes.

Together, this demonstrates the promise of these therapies for this significant unmet patient need and will help unlock this large market potential. In Surgical Structural Heart, second quarter 2022 global sales of $229 million increased 2% on an underlying basis over the prior year.

We are encouraged to see global growth despite sales headwinds from the planned discontinuation of certain noncore cannula products as well as the COVID shutdown in China, which combined growth by approximately 500 basis points. Our growth continues to be driven by increased penetration of our premium RESILIA products.

We've seen strong adoption of the MITRIS RESILIA valve in the U.S. since its initial launch in April. Building on the commercial success of INSPIRIS, we believe hospitals value the intuitive product features as well as the benefits of this innovative RESILIA tissue technology.

Physician feedback in regions where MITRIS has been launched has been positive and initial clinical outcomes have been favorable. In the second quarter, we continued to bolster the overall body of RESILIA evidence.

This includes a commenced trial sub-analysis, which demonstrated the excellent performance of this tissue technology when treating bicuspid aortic valve disease, which was presented at the 2022 Annual Meeting of the American Association of Thoracic Surgeons in May.

In a cohort of more than 200 patients averaging a relatively young 60 years of age, structural valve deterioration was zero at five years.

In summary, we remain confident that our full year 2022 underlying sales growth will be in the mid-single-digit range for Surgical Structural Heart, driven by market adoption of our newest premium technologies and global surgical market growth. In Critical Care, second quarter sales of $211 million increased 3% on an underlying basis.

As expected, growth was moderated by strong prior year comparisons. Sales growth was driven by increased adoption of our hypotension prediction index algorithm and our broad portfolio of sensors. Additionally, we continued enrollment in the HPI Smart BP trial focused on generating additional clinical evidence to support further adoption.

Demand for the HemoSphere monitoring platform remains strong with a healthy pipeline of future opportunities. In summary, we continue to expect mid-single-digit underlying sales growth in 2022.

We remain excited about our pipeline of Critical Care innovations as we shift our focus to Smart Recovery technologies designed to help clinicians make more informed decisions for their patients. And now, I'll turn the call over to Scott..

Okay. Thanks Mike. Despite several challenging factors, best hospital staffing and foreign exchange headwinds, our business fundamentals remain strong. We achieved total sales in the quarter of $1.37 billion with double-digit underlying sales growth in Europe and Japan.

We expected our underlying growth in the second quarter would be our lowest of the year, given our strong prior year sales performance. Our higher than expected gross profit margin lifted by the positive impact from our foreign exchange program, contributed to an adjusted earnings per share of $0.63.

We are adjusting our guidance to more accurately reflect the continuation of the more pronounced FX headwinds and slower than expected improvement in COVID-related hospital staffing. We expect total company underlying sales growth of approximately 10% in the second half of this year.

For full year 2022, we now expect total Edwards sales of $5.35 billion to $5.55 billion. We expect TAVR sales of $3.5 billion to $3.7 billion; for TMTT, $110 million to $140 million; for Surgical Structural Heart, $870 million to $950 million; and for Critical Care, $8 20 million to $900 million.

Now expect full year adjusted earnings per share guidance at the bottom end of our original guidance range of $2.50 to $2.65. For the third quarter, we're projecting sales to be between $1.30 billion and $1.37 billion and adjusted earnings per share of $0.58 to $0.66. I'll now cover additional details of our results.

Our adjusted gross profit margin in the second quarter was 80.5% compared to 75.9% in the same period last year. The improvement was driven by the higher than expected positive impact from our FX program, which includes natural hedges and hedge contract gains that offset the sales impact from the weakening of the euro and yen versus the dollar.

At current foreign exchange rates, we now expect our full year and second half 2022 adjusted gross profit margin to increase to approximately 80%. This guidance range reflects our assumptions of a favorable impact from FX hedge gains and an improved product mix partially offset by supply chain inflationary pressures.

This year's forecasted gross margin rate includes approximately 350 basis points of benefit from foreign exchange versus 2021. At current FX rates, in 2023, we expect an approximate 250 basis point reduction in our gross profit rate.

Selling, general and administrative expenses in the second quarter were $409 million or 29.8% of sales, primarily due to a resumption of in-person commercial activities, partially offset by the weakening of the euro and yen against the We continue to expect full year 2022 SG&A expenses as a percent of sales to be between 28% and 30%, as we continue to invest in our high-touch model for TAVR and the ongoing build-out of the TMTT commercial team.

Research and development expenses in the quarter grew 11% compared to the same period last year to $251 million or 18.3% of sales. This increase was primarily the result of continued investments in our transcatheter innovations, including eight currently enrolling pivotal clinical trials.

For the full year 2022, we continue to expect R&D expenses to be between 17% and 18% of sales as we invest in developing our new product pipeline and generating evidence to support TAVR and TMTT.

During the second quarter, we recorded a $21 million net reduction in the fair value of our contingent consideration liabilities, which benefited earnings per share by $0.03. This benefit was excluded from our adjusted earnings per share of $0.63.

This reflects an accounting adjustment from assumptions regarding potential milestone payments for previous acquisition. Turning to taxes, our reported tax rate this quarter was 12.5% or 12.9%, excluding the impact of special items.

Due to last quarter's new regulations that potentially limit the amount of our foreign tax credits, combined with an estimated reduced tax benefit from stock-based compensation accounting. We now expect our full year tax rate, excluding special items, to be at the high end of our previous 11% to 15% range.

Foreign exchange rates decreased second quarter reported sales growth by 4.6 percentage points or $60 million compared to the prior year.

At current rates, we now expect an approximate $250 million negative impact or 4.5 percentage points to full year 2022 sales compared to 2021, of which approximately $170 million impacts the second half of the year. FX rates positively impacted our second quarter gross profit margin by 380 basis points compared to the prior year.

FX rates had a minimal impact on second quarter earnings per share. We mentioned at the investor conference, in periods of a strengthening dollar like this, sales are negatively impacted. But as a result of financial and natural hedges, margin rates benefit resulting in a minimal impact to the bottom-line in the calendar year.

Free cash flow for the second quarter was $289 million, defined as cash flow from operating activities of $332 million less capital spending of $43 million. Before turning the call back over to Mike, I'll finish with an update on our balance sheet and share repurchase activities.

We continue to maintain a strong and flexible balance sheet with approximately $1.5 billion in cash, cash equivalents and short-term investments as of June 30th, 2022. Average shares outstanding during the quarter were $627 million, down from the prior quarter as we repurchased 3.7 million shares during the second quarter for $355 million.

In the first half of the year, we repurchased 7.3 million shares. In July, we obtained Board approval to increase the authorization under our share repurchase program consistent with our long-time practice of seeking new authorization when the prior authorization has been diminished. We now have $1.9 billion remaining under the program.

Given our repurchase activity in the first half of the year, we now expect our average diluted shares outstanding for 2022 to be between $625 million and $630 million. With that, I'll pass it back over to Mike..

Thanks, Scott. Our strong foundation of technology leadership, combined with a robust product pipeline, positions us well for continued success.

As patients and clinicians increasingly recognize the significant benefits of transcatheter-based technologies reported by the substantial body of compelling evidence, we remain as optimistic as ever about the long-term growth opportunities. And with that, I'll turn it back over to Mark..

Thanks a lot, Mike. Before we open it up for questions, I'm excited to announce that Edwards is planning to host an investor update at TCT on Saturday, September 17. This event will recap -- will include a recap of pivotal trial data, updates on our latest technologies, and views on longer-term market potential. We hope to see you there.

But please note this meeting will be webcast for those who cannot attend in person. More information will be available in the coming weeks. With that, we're ready to take questions now. To allow for broad participation, we ask that you please limit the number of questions to one plus one follow-up.

If you have any additional questions, please re-enter the queue and management will answer as many participants as possible during the remainder of the call.

Diego?.

Our first question comes from Robbie Marcus with JPMorgan. Please go ahead..

Great. Thanks for taking the questions. Maybe to start, TAVR is such a necessary procedure for these patients. And it's sad to see it slow down like this, but it's understandable given how many steps are involved in the patient population involved.

What's your sense of what the early funnel is like? How are , you know, how's the early funnel with patient visits to doctors, diagnosis? Where is really the bottleneck that you're seeing? And how do you expect the funnel to play out in third and fourth quarter, both U.S.

and outside the U.S.?.

Yes. Thanks, Robbie. Yes, this -- what we're feeling right now is different than the early days of the pandemic. In the early days of the pandemic, yes, there was impact on hospital capacity, but you also had patients that were just concerned about coming into the system and they stayed away.

We feel like patients are entering the system now and are queued up to go through and there's just a lack of capacity in hospitals, in some cases, to handle all the patients. And so that care is being postponed.

You're right, given that this disease is so deadly, it is very concerning because we know these patients don't wait well and there are going to be some casualties.

I don't know, Larry, do you have anything to add to that?.

No, I think that's a good summary. When the pandemic first happened, hospitals, the beds were all filled up with COVID patients, and we don't see that today. Hospitals have beds, they have capacity. They just don't have staff.

And I think some of what we're challenge with a little bit is as people test positive for COVID, they're not getting hospitalized, but they have to leave the workforce where they isolate. And I think that's exacerbating a little bit of staffing challenges. But you're right, the patients don't wait well.

And we were already dealing with undertreatment of AS before the pandemic hit and certainly this hasn't made it better. But these patients deserve therapy, and we're hoping this returns back to more normal state soon..

Okay. And maybe as a follow-up on MTT, it's not surprising given the euro exposure to see the guidance moved down there on a dollar basis. But this is also a market that's recovering probably slower than we had thought at the December Analyst Day.

So, maybe you could walk us through how much of it is PASCAL and your product set versus the competition? And how much is the market? And how we should think about cadence there in third and fourth quarter? It still requires a step-up to reach the midpoint of guidance. Thanks a lot..

Yes. Thanks, Robbie. So, yes, a couple of things. As we mentioned, because most of the PASCAL sales are in Europe, we do get affected by currency in a more dramatic way than we would otherwise. But the other issue is less of a competitive issue as we're really feeling like the market didn't grow. It really slowed down in TMTT.

And Bernard, why don't you provide some color on that..

Yes. Yes, exactly, Mike. So if you think about on a short-term basis, the TMTT procedures are more resource-intensive. They require general anesthesia, ICU stay for the patients. So therefore, they have been impacted more than any other procedure that we know here..

Diego, next question please..

Thank you. Our next question comes from Larry Biegelsen with Wells Fargo. Please state your question..

Good afternoon. Thanks for taking the question. One for Larry, one for Bernard or whoever wants to jump in. Just on TAVR, just Larry, any color on trends in the U.S. TAVR market in Q2? How much do you think the contrast shortage impacted you? And I'd love to hear why you think the U.S. has been softer than Europe? And I have one follow-up for Bernard..

Yes. Contrast, I think, was more of an issue here, early in the quarter than late in the quarter. It seemed to get better as the quarter went on. But certainly, there was an impact. It probably impacted smaller hospitals more than the bigger systems that probably had more reserve. So that was that.

In terms of trends, as much as we get frustrated by it, we did grow sequentially. So we did see an improvement in hospital staffing just not as much as we were anticipating. And we obviously have a tough comparison to a year ago when we grew almost 50%. So, that's just kind of where it is.

We still anticipate it's going to get better over the course of the year. It's just been more slow than we would have hoped..

Yes. And just to add on, Larry, your question about Europe versus the U.S., we did see staffing shortages in Europe but they were more isolated in nature. We saw them in particular countries or regions, whereas the U.S., it really felt more widespread, more broad. And so, it turned out to be more pronounced.

We were able to more or less swamp those in Europe..

That's helpful. And then Mike, for you or Bernard, for PASCAL and CLASP IID, I guess, should we -- I assume we should read into your expectations of PASCAL approval by year-end. You feel good about the trial meeting. Its endpoints. That's part A.

And part B, there have been a lot of changes to both PASCAL and MitraClip since the trial started, PASCAL A's precision, MitraClip's gone from Gen 2 to Gen 4. How might that impact the results? And do you expect kind of a mix of different devices in the trial? Thanks for taking the question..

Yes, thanks. You did perceive it correctly. We feel like we're on track for our year-end approval in PASCAL. We're going forward to that. As I'll remind you, that trial is designed as a non-inferiority trial. And so but that's what the target is. But you also brought up another interesting point.

If you look at what's available for clinicians today, some of that data is kind of old, right? It's for patients that were treated maybe five years ago and sometimes even further back and there have been a lot of improvements in our system and competitors as well.

And so what it will be also interesting about the data that we see is we'll see more or less a contemporary update of how edge-to-edge procedures are going, anything to add to that, Bernard?.

No. You're right, Larry. We are -- what you are going to see is a number of analyses done with these pivotal studies. We have the original PASCAL and ACE, a number of mitral generation also. But as you can imagine, like in any pivotal randomized study, you have the first result will represent the data necessary to support approval and adoption.

And what you can expect is additional presentation overtime with more analysis..

Thank you. Our next question comes from Vijay Kumar with Evercore ISI. Please state your question..

Thanks for taking my question.

One on -- I guess, on the PASCAL side here, the -- given all of these revenues coming out of Europe, and Europe seems to be perhaps less impacted by labor shortages, did we just get the adoption curve wrong? Or maybe just talk about what changed in the revenue band for Europe for PASCAL?.

Thanks for the question. So in Q2, we continue to grow sequentially quarter-over-quarter, year-over-year. We continue to grow our presence, our teams, we open new sites both in Germany and outside of Germany. We feel good about our meaningful presence in Germany, even though there are more to do. Beyond Germany, there is still a lot to do.

So the adoption is going at the pace we want in terms of site adoption and PASCAL adoption for sure, the market growth was less than anticipated in Q2. And we expect that to last and to improve gradually in the second part of the year..

Yes. And I might just add, Vijay, that because our business is more concentrated in TMTT, in certain regions like, for example, there's more, business in Europe or in Germany, in particular, than other parts of Europe, some of those labor shortages and strikes in Germany probably had a little greater impact on this.

So that combined with the point that Bernard made earlier that these procedures still require anesthesiologists and ICU space are probably why the market slowed. And you'd also argue in Europe, they're not fully convinced, right, because they have the mitral FR data that also is out there.

And so it's another reason why we're kind of excited about bringing a new data set later on this year..

That's helpful perspective, Mike. And maybe one for Scott, on the EPS guidance, I think the implied fourth quarter EPS, depending on third quarter assumptions, it could either be flattish or down sequentially.

Is that just a function of how the FX hedges roll off or anything else that's going on that drives the fourth quarter EPS?.

Yes, sure. Thanks for the question, Vijay. We'll just -- maybe the way to answer it is to bridge the midpoint of our original guidance of $2.58 to guidance now, which is more like the bottom of that $2.50 to $2.65.

And the moving pieces are probably first and foremost, just the sales change from the original guidance, partly driven by sales and just some of the headwinds that we've talked about, partly driven by FX and how that impacts sales and then flows down to EPS. You know, we're seeing a higher tax rate, as we talked about.

We think now the tax rate is going to look something more like 15% of the top end of our original 11% to 15% range. That probably cost us about a nickel. And then we've seen some positives as well.

We think we're going to get a couple of pennies from increased interest income as a result of what's happening in the investment market and $0.02 or so share count based upon all the repurchase activities that we've been doing so far.

So we're not guiding to fourth quarter EPS down, but that gives you a sense of how the overall year looks compared to our prior guidance..

Our next question comes from Joanne Wuensch with Citi. Please state your question..

Good afternoon or evening. And thanks for taking the question. As we think about 2023, I appreciate the commentary on the FX hedges slipping and the impact to gross margins next year.

Is there anything in particular that you would like to comment on? Because I think generally, people are starting to make sure the 2023 numbers are somewhat a ballpark based on what we currently know..

So do you want to talk about the 2023 gross profit numbers are in the ballpark based upon what you know?.

Well, I'm talking just any metric you can give us, and thank you for the gross margin commentary, but anything else you may be able to set us up with?.

Yes, it's premature to start talking about the different line items of the P&L for 2023. Of course, we'll go through that in detail at the investor conference. But -- because gross margin has been so impacted by FX this year, we did want to give a little bit of a lens into what's going to happen as these hedges start rolling off in 2023.

So based upon FX rates right now, we'll lose something like 250 basis points of the 350 basis point benefit we're seeing in 2022. Keep in mind, that's compared to 2021. So in other words, we still think we'll get something like a 100 basis point benefit from FX in 2023 because we've locked in some hedge gains during the first half of this year.

All in, for modeling purposes, if you think about 77.5% or something like that, somewhere in that range, that's probably a good modeling assumption for now for next year..

And then as a second question, assuming FDA approval by the end of this year for PASCAL, how do we think about launch, again, going into next year? Thank you..

Yes. So maybe Bernard, you best to go through that, you can go through the particulars of how we plan to launch..

Yes. So first, let me say, we are pleased with our progress in Europe. So -- building the U.S. launch plan. Having in mind, what we did in Europe, obviously, our great success with TAVR in the U.S. You know, we are currently building the U.S.

TMTT field team focusing on obviously high quality of training, making sure that we can execute on our high-touch model, the same way we are doing in Europe, having in mind excellent in the patient outcome. So obviously, we expect our U.S. launch with clinical evidence, which we didn't have when we launched in Europe, which is a big difference.

At the same time, one of the other difference also is we are going to have only a DMR approval. So that's the way to think about the U.S. launch..

And maybe just to add a little bit more, Joanne, this is going to be a step-wise launch. We're not going to try and serve all hospitals at once. We're going to -- we've really prioritized the group. That will be our first step, but we're trying to make sure that we have a well-trained team that assures great outcomes right from the beginning.

So, it will be more of a ramp than a step function..

Thank you. Our next question comes from Cecilia Furlong with Morgan Stanley. Please go ahead..

Great. Good afternoon, and thanks for taking the questions. I wanted to ask just if you could provide some color on both the COVID, the staffing shortage impact on enrolling some of the trials in the U.S., both the CLASP studies, ALLIANCE.

And then, if you have an outlook right now just around export timing, approval timing, above some color how you're thinking about that as well?.

Yes. Thanks, Cecilia. Maybe I start, and I'll let Larry and Bernard jump in to add some additional color about the trial. Just broadly, the fact that COVID has been persistent is a burden on hospital. In any way, you slice it, because what happens is even though we don't consider today's COVID so deadly. When someone tests positive, they're out.

People they've had contact with are out and miss five days. So it really is disruptive to a team and that can help and have some impact. Having said that, overall, we feel pretty good about our clinical research. Larry, why don't you update us on the TAVR side and Bernard, you can talk about TMTT..

Sure. Well, we have three big trials. We have early TAVR, which is fully enrolled. And we have our PROGRESS trial, which is our trial where we're studying moderate aortic stenosis. And while we certainly see some impact, we've been actually pretty pleased with how that's going so far, and there's a lot of clinician interest.

And then, we just started enrolling last month in our ALLIANCE trial, which is our X4 trial for our next-generation SAPIEN platform. And we've been pleased with the enthusiasm there. You always start the trial a little bit slow as you're getting sites up and you're getting them trained in a brand new valve platform.

But overall, we've been pleased with the start..

Yes. And for TMTT today, we completed enrollment. We have CLASP IIF, CLASP II TR. We have TRISCEND II for EVOQUE. So yes, Mike procedures are more resource intensive and they require more staffing. But we have seen a little bit of an impact, but not so much. We are pleased with the kind of enrollment we are having across all of the TMTT trials..

Great. Thank you. And if I could ask as well, just going back to your Analyst Day, you talked about your DTC TAVR initiative. Just would love some color in terms of and what you've seen out of that, where you are in that process at this point? Thank you..

Yes. So thanks. I mean, I don't know, Larry, if you want to update that. We continue to be very focused on trying to make sure that we help patients come off the sideline just because it is such a big issue. It is going to be an important source of growth..

Yes. We continue on these efforts even though the hospitals are struggling a little bit to train the patients they have. It takes a while for these patients to move through from diagnosis, to screening and to treatment.

And so, we just think it's important to keep raising awareness around aortic stenosis, because it remains woefully undertreated, only about 10% to 15% of patients with severe aortic stenosis actually get treated today.

And again, we're running the trials to prove the point with early TAVR and with progress, but we know these patients don't wait well even though some people may think they wait better than they actually do. So we're committed to the evidence, and we're committed to making sure patients are aware and we continue to execute on those programs..

Our next question comes from Travis Steed with Bank of America. Please go ahead..

Thanks for taking my question. Just looking at Q3, you've said some of the Q2 staffing issues either the contract is more of a Q2 issue. But in Q3, there's usually some seasonality. So if you look at U.S.

TAVR, I was curious if you think TAVR could be up sequentially at this time around or if it's probably down sequentially in Q3?.

Yes. I'll just start out by reminding you that across Edwards, business, it's very normal for us to have Q3 be seasonally down compared to all the other quarters of the year because our procedures are generally done in teams and people take their summer vacations, that's routinely going to be down.

The other factors that are in there, they just add to that. So no, we probably expect Q3 to be lower than Q2 and then Q4 to rebound to a higher level yet, but that would be a more typical seasonality.

I don't know, Larry do you have anything to add on U.S.?.

Yes. I think that's right. I think people are still pent up. And if you try to get a hotel reservation or an airline reservation lately, I think people are certainly taking their vacations, right? But I think the good news is the contrast issue, I think, is largely behind us, maybe not 100%, but pretty close.

We're not hearing near as much issue with that. So I think getting that behind us is helpful and -- but as Mike said, we typically do see some seasonality in Q3..

No, that's fair. Thank you. And OUS, it was down sequentially this quarter. I don't think there's anything else to call out that you haven't already called out, but love some more color there. And then, if you look at PASCAL and the benefits that you see there versus competitive device.

I'm just curious if you look at how everything is designed, the product's design, if you think there's, a way you could potentially compete clinically with a competitive device or if there's other ways that you plan to compete there?.

Okay. Actually, so I'm not under the impression that we were down sequentially in Q2. Maybe that could be a byproduct of a foreign exchange and that may be what you're seeing. But on an underlying basis, actually, there was sequential growth.

Bernard, do you want to jump on the second part of the question?.

Yes. So on PASCAL, let me address two things. One is maybe the second half of the year and a little bit about PASCAL, the benefit of the device. So second half of the year, we are going to continue executing our strategy opening more sites in Germany, outside of Germany, driving the adoption of PASCAL with our high-touch model.

And what we see, obviously, in Europe is that we have a differentiated device. We are very pleased with the kind of patient outcome we are having.

But obviously, at TCT with the first of its kind CLASP II randomized study, this is going to inform us, inform the medical community about the difference between the two devices, Tier overall, so a lot of learning coming from the TCT presentation here..

Great. And I'll recheck my model on the Q2 thing..

Thank you. Our next question comes from Suraj Kalia with Oppenheimer. Please state your question..

Good afternoon everyone. Thanks for taking my questions. Mike, Larry, in terms of low-risk symptomatic aortic stenosis, right, a number of patients are bicuspid. And I'm curious about the bicuspid registry in ALLIANCE, why so now? And also the 915 patient size, it's a single-arm study. So any additional color would be greatly appreciated..

On clintrials.gov, I think the 900-plus number relates to the primary cohort along with the registry with the registries that we have. We try to study all, sort of, the adjacencies bicuspid. We try to study the valve and valve things, all the different ways in which our platform gets used because it's quite versatile.

So we -- some of those registries lag a little bit starting the original cohort, but they usually come on and so I think that's what's reflected in the numbers there. Bicuspid patients require, sort of, a different level of screening anatomically. So we tend to run those in a separate registry so that we can report on them separately.

But then we have the primary cohort for all the patients. But I believe this trial is pretty much in a near all-comer trial. I don't think we're limited to just low-risk patients. So it's going to be pretty much a real-world trial on how this technology performs..

Fair enough. And Larry, Mike again, last question, I'll hop back in queue. Maybe you all could give us some guidepost in Japan. Our understanding is TAVR is annualizing somewhere 25,000 to 30,000 cases across 250 or so sites.

I'd love to get some perspective of where Edwards stacks up in Japan so that we can strip out that contribution? Thank you for taking my questions..

Thanks for that. I don't know that I have the level of detail to be able to fully satisfy your question. Indeed, like most places around the world, we're very proud to be market leaders. But there's still a lot of work for us to do in Japan. They have an elderly population.

And even though we've enjoyed some really nice growth over the last couple of years, we should be getting that kind of growth because there's that under treatment rate is significant. We've been buoyed over the past year or so by the addition of hospitals, which has been very helpful.

It had been originally more restricted in Japan, and so that's grown, and that's been a contributor as well.

Larry, do you have anything to add to that?.

Yes. You know, Japan has been a little bit unique in terms of how the markets develop. In the other markets, we sort of went from this high risk to this intermediate risk to these low-risk approvals. And in Japan, we went directly from high risk and kind of almost inoperable immediately to low risk.

So it's taking time for people to adjust to, sort of, that new normal because it's a much bigger step function. But Mike is absolutely right. In terms of the number of elderly patients there and the opportunity there, even though we've enjoyed pretty robust growth there, the opportunity there remains large.1.

Thank you. Our next question comes from Ed Ridley with Redburn. Please state your question..

Good evening. Thanks very much. Just a couple of follow-ups, please. First of all, on the contrast media shortage. Scott, thanks for your comments. Could you just quantify the impact in the quarter? That would be helpful. And it's obviously good to hear that it's pretty much behind you. Also, I had a question on capital investment from the hospitals.

We heard differing comments from different management teams during this -- the last couple of weeks on whether or not there is pressure on CapEx spending, particularly in the U.S. And I was wondering if there had been any effects on Critical Care or whether you're seeing any signs of that? Thank you..

Okay. Well, thanks. On the contrast media, I don't know that I can specifically characterize the size. As Larry mentioned, we saw it more in smaller hospitals. We saw more early in the quarter anticipate. Do we think it had an impact on Q2, we do. But it was a smaller impact than overall hospital staffing.

So you can almost think of it as an 80-20 thing, something like that. Contrast Media was relatively small by comparison. On the capital spending trends, our only lens that is the Critical Care business. So compared to some others in the medtech industry, they may have a better handle on this because they are more exclusively capital.

We're in a very limited segment and it's hard for us to know whether it's the capital budget in hospitals, our own performance, we've had pretty significant demand and we've been able to meet that. And we continue to be pleased with the pipeline of orders that are ahead. So we feel pretty good about the really being capital spending.

It's nothing like it was when it was constrained early on in the pandemic, we feel like hospitals are indeed spending, at least from our narrow perspective..

Thank you. Our next question comes from Bill Plovanic with Canaccord. Please state your question..

Good evening. My first question is, in terms of the U.S. TAVR and the number of centers I think on the fourth quarter call, you said you had about 850 centers. I was wondering where you ended at the end of June? And kind of how should we think about center growth going forward? And then my second question is just on your SG&A spend was pretty high.

It's a big jump sequentially. And I guess is a lot of that kind of the prebuild or the build of the infrastructure for PASCAL? And thanks for taking my questions.

Sure. Maybe I'll start out here. In terms of U.S. TAVR centers, yes, the addition centers wasn't necessarily a big deal in terms of a growth driver. Larry, you might be able to characterize it more growth come from large centers or smaller centers this last quarter..

Well, it's sort of two things, right? So in terms of -- when we add new centers, all the cases they do are pretty much add to the growth. But the new centers that we had at this point in time to much smaller programs and they're a little slower than So they're not a huge part of our overall growth story.

But one of the things that we do try to keep an eye on is what's happening in the larger programs versus the smaller programs. We have seen a little bit of a trend where when COVID cases start increasing and the variants come on, we tend to see a little bit more growth in the smaller programs. And I think that's staying closer to home.

A lot of our big programs, maybe people will travel longer distances and they may be a little bit more reluctant to do so when COVID cases are up. So we've seen that dynamic as COVID has risen and fallen and I don't think this quarter was any different..

Thanks, Larry.

Scott, do you want to comment on the SG&A?.

Sure. Bill, on SG&A, it was pretty close to what we expected, actually. Remember, in the fourth quarter of 2021, we ended up having pretty high SG&A relative to our plans. It ended up being lower as a result in the first quarter. So it might have looked like a bigger jump just artificially because of the timing and sequencing of Q4 to Q1.

But year-over-year in the second quarter, SG&A grew high single digits, pretty close to what we expected. You're right that we are investing pretty aggressively for long-term positioning of TAVR and TMTT in particular, both outside of the U.S. and in the U.S. So we're feeling good about where we are just in terms of our overall SG&A load..

Our next question comes from Adam Maeder with Piper Sandler. Please state your question..

Hi, good afternoon. And thanks for taking the questions. I'll keep it to just one. Maybe just on a bulk tricuspid, would love to get some additional color there. It sounds like you're still hopeful that, that product could come to market in Europe by year-end 2022.

Just what are the expectations in the marketplace? And then just more broadly, how do you think about the repair versus replacement debate in the tricuspid setting? Thanks so much..

Yes. Thanks very much for that, Adam. Indeed, you did read correctly into our comments that we have introduced some uncertainty into whether we actually will get EVOQUE approved by the end of the year for CE Mark.

Bernard, do you want to talk a little bit more about that?.

Yes, Mike. So as you know, there is a new process in Europe called MDR. And MDR, it is very -- it is probably more uncertain for very novel breakthrough technologies like EVOQUE. It is new, so they are looking at it. They might ask more clinical data, maybe even randomized data, who knows. So that's basically what we are facing right now.

We are obviously partnering with our notified body to make sure they get the need to make an approval here. So now your second question is about repair versus replacement. We believe that we see value in both. I think Mike talked about what we presented at ECC and EuroPCR, where our PASCAL tricuspid CLASP study we are presented.

It is a single arm study, and it shows some benefit for patients. And also, we are very excited about the kind of outcome we are having with EVOQUE. So we believe that we have value for both, and it will depend on the patient, patient anatomy, how sick they are..

Thank you. Our next question comes from Josh Jennings with Cowen. Please state your question..

Hi. Good evening. Thanks gentlemen. And I wanted to just ask two kind of market size questions. First, just on the U.S. degenerative mitigation opportunity. I think Abbott's cited about 70,000 patients per year number, and then building a TAM from there. This is specifically for degenerative MR.

I mean some of our consultants have cited some bigger numbers, but I don't want to front run your investor event at TCT later in the year. But any initial thoughts before getting into the U.S.

market just on the size of the generative MR opportunity? And a similar question for tricuspid, just a little more maybe globally, similar line of inquiry just consultants sharing that tricuspid case volumes could be very strong and ultimate patient opportunity large and tricuspid could be $1 billion-plus global opportunity, but I wanted to get your thoughts on both of those two procedures.

Thanks..

Thank you. So let me start by saying that we believe that there are many patients in it, many mitral patients, many tricuspid patients in need and that mitral is probably a little larger than tricuspid from an opportunity standpoint, at least at this point. Having said that, to comment on the U.S. DMR opportunity, we are not yet in the U.S.

So Abbott is probably the best positioned to talk about how big is the market, the number of cases because we are not yet in this market..

Thank you. And ladies and gentlemen, I will now hand the floor back to management for closing remarks..

Okay. Well, thanks, everybody, for your continued interest in Edwards. Scott and Mark and I are going to welcome any additional questions by telephone. And with that, I'll turn it back over to Mark..

Thank you. This concludes today's conference. All parties may disconnect. Have a great day..