Edwards Lifesciences Corporation

Welcome and thank you for joining us today. Just after the close of regular trading, Edwards Life Sciences released its first quarter, 2019 financial results. During today's call, management will discuss the results included in the press release and accompanying financial schedules and then use the remaining time for Q&A. Our presenters on today's call are Mike Masalam, Chairman and CEO, and Scott Ollum, CFO. Before we begin, I'd like to remind you that during today's call, management will be making forward-looking statements that are based on estimates, assumptions, and projections. These statements include but aren't limited to financial guidance and expectations for longer-term growth opportunities, regulatory approvals, clinical trials, litigation, reimbursement, competitive matters, and foreign currency fluctuations. These statements speak only as of the date on which they are made, and Edwards does not undertake any obligation to update them after today. Additionally, the statements involve risk and uncertainties that could cause actual results to differ materially. Information concerning factors that could cause these differences and important product safety information may be found in the press release, our 2018 Annual Report on Form 10-K, and Edwards' other SEC filings, all of which are available on its website at edwards.com. Also, 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. Additional information about use of non-GAAP measures is included in today's press release at edwards.com. Now I'll turn the call over to Mike Messolum.

Thank you, Roya. It's been an exciting start to 2019 with multiple positive developments for the company and the patients we serve. Most notably, we announced groundbreaking results of the PARTNER3 trial, which demonstrated the superiority of our Sapien 3 Valve technology and provides a strong platform for future growth. Also, CMS published a draft National Coverage Determination, or NCD, for TAVR, which could provide improved access for this therapy in the U.S. for even more patients suffering from aortic stenosis who today don't receive treatment. These important developments reinforce our confidence in the continued growth of TAVR. In addition, we received CE-MARC for PASCAL, an important early addition to our portfolio of TMTT therapies. We are also pleased to recently complete the acquisition of CASMED, a cerebral oximetry technology that will enhance the smart monitoring strategy of our critical care platform. I am more convinced than ever in the tremendous opportunity to drive success for many years to come through our differentiated strategy of focus, innovation, and leadership. Turning to our financial performance, we're pleased to report nearly $1 billion of sales this quarter, representing 9% sales growth on an underlying basis. This was consistent with our expectations driven by our broad portfolio of new technologies. In transcatheter aortic valve replacement, first quarter global sales were $59 million, up 10% on an underlying basis, as expected. Recall that we previously forecast that our first quarter sales growth would be below our full year range, and that our sales growth rate would ramp following Q1. We grew at a significant, we grew at a slightly lower rate than the estimated global procedure growth due to a modest -over-year share decline. We estimate our global competitive position was unchanged versus the fourth quarter, and we continue to exercise price discipline holding global average selling prices stable. We continue to believe there's a large number of patients suffering from aortic stenosis who are either undiagnosed or untreated. We're investing more in programs to increase awareness, increase diagnosis, and improve referral patterns, and help patients receive the care they need based on medical guidelines. One of our biggest investments is in clinical evidence to support indication expansion. And in March, the PARTNER III trial results were presented at the annual ACC Scientific Session and published by the New England Journal of Medicine, demonstrating that Edwards' Sapient III Valve proves superior to surgery. We are excited that these robust outcomes continue the steady and impressive progress that we have seen from the 17-year series of rigorous clinical experiences and trials, which clearly support TAVR as a proven therapy for aortic stenosis patients. In the U.S., we estimate total TAVR procedures for the first quarter grew in the low double digits versus the prior year, and our growth was comparable. Growth was highest in newer and smaller centers, which provided access to a broader population of aortic stenosis patients. Patients continue to be treated through the PARTNER III Low Risk Continued Access Protocol. Our guidance continues to assume receipt of a low risk indication late this year. We continue to enroll the U.S. Pivotal Trial to study our self-expanding Centera Valve in intermediate risk patients. We estimate enrollment of this trial will be completed next year. The U.S. Centers for Medicare and Medicaid Services, or CMS, recently released a draft modernized NCD, which we believe better reflects today's practices and the needs of patients. We commend CMS on the proposed policy and are encouraged to see elements within the draft NCD to enable patient access, particularly underserved populations. And it would enable a future move toward measuring hospitals' quality outcomes with metrics instead of procedural volume measure. We'll provide input this week on the draft NCD, which is expected to be posted on the CMS website shortly thereafter. We continue to assume any changes to the current NCD are unlikely to significantly affect our estimated long-term global TAVR opportunity. We expect the new NCD to be finalized by the end of June 2019. Outside the U.S., in the first quarter, we estimate total TAVR procedures grew in the low double digits, while Edwards procedure growth on a -over-year basis was slightly lower. We believe our competitive position remains stable versus the fourth quarter. We continue to see excellent longer-term opportunities for growth as we believe international adoption of TAVR therapy is still quite low. In Europe, we estimate the TAVR procedures grew low double digits, and our growth was lower. Edwards growth in countries with lower TAVR adoption rates continue to outpace countries where the therapy is more established. We are implementing a disciplined commercial introduction of our Sapien 3 Ultra and Centera systems in Europe as we focus on achieving high procedural success rates, and therefore did not significantly impact first quarter growth. We're receiving positive impact from physicians on the unique features offered by both technologies. In Japan, we continue to see strong TAVR adoption driven by Sapien 3, and new centers are being qualified. We believe aortic stenosis remains an immensely undertreated disease among the large elderly population in this country, and continue to focus on expanding the availability of this therapy. In summary, we're encouraged by the recent strong Partner 3 evidence supporting the adoption of Sapien 3, which has reinforced our confidence in achieving our underlying sales growth for 2019 of 11 to 15%. It has also reinforced our confidence in the $7 billion opportunity by 2024. Turning to our transcatheter mitral and tricuspid therapies, or TMTT, first quarter global revenue was approximately $4 million lifted by the initiation of our Pascal mitral launch in Europe. We were pleased to receive the CE mark a couple of months earlier than expected. As we begin the commercial rollout of this differentiated novel repair therapy, we remain focused on physician training, procedural success, and great outcomes for patients, and are pleased with our progress thus far. We also continue to treat patients commercially with our Cardioban mitral and tricuspid annual reduction therapy. Transferring the production of Cardioban to other Edwards manufacturing facilities remains on track, and we continue to expect supply constraints to be progressively lessened throughout 2019. On the clinical front, we continue to invest heavily in the advancement of our portfolio of therapies for patients with mitral and tricuspid valve disease, and we are pleased to have treated patients with all of our therapies in the first quarter. Related to Pascal in the US, we are adding clinical sites and making progress with the enrollment of our CLASP2D pivotal trial to study Pascal in primary or degenerative mitral valve disease. We also continue to expect the initiation of our CLASP2F pivotal trial for patients with secondary or functional mitral valve disease in late 2019. In mitral valve replacement, we remain strong believers in our transeptal strategy, and are pleased with the progress and early clinical results in both of our novel platforms. We continue to enroll patients in our EVOKE early feasibility study, and we're on track to initiate a US pivotal trial of Sapien M3 in late 2019. In transcatheter tricuspid repair, we're gaining significant clinical experience through our US early feasibility studies for Pascal, Cardioband, and Forma, and we expect to initiate a US tricuspid pivotal trial in late 2019. As shared previously, Apt has filed multiple lawsuits against Edwards related to Pascal in both the US and Europe. Recently, the US District Court in Delaware heard Abbott's motion for a preliminary injunction. We expect a favorable decision in the near future. Litigation does add risk, but we plan to vigorously defend ourselves so that we can continue to provide our differentiated Pascal therapy as a much needed option for under-treated patients. Overall, we remain enthusiastic about the opportunities to treat patients suffering from tricuspid and mitral valve disease with our transcatheter therapies. We're on track to achieve our 2019 milestones, including achieving our revenue target and continuing enrollment in four pivotal studies, and you can expect to hear more in updates at DGK, the Cardiology Society in Germany, EuroPCR, and TVT medical meetings. In summary, given our first quarter CE mark for Pascal, we have increased confidence in achieving approximately $40 million of total TMTT revenue for 2019. We continue to estimate the global TMTT opportunity to reach approximately $3 billion by 2024, and are passionate about bringing solutions for these deadly diseases and improving patients' lives around the world. In surgical structural heart, sales for the first quarter of $215 million were up .5% on an underlying basis. First quarter growth was lifted by the sales of premium products, particularly through the adoption of the Inspiris Resilia aortic valve, which drove an increasing share of surgical aortic valve procedures. We have now successfully launched Inspiris in all major regions and are encouraged by the steady growth and adoption of this new class of resilient tissue valves. This valve is designed to be an attractive option for active patients, and we've observed a continued trend of physicians treating younger patients with Inspiris versus traditional surgical tissue heart valves. Separately, we remain on track to begin treating patients with our Harpoon system in Europe by mid-2019. In summary, in surgical structural heart, although the superiority results in partner three are expected to provide an incremental headwind to our aortic surgical sales, we continue to be comfortable with our full year underlying sales growth range of one to 3% based on our strong first quarter momentum. Even as TAVR adoption expands, we're excited about our ability to provide innovative surgical treatments for more patients and to extend our global leadership in surgical structural heart technologies. In critical care, sales for the quarter were $176 million and grew 11% on an underlying basis. All product lines contributed to this performance boosted by a surge of Hemisphere sales, primarily in the US. Hemisphere, our -in-one monitoring platform, is expected to be an important growth driver in 2019 as we continue with the full market launch of the platform with our FlowTrack system and our Acumen Hypotension Predictive Index. This platform is designed to provide greater clarity on a patient's hemodynamic status while introducing artificial intelligence to improve decision-making. Last week, we completed the acquisition of CASMED, a non-invasive cerebral oximetry monitoring technology company. We believe the incorporation of this technology into Edwards leading hemodynamic monitoring platform along with our predictive analytics capability will strengthen our leadership in smart monitoring technologies. CASMED's annual sales were $22 million in 2018 and we expect minimal impact on our underlying near-term sales growth and earnings from the CASMED acquisition as we work to integrate our technologies. In summary, given the fast start in Q1, we're more confident in achieving full-year, 2019 underlying sales growth in critical care of five to 7%. And now I'll turn the call over to Scott.

Hey, thanks, Mike. We are pleased with our start to the year in which we generated underlying sales growth of 9% consistent with our expectations. TAVR sales were $598 million. As previously communicated, we expect our sales growth rate to ramp up following the first quarter as we introduce new products and benefit from the recent clinical evidence supporting TAVR therapy. Let me remind you that in addition to foreign exchange, our reported sales growth this quarter includes two prior year adjustments. The first quarter of 2018 was impacted by adjustments related to our German stocking sales and surgical consignment conversion in the United States. Adjusted earnings per share was $1.32, higher than we anticipated as a result of better production efficiencies, a more favorable tax rate, and deferred expenses. Gap earnings per share was $1.18 and was impacted by our previously announced $24 million charge related to the acquisition of strategic transcatheter technology. A full reconciliation between our gap and adjusted earnings per share is included with today's release. I'll now cover the details of our first quarter results and then discuss guidance for 2019. For the quarter, our adjusted gross profit margin was 76.7%, compared to .5% in the same period last year. This improvement was driven primarily by the favorable impacts from foreign exchange and product mix. This quarter, we were pleased that operational efficiencies offset the continued investments in our manufacturing capacity. We continue to expect our full year 2019 adjusted gross profit margin to be between 76 and 78%. Selling general and administrative expenses in the first quarter were $280 million, or .2% of sales, compared to $256 million in the prior year. This increase was driven by field personnel related expenses, partially offset by the weakening 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 2019. Research and development expense in the quarter grew 20% over the prior year to $171 million, or .3% of sales. This increase was primarily the result of significant investments in our transcatheter structural heart programs, including an increase in clinical research for the Pascal system. For the full year 2019, we continue to expect research and development, excluding special items, to be between 17% and 18% of sales. Turning to taxes. Our reported tax rate was .2% for the quarter, or 10.6%, excluding the impact of special items. This rate included a 610 basis point benefit from the accounting for employee stock-based compensation, which was 190 basis points, or 3 cents, favorable to our guidance expectation. Our rate also benefited from lower U.S. taxes on foreign earnings, stemming from U.S. tax reform. We continue to expect our full year 2019 tax rate, excluding special items, to be between 12% and 14%. Foreign exchange rates decreased first quarter sales growth by approximately 3%, or $26 million, compared to the prior year. At current rates, we continue to estimate an approximate $60 million negative impact, or about 1.5%, to full year 2019 sales, compared to the prior year. FX rates positively impacted our first quarter gross margin by 180 basis points, compared to the prior year. Relative to our January guidance, FX rates positively impacted earnings per share by about a penny, reflecting our effective currency hedging program. Adjusted free cash flow for the first quarter was $139 million, defined as cash flow from operating activities of $1 million, less capital spending of $42 million, and excluding a $180 million payment related to our previously announced global intellectual property litigation settlement. Our first quarter free cash flow is traditionally our lowest quarter during the year, and we continue to expect full year 2019 adjusted free cash flow to be between $800 and $900 million. In the first quarter, we were on track in implementing capital expansion projects in line with our strategy to increase global capacity and redundancy. Turning to our balance sheet, at the end of the quarter we had cash, cash equivalents, and short-term investments of $963 million. Total debt was $594 million. Average shares outstanding during the first quarter remained level with the prior quarter at $212 million. We continue to expect average diluted shares outstanding for 2019 to be between $211 and $213 million. Turning to our 2019 guidance, we remain confident in achieving our expectations for financial performance in 2019, including guidance of $3.9 to $4.3 billion in total sales for Edwards. Our guidance for underlying growth rates remains unchanged for Edwards and our product lines. We continue to expect TAVR sales of $2.4 to $2.7 billion, TMTT sales of approximately $40 million, and surgical sales of $810 to $850 million. In light of Critical Care's fast start to 2019 and recent acquisition of CASmed, we now expect sales of $700 to $750 million up from our previous guidance of $670 to $710 million. For the full year 2019, we are raising our adjusted earnings for share guidance range to $5.10 to $5.35 up from our previous guidance of $5.05 to $5.30. This increase was reflective of our Q1 performance and incorporates the CASmed acquisition. For the second quarter of 2019, at current foreign exchange rates, we project total sales to be between $1.02 billion and $1.08 billion, an adjusted earnings for share of $1.27 to $1.37. And with that, I'll hand it back to Mike.

Thanks, Scott. The exciting developments that occurred so far this year reinforce our confidence in our focused innovation strategy and our longer-term outlook, and we anticipate a year of value creation as we pursue important therapies that will benefit many more patients. We look forward to launching a number of new technologies, as well as achieving important milestones across all of our product lines. We're confident that our differentiated strategy and focus on leadership will continue to create value and benefit the patients we serve. And with that, I'll turn the call back over to the operator.

Thank you. We're ready to take questions now. In order to allow broad participation, we ask that you please limit the number of questions to one plus one follow-up. If you have additional questions, please re-enter the queue, and management will answer as many as possible during the remainder of the call. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You'll press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. And thank you. Our first question comes from a line of Vijay Kumar with Evercore ISI. Please proceed.

Hey, guys. Thanks for taking my question. So maybe, Mike, I'll start with a big picture question. We had a positive ACC. It looks like Q1 tower trends came in pretty much in line with how you guys thought it would play out. I'm just curious on, you know, there's a lot of, you know, speculation in the market, right, in terms of what kind of acceleration that we could see for tower in the back half. And the guidance, the high end would imply at least 500 basis points of acceleration in the back half. I'm just curious on how should we be thinking of low risk? Is that going to be a contributor here in 2Q? It looks like the guidance had some contribution. How should we be thinking about share positions? Is low risk going to improve your share position? We just saw that Boston got Lotus approved in the US. Can you just put all of those into context for us?

Sure. Thanks, Vijay. Yeah, so we expected, obviously, the PARTNER III trial to be positive and that growth rates would accelerate moderately following Q1. And the early results have gone much the way we planned. So we really thought that this is the way it would play out. In terms of share position, you know, what are, well, maybe I'll just back up for a second. So our guidance is unchanged in TABER. When we issued our assumptions about competition, what we inferred is that Boston would get their approval mid-year and that there would be an approval of the portico technology by year end. I don't know that any of those have meaningful impact on our guidance. The Boston information is new to us. It's not something that we had looked at, but I don't anticipate that it's gonna have a significant impact on our guidance.

And maybe just on the CMS, NCD, it looks like there were some pluses and some minuses, right? So it looks like to maintain existing centers, I think some of the standards were raised. I'm just curious, I think, you know, in your prepared comments, you said there were some positive elements. Can you help us think on the NCD as it stands, as it's proposed, any impact at all on the market or for you guys in particular?

Well, yeah, you know, we believe that the old NCD is outdated and clearly needed to be modernized. And so we really commend CMS on tackling the challenge of improving access while trying to protect the quality of the patient outcomes. And we're encouraged by the progress that they made. Directionally, we feel like the draft moves in the right direction. It doesn't achieve equipoise between surgery and TAVR, but it does offer the opportunity to expand patient access. And we're optimistic that the final rule is gonna be an improvement over the current NCD. We just recall, though, this is just a draft, so it's gonna be hard to be exact with our assumptions about the impact.

Thanks, guys.

Thank you. Our next question comes from a line of David Lewis with Morgan Stanley, please proceed.

Thanks, just a couple questions for me. First, just talking about the market, Mike, I think you talked to Daniel today about more stable share for 2019. Obviously, in the first quarter, you talked about sort of global slight share loss. From here, is one of the drivers of acceleration throughout the balance of the year incremental share capture? And how should we think about the ultrancent terror the next three quarters? And simply, do we expect you to be talking about share stability and share capture over the next three quarters? And a quick follow-up.

Yeah, so, you know, big picture, we thought share was gonna be pretty stable. We anticipated with new entrants in the US that that would cost us some share, but we also thought that we would do pretty well outside the US, so not a big change. One of the important things in addition to, obviously, the strength of the partner three data is the introduction of ultra and centera. And as we indicated, those really didn't have impact on our sales growth rates significantly in Q1, but we're positive on the introduction of those products. We're just being very deliberate in terms of the way that we roll those out.

Okay, so you still believe stable share is the right way to think about 2019?

I think it is overall.

Okay, and then two questions on guidance, guys. One for Mike, one for Scott. Just, TMT was not expecting Pascal to contribute as much this particular quarter, so Mike, are you still thinking about the contribution of Pascal and Cardioband the same way, or should we have kind of larger expectations for Pascal and maybe less so for Cardioband? And then for Mike, just on the guide for earnings, beat by 10, raise by five, just kind of walk us through the bridge. I'm not sure if incurrency was pretty neutral. I'm wondering, is that just reinvestment or CAS medical dilution? Thanks so much.

Yes, so certainly the fact that Pascal came a couple of months earlier just reinforced our confidence in the guys. We always felt that there would be more Pascal than there was Cardioband, and the Cardioband, that supply situation is continuing to improve, but we're also very pleased with the introduction of Pascal.

And David and Scott, on the guidance increase, we're increasing both ends of guidance by a nickel, and if you assume that we beat by about a dime versus our guidance for the first quarter, you know, keep in mind, we expect some higher spending in Qs two through four, mostly because we have some delayed spending from the first quarter and continued investments that we're making in the business. Tax is also gonna be a tailwind for the rest of the year versus our January guidance, but it's not large enough to offset the higher spending.

Thank you. Our next question comes from a line of Bob Hopkins with Bank of America Merrill Lynch. Please proceed.

Oh, great, thanks for taking the question. First question is just, I wonder if you could talk a little bit about the reaction to the data since the ACC meeting on the low-risk side. And the reason I asked the question is that, obviously, as you remember, back in the intermediate-risk data, it drove a bolus of activity and revenue before the actual approval. And the low-risk data, I think, is even more impressive than the intermediate-risk data. So I'm just curious what the reaction has been, and is there any reason why you wouldn't see a similar type of reaction in the marketplace to the low-risk data as you did with the intermediate-risk data?

Yeah, thanks, Bob. You gotta remember, when we introduced that intermediate-risk data, it was also at a time that we were launching Sapien 3. So there were a couple of things going on at the same time. We always assumed that there'd be favorable trial results, but we didn't assume superiority. And we didn't think superiority was necessary to change practice. But having said that, it is a boost. We've heard a lot of favorable comments from clinicians. We just know from experience that the practice of medicine changes pretty slowly with guideline changes, with education, with awareness. And so we're thoughtful about just how much that changes. And again, probably think of it more as a ramp than a step.

Okay. And then on Pascal, I just wanted to get a little bit better sense for the launch. Could you just kind of help us understand where is Pascal launched today in Europe, and how does that rollout go over the course of the rest of the year? I understand you're keeping your guidance the same, but I'm just curious where it's actually launched today. And also just specifically, maybe now that PCR is right around the corner, what will we see on Pascal at PCR? Okay, thanks, Bob.

So again, we got the CE mark a couple of months earlier than we expected, and we are launching on a pretty controlled basis in Europe. We're very focused on physician training, procedural success, great outcomes, because it's really a different procedure. It's a different technology than physicians have experienced in the past, and we're being very deliberate about that. They're ready for Pascal, and our early experience demonstrates that there are many patients that could benefit from this therapy. In terms of PCR, we do expect there to be data there, but even before that, at this meeting, DGK, we would expect to see the mitral CE mark trial. This is the class, the 62 patients, at 30 days at that meeting, and I think you'll see some more information there. And then at PCR, there's a chance that we'll see six-month results on that same group of patients.

Great, thanks very much.

Thank you. Our next question comes from a line of Lawrence Beegelson with Wells Fargo. Please proceed.

Good afternoon. Thanks for taking the question. Mike won on Sapient 3 Ultra, won on low risk. So Mike, could you give us a little bit more color on the launch of Sapient 3 Ultra in the US and Europe? Where are you in the process? And I'm asking because we've heard that there's been some issues with the sheep. Is there any validity to that?

So I would just, in general, say that we've been more disciplined than we originally anticipated with Ultra. We've learned with experience that the system is different enough from Sapient 3, and that as we really try and drive super high performance, it's beneficial for us to be careful. And as you noted, it is a different sheath, and so it's something that clinicians need to learn. We've gotten very favorable feedback on the Ultra valve, but I'll also tell you that Sapient 3 remains immensely popular with our clinicians. So we're rolling that out at this point. We've only began launching in Germany just late in the quarter. So maybe that gives you some insight into how it's going.

Thanks for that, Mike. And then on low risk, just a two-part question here, Mike. So first, is FDA gonna wanna see the bicuspid registry data and the lethal thrombosis data from partner three before approving low risk? And if so, what's the status of those two data sets? And then secondly, Mike, what's your expectation for the label with low risk with regard to a native versus tricuspid valve? In other words, is it possible that bicuspid could be off label? Thanks for taking the question.

That's a lot of questions, Larry. I hope I remember them all. So let me start from the beginning. We don't necessarily think that FDA is gonna hold it up while waiting for the registry on bicuspid. We think that what was submitted should be adequate for approval. I'll just add that bicuspid is not off label today, and we don't expect that to be a change when the new technology is ultimately approved. In terms of the questions about lethal thrombosis, we're gonna continue collecting that, but we think that the data submitted is adequate for approval. Thanks, Mike.

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

Thanks. Mike, could you just confirm which tricuspid product do you expect to get into a US pivotal trial by the end of this year? I'm assuming that's CardiBan, just based on what you said before, but just wanted to confirm that.

Now, that's a good catch, Chris. We had a little subtle change, actually, into what we're guiding. And you're right, we had indicated that it was gonna be CardiBan first, but at this point, we have three technologies that are going through early feasibility studies. So that includes Forma, Pasquale, and CardiBan. And we'd like to, we're just trying to send a signal that we're gonna fully evaluate that data before we make decisions. We're committed to start a pivotal trial by the end of the year, but we're gonna sort through that data first.

Okay, and then just an update on the status of the active trial that had begun and then was paused. Where are you guys with that at this point?

Yeah, so we did pause that trial while we were evaluating trial design. And remember, some of this was related to the fact that there was co-app data that was relatively new once that trial had started. So we plan to reinitiate that enrollment and get that going once we have that trial approved, that we expect that to happen later in the year.

Okay, and then this last one for me, I just wanted to understand your comments on the European TAVR market in the quarter. It sounded like things may have slowed down a little bit there versus what we saw in 2018. So would you characterize it that way? And then I just wanna make sure from a competitive standpoint, nothing has changed there in terms of stability versus where you were in 4Q.

No, I think that's right, Chris. We do feel like the growth rate in Europe was a little slower in terms of the total number of procedures, a little slower than it had been last year. Matter of fact, we think that was true globally. It was kind of interesting. Things seem to get off to a slower start in January, almost around the globe. There may have been a little bit of an impact from billing days, but it was a little bit slower growth in the quarter. We seem to see that in 2018 as well. So we're examining that more closely on a seasonal basis.

Thank you. Our next question comes from the line of Robbie Marcus with J.T. Morgan. Please proceed.

Hi, thanks for the question. With first quarter coming in maybe a little bit below street estimates, sort of in line with your guidance, with superiority of the Lowrish trial, can you just help us understand the cadence of growth in TAVR to get to the midpoint of the guidance range and maybe help us understand growth in Japan versus US versus Europe?

Sure. As we've talked about in the past, we're probably better at predicting the long-term growth rates than we are to growth rate in a given quarter. There's a lot of things that influence it. We do think that there's gonna be a sequential step up in growth. We think the approval isn't important. And so we would think that what we would see in the near term would be some of those borderline kind of patients, whereas longer term, once we actually have an approval in place, that that would help stimulate the growth of the overall number of procedures. What was the second part of your question? Oh yes, Japan. So yeah, Japan, we keep talking about, this is a tremendous number of elderly people and therefore elderly patients, and we believe the AS burden is very large in Japan. And we've been very pleased with the growth rate in Japan, but the addition of centers has been quite deliberate in Japan, and so that growth rate, although very positive and a contributor to our overall growth, has still continued to move at a relatively slow rate. And we look forward to unlocking the potential of that opportunity over the long term.

And maybe I could just do one quick follow up. The cash flow at X, the $180 million settlement was negative in the first quarter. Just walk us through your confidence in hitting the guidance and how we should think about the rest of the year in terms of cash flow. Thanks.

Yeah, Scott, our, yeah, it was $181 million cash flow from operations if you add back the payment to Boston Scientific, our overall cash flow estimates for the year have not changed at all. We're still at $800 or $900 million for free cash flow. And just remember, the first quarter is always low, just seasonally. We've got a lot of confidence that we're gonna be on track to do the $800 or $900 million for the full year.

Thanks a lot.

Thank you. Our next question comes from a line of Rick Wise with Stiefel. Please proceed.

Good afternoon, everybody. Hi, Mike. Back to ACC and the low risk data we saw from your major TAVR competitor. A couple of docs and centers I've spoken with recently are suggesting that the higher PACER rate in the other data set has prompted them to shift a little more in your direction in terms of share. Are you seeing that? Is that something that, I know a lot of moving pieces in all these markets, but is that an impact that you're seeing or we should expect to see?

Yeah, thanks, Rick. Even though that feels like a long time ago, it really hasn't been so long since ACC and it's hard to deduce any significant trends at this point in time. In terms of the difference in PACEME grade, that's probably best answered by doctors. You know that it's always challenging to compare various clinical trials, but we're very proud of the results that we generated in partner three and we think the results speak for themselves.

Okay, and back to Mitral. I may have missed it. Did you all reiterate your $40 million projection for 2019? You may have, I apologize if I didn't hear it. And just reflecting on the first quarter number and you were asked another way, but just help us think about if 40 million is still the number for 19, help us maybe frame to ourselves a little better the drivers at the trials and accelerating less headwinds for Cardioband. Any incremental color would be great. Thank you so much.

Yeah, thanks very much. So what we said is that we have increased confidence in achieving the approximately $40 million sales for total TMTT in 2019. You know, I'll add that of course the litigation adds some risk to the sales projections, but overall we feel quite good about it. We think that there's gonna be a ramp that lifts over time and you know, Pascal was just introduced partway through the first quarter. So we were pleased with the first quarter results. And as we indicated before, we think there's gonna be more Pascal sales than Cardioband. One of the things that's gonna help out Cardioband is as we transfer production from the existing site into Edward's sites, we expect that supply condition to gradually improve. So yeah, Cardioband will become more important, but Pascal will become more important at the same time. Appreciate it, thanks. Sure.

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

Good afternoon and thank you for taking the question. I wanna understand a little bit better the approach to selling Centera in Europe, similar to how you sort of outlined the ultra marketing efforts. Could you please give us an update on Centera?

Sure, Joanne. Yeah, I think we would say that we probably have slowed down the launch of Centera versus our original rollout plan. The original plan called for minimal proctoring based on the site feedback, but we're increasing the training and the proctoring requirements. And that's gonna affect the ramp. So even though we get some very, very positive feedback from those folks that have gone through the training and the proctoring, we find that it is a valuable feature. And so we've only gone to a limited number of Centera so far and we look forward to ramping that up during the course of the year.

And as a second question, I wanna talk about pricing a little bit. What are you seeing out there on the competitive landscape in terms of average selling prices? And is there a stage at which you create internally sort of a two tier system to more competitively compete on price? Thank you.

Thanks, Joanne. So no, we continue to see much of the same trends that we've talked about in the past in pricing. So pricing is pretty comparable in the US today. In Europe, there's a big delta between us and I'd say all of our competitors. We do not plan to implement a tiered pricing strategy. We are thought here as to introduce the very best technology that we have available. And we think ultimately the Ultra Valve will be our workhorse product for Europe and the rest of the globe.

Thank you.

Sure.

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

Hi, Mike. Thanks for taking the question. You mentioned the newer and smaller centers grew faster. That's been a trend that you've talked about for several quarters. It seems though that the larger older centers, if you will, would be most prepared fundamentally to take advantage of perhaps screening more patients -a-vis the low risk approval when it comes. Could you talk about whether or not that is the case in your mind? And also as it relates to the, at the center level, the bottleneck used to be the screening process. Patients would come in, want TAVR, they didn't fit into the risk profile approved by FDA. With that criteria sort of liberalized to some extent, how do you think that bottleneck will change if at all or will it get better at the center level? Will the bottleneck change to a different point or will it be ameliorated to some extent altogether?

Well, thanks, Jason. Let me take a shot at answering your question and you can tell me if I get there or not. You're right. The big centers are the best prepared. They have the most experience and they're the best staffed in the business. And yes, if we get some streamlining and modernizing of the NCD, it clearly will improve that process and should lead to less patient visits and a process that's not as prolonged as it is today because even in the best centers, it can be painful. So having said that, so that sounds like it's gonna ramp up. I'll also mention that it's those same large centers that also are taking on competing therapies like Mitral and Tricuspid. So they also have a little bit of split attention. So it's a little bit of a mixed bag. We have a difficult time being very accurate with that at this point.

That's fair. And just going back to the broad question about how low risk is going to impact the TAVR market and in general, not only in the United States, but my question is really globally and also how your share comments fit into that. Do you expect low risk, the data, to over the next, say, four to eight quarters have an impact on acceleration, not only in the United States, but outside the United States? And I guess to bring Japan into this discussion, I'm sure they look at these data. Well, do you think it'll have an impact on the government with respect to how many centers they're allowed to do this procedure? Do you think those data are compelling enough to move the needle there?

All right, I'm gonna take a shot at answering. There are several questions there, Jason. First of all, the data was really positive and we think it's gonna have some profound impact in the long term. As we've mentioned, it's gonna take some time. The practice of medicine changes slow for a number of reasons. Speaking of international, we've heard a lot of excitement from clinicians, but we expect the impact to be a little bit more modest in the near term because the guidelines are gonna take some time to change. The actual low risk approval probably doesn't come till 2020. And also reimbursement is important in many of these countries and that's likely to change slowly. In Japan, although the state is gonna be very powerful, one of the constraints there we believe is there's simply not enough centers to be able to handle the population and the referral patterns in that country. So there may be constraints that don't have a lot to do with the excellent partner three data.

Okay, thanks Mike.

Sure.

Thank you. Our next question comes from one of Matt Taylor with UBS. Please proceed.

Hi, thanks for taking the question. So the first question I wanted to ask was just simply comparing qualitatively what you expect from the ramp once you do get approval and reimbursement for low risk versus intermediate. Do you think it could be quicker, the same, slower? Do you have no opinion? The data was very good.

Yeah, thanks. That's a tough one to call. We do think it's gonna be a tailwind and it'll be favorable. But again, we expect more of a ramp with more of a long term impact.

Okay, and I just wanted to ask one follow up on the MTB because for some of the smaller centers, we will see how it ultimately shakes out with the final. It'll change things. And so I was wondering from your perspective as an organization, do you have to do things differently to help them get over the hump? Are you preparing for that to help do some training for them or help them streamline their screening? What do you do to help prepare for that?

Yeah, so I'm not sure that the training is gonna change. It's probably gonna be the same. So many of the centers that need to be in there obviously need to have established capabilities. They need to have the capability to handle catheter based procedures. They need to have surgical capabilities. It just, I think the new requirements make it accessible, the potential to make it accessible to a larger group of hospitals. But they're still gonna need, if the draft is adopted, 300 PCIs and so forth. So there's a limitation. We don't expect the number of centers to approach. For example, the more than 1,100 centers today do surgical valve replacements, but there is the potential for it to come up. And we think that we'll be able to provide the support necessary. Okay, thanks a lot.

Thank you. All right, next question comes from a line of Josh Jennings with Cullen and Company. Please proceed.

Hi, good evening. Thanks for taking the questions. I was just hoping to start on Sapient 3 Ultra and hoping you could potentially remind us on how many patients you needed to get CE-MARC and NFDA approval, but really the root of my question is just whether or not we should be expecting Sapient 3 Ultra to have a similar pacemaker rate as Sapient 3. I think the only design difference is the added skirt feature. But if you could help us with that, just because the pacemaker rate was so low in the Part 3 trial, I just wanted to sanity check expectations for the Sapient 3 Ultra pacemaker rate, if that is gonna ultimately become the workhorse in that rich portfolio.

Yeah, thanks Josh. Say I'm not gonna comment on the number of patients necessary for the CE-MARC. I don't know that we would share that and I don't think I know it myself anyway. But in terms of the permanent pacemaker rate, I'd say we don't expect it to be very different because the frame is compact and our balloon expandable designs are relatively similar and very different from the designs that you'll see from our competitor's self-expanding designs. We think there really is gonna be a difference, but we're gonna have to just see that play out in the data, but we're not expecting it to be substantially different.

Excellent, and just my follow-up, there was some buzz generated at ACC around prosthesis patient mismatch and potentially self-expanding valves serving patients better that had small anuli. Can you just help us think about Edwards positioning in those small anuli cases and just wanted to, again, sanity check that you don't think that Sapient 3 has been losing share in those smaller valve patients. Thanks a lot for taking the questions.

Sure, well, you saw the distribution of valve sizes that was presented in the Partner 3 data and that had a full representation of all of our valve sizes. And I think the results kind of speak for themselves. We had 99% of the patients that were alive and without significant stroke at a year in this really important data set. So I think it kind of answers the question about patient prosthesis mismatch. I think the data is sort of the ultimate arbitrator of that.

Great, thanks.

Sure.

Thank you. Our next question comes from a line of Matt Misick with Credit Suisse. Please proceed.

Hi, thanks for taking our questions. Just two follow-ups for me. Mike, if I could, on the small centers, the new centers that you mentioned, contributing in the quarter, you talk a little bit about the pace of growth in these centers, whether there's been any effect of either this anticipation of Partners 3 or anticipation of NCD that you've seen in terms of the pace of growth and how you remind us how you expect maybe that to play out this year or where it might go over time and then one follow-up for Scott.

Yeah, so I think what we're really saying is that if you take a look at the new centers, their growth rate was just higher than those centers that are much larger and been around for a while. I don't know that that's really affected by the NCD or Partner 3. I think it's much more attributed to the fact this is a new group of patients and now they have a local referral pathway that wasn't available before and that that's the key driver of their growth.

I see, and I was actually speaking more of the growth of the number of centers. In other words, have you seen a pickup or a slowdown or a pause or anything around the number of new centers opening up just because of the things I mentioned?

Yeah, so far the number of new centers has been pretty consistent here over the recent past and if the draft NCD goes through, it's likely to stay at a relatively consistent basis. There would be more centers added. We think they would be added gradually, but again, we don't think it comes anywhere close to approaching the number of centers, the 1,100 plus centers that do surgical ABR.

Got it, thanks. And then Scott, you mentioned manufacturing efficiencies. It sounded like they were sort of a pleasant surprise in offsetting some of the investments that you've been making in capacity. Can you talk about that a little bit and the sustainability of that and quantify it or any color you can provide as to how that worked?

Sure, so we actually gave a little bit of a preview to this at the investor conference in December and we had a slide that outlined some of the initiatives that we're really focused on including improving our yields, really leaning out our operations, getting harmonized across our different facilities around the world and making sure the logistics are as efficient as they can be. And then we also spent a lot of time focused on our supplier base and trying to make sure that we're being as efficient as possible in supplying components for our different products. So all that together has left us in a pretty favorable position not just in the first quarter, but we think for the rest of the year as well, that efficiencies may be able to offset the incremental expenses associated with the continued investment in our capacity and making sure that we've got redundant production facilities around the world.

That's terrific, thanks for the color.

Thank you. Our next question comes from the line of Bruce Nudel. Please, with SunTrust, please proceed.

Hi, guys, good afternoon. Most of the questions have, of course, been asked, but Mike, just on a qualitative level, what's been the reaction of patients and physicians to Partner 3, you know, and the Mick Jagger effect, I should add, just given, especially in Partner 3, what looks like a very discernible benefit in hard outcomes. I mean, how eye-popping is this to your clinician base and what response have patients had?

Yeah, thanks, Bruce. You said it right. There's been an incredible amount of excitement around this. It was really eye-popping data, and the clinicians were truly thrilled, especially those that have had a long history with this therapy and have seen it over the many years, just get better and better. And this really feels like a big moment. I think for those of us that are very close to this and for the clinicians as well, we felt like this was one of those top 10 moments in the history of the treatment of heart valves that get to see these kind of results. So it was amazing. I'd say the results were even beyond our own expectations. But having said that, we know all too well that the practice of medicine changes relatively slowly and it's going to take approval and coverage and the rest of it to happen, but we're really encouraged on a long-term basis.

And the one thing I did notice about the proposal for the NCD was it did look like the volume requirements have gone up, you know, not for starting an institution or a program but rather maintaining one. Do you feel that's an area of optimization or do you think the 40 SABR plus TABR cases per year is about the right level and how much of an impact might that have on sites that can participate?

Yeah, well, you know from a big picture perspective, we look forward to the day that we're not measuring quality with a surrogate-like volume, and so I look forward to that becoming the reality. But having said that, I do think CMS was more moderate in terms of the volume requirements and we're not particularly alarmed by the requirements to maintain a program. Thanks so much. Congratulations. Sure. Thank you.

Thank you. Our last question will come from the line of Daniel Atikai with SBB Lerig. Please proceed.

Hey, guys. Good afternoon. Thank you so much for taking the question. And, Mike, sorry to ask this question again. I feel like you have addressed it, but I guess just curious on maybe a little bit more color about what gives you confidence in the growth acceleration as we move through the year. I appreciate the low-risk indication, but are you having conversations with the centers about their expected volume increases that gives you that confidence, because it is a pretty meaningful growth acceleration? And then follow-up question, I'll just ask it now because I know we're at the end of the call, but you guys talked about at the ACC, at the analyst meeting, about the potential impact to intermediate-risk patients and really blowing the doors off that. Those are my words, sorry. But really opening up that opportunity and accelerating penetration there. I know it was only two weeks in the quarter, but did you start to see that after we saw the low-risk data? Thank you so much.

Sure. So the two things. One is, why do we think that the volume is going to go up? You know, we just think that that data that was presented at ACC and the New England Journal was really compelling data, and that will stimulate the growth of the market. Secondly, we think the new products are very much making a difference as well. And so we look forward to that, and that's going to be important. And the NCD could have some impact even beyond that. So all those are favorable. In terms of what we've seen so far, I would say it's going very much as planned. We expected it to be positive, and it's very early to do any predicting, but things are at this point proceeding much the way that we anticipated.

Thanks, guys.

Yep, thanks for the question. Well, the Shot Clock is running out on this call, and I want to thank everybody for their continued interest in Edwards, and Scott and I welcome any additional questions by telephone.

Thank you for joining us on today's call. Reconciliation between GAP and non-GAP 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 the website at edwards.com. If you missed any portion of today's call, a telephonic replay will be available for 72 hours. To access this, please dial -660-6853 or -612-7415 and use the conference number -886-82. Additionally, an auto-view replay will be available on the Investor Relations section of the Edwards Life Sciences website. This concludes today's conference. Thank you for your participation.