愛德華生命科學 (EW) 2017 Q4 法說會逐字稿

Greetings, and welcome to Edwards Lifesciences' Fourth Quarter 2017 Results. (Operator Instructions) As a reminder, this conference is being recorded.

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

Welcome, and thank you for joining us today. Just after the close of regular trading, we released our fourth quarter 2017 financial results. During today's call, we'll discuss the results included in the press release and the accompanying financial schedules, and then we'll use the remaining time for Q&A. Our presenters on today's call are Mike Mussallem, Chairman and CEO; and Scott Ullem, CFO.

Before we begin, I'd like to remind you that during today's call, we will be making forward-looking statements that are based on estimates, assumptions and projections. These statements include, but aren't limited to, financial guidance and current expectations for new product approvals, benefits and introductions, clinical and regulatory time lines, competitive matters, expectations for therapy adoption and foreign currency fluctuations. These statements speak only as of the date on which they are made, and we don't undertake any obligation to update them after today.

Additionally, the statements involve risks and uncertainties that could cause actual results to differ materially. Information concerning factors that could cause these differences and important safety information about products may be found in our press release, our 2016 Annual Report on Form 10-K and our other SEC filings, all of which are available on our website at edwards.com.

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

And now I'll turn the call over to Mike Mussallem. Mike?

Thank you, David. We're pleased to report robust fourth quarter results, including double-digit organic revenue growth in each region, driven by increased adoption of our therapies. We ended the quarter strong, with total adjusted sales of $909 million, representing 16% underlying growth, as we did not experience as much of a slowdown as we typically see in the last weeks of the year. Our growth rate strengthened in the fourth quarter, contributing to full year 2017 results of 16% underlying growth and over $3.4 billion of sales. Each of our product lines performed very well, as demand for our innovative portfolio exceeded our expectations.

Profitability was also strong in 2017, with adjusted EPS growing over 30%, even as we continued to invest aggressively in our technology pipeline and infrastructure. And we continue to bring meaningful therapies to large unmet patient needs and further strengthen our leadership positions.

Turning to Transcatheter Heart Valve Therapy. Adjusted global sales were $540 million, up 22% on an underlying basis over the prior year, including the adjustment for the consumption of stocking inventory in Germany. Double-digit TAVR sales growth across all regions was driven by continued strong therapy adoption, and our average selling price remained stable overall. In the U.S., Transcatheter Heart Valve sales for the quarter were $327 million, representing 22% growth versus the prior year. We believe overall U.S. procedure growth was roughly in line with our growth. These strong results were driven by robust therapy adoption across the more than 575 TAVR centers, with particularly strong growth in lower volume hospitals. And our best-in-class SAPIEN 3 valve continued to provide excellent outcomes, including faster patient recovery, enhanced quality of life and exceptional value to the healthcare system.

We continue to be encouraged by the strong international adoption of TAVR, particularly when overall therapy penetration is still relatively low. Outside the U.S., our fourth quarter underlying sales growth rate was 22%, with all regions contributing. Double-digit procedure growth in Europe continued this quarter, and our growth was also aided by a recovery from the interruption in French sales last year. Growth in countries with lower TAVR adoption rates continued to outpace countries where therapy is more established. And we continue to see strong TAVR therapy adoption in Japan, driven by SAPIEN 3, and new centers continue to become qualified. As our fastest-growing region this quarter, we believe aortic stenosis still remains a large undertreated disease in Japan.

Turning to our near-term product pipeline. We continue to expect a CE Mark for our SAPIEN 3 Ultra system this quarter. This system features advancements designed to help TAVR heart teams simplify procedures and reduce the risk of complications. The Ultra system also adds a taller outer skirt on the valve, which is designed to further improve its outstanding performance. And we continue to expect the U.S. introduction of this system in late 2018.

Additionally, we expect to receive CE Mark for our CENTERA system this month, which we will introduce as a premium self-expanding system. We remain enthused by this feature-rich platform and encouraged by its excellent early clinical results, and we plan to initiate a U.S. pivotal trial in 2018.

As noted at our December investor conference, we've completed enrollment in the main study of our PARTNER III trial for low-risk patients with severe aortic stenosis. We anticipate data from this trial will be presented at ACC 2019 and to receive FDA approval later that year. We're also enrolling our groundbreaking EARLY-TAVR Trial, the first of its kind to study severe aortic stenosis patients without diagnosed symptoms.

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

Turning to Surgical Heart Valve Therapy. Sales for the fourth quarter were $205 million. They're up 6% on an underlying basis, driven by strong unit growth of aortic valves across all regions and share gains driven by new products. Adoption of our INTUITY Elite valve system in the U.S. has been impressive and aided by the CMS new technology add-on payment that went into effect on October 1. Utilization this quarter increased in centers already using INTUITY as well as new hospitals adopting this rapid deployment valve. This therapy is becoming a meaningful portion of our surgical portfolio and remains on track to represent approximately 25% of global aortic sales in 2018.

Interest in our INSPIRIS RESILIA aortic valve in Europe is increasing, as it offers an attractive option for active patients. The INSPIRIS valve features our latest RESILIA tissue and our VFit feature designed to accommodate future TAVR. Last month, we began the U.S. launch and continue to expect to introduce this new class of resilient tissue valves in Japan this year, pending reimbursement approval.

We're pleased to announce that we recently received CE Mark for Harpoon, our recently acquired beating-heart mitral valve repair system. We're currently focused on integration activities and expect a midyear 2018 launch in Europe. While we're enthused by this innovative therapy to treat degenerative mitral regurgitation, we expect sales to ramp slowly as we focus on achieving a high procedural success rate.

In summary, in Surgical Heart Valve Therapy, we continue to expect a full year 2018 underlying sales growth rate of 2% to 4%.

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

During the fourth quarter, expansion into the global Enhanced Surgical Recovery opportunity continued, aided by our noninvasive ClearSight solution, primarily in the U.S. and China. As hospitals continue to adopt ESR to improve patient outcomes, we expect this program to be a significant growth driver in Critical Care over the longer term.

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

In summary, we continue to expect full year 2018 underlying sales growth in Critical Care of 6% to 8%.

Turning to Transcatheter Mitral and Tricuspid Therapies. We remain enthusiastic about the opportunities in our transcatheter therapies to treat patients suffering from tricuspid and mitral disease. We have estimated this to be a $3-plus billion opportunity by 2025. Today, I will cover some select updates. Beginning with transcatheter mitral repair, during the quarter, we continued the enrollment of U.S. patients in the ACTIVE Trial for Cardioband in the mitral position. We'll remind you, we already have CE Mark for this product in Europe and in the fourth quarter, we recorded in THVT approximately $1 million in commercial sales. In the fourth quarter, we prioritized supply to our clinical trials and began integrating the Cardioband supply chain into the Edwards Quality System. We expect sales to continue at a modest level in Q1 and ramp to approximately $15 million for the full year 2018. We believe that the annular reduction provided by Cardioband can be an important first-line therapy for many mitral patients.

We expect to complete enrollment this year of the CLASP CE Mark trial for our PASCAL Transcatheter Mitral Repair program, and we're on track to initiate our PASCAL U.S. trial in 2018. We're encouraged by our early clinical experience, and our European launch remains planned for 2019.

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

In our tricuspid repair therapies, we're pleased to report that we have received approval to begin our Cardioband tricuspid U.S. early feasibility study and we're working to activate centers in the first half of 2018. Our CE Mark trial continued to enroll, and we remain on track to begin an introduction by the end of this year. Overall, we remain optimistic about our portfolio of transcatheter mitral and tricuspid offerings and achieving our significant clinical milestones in 2018. And we continue to aggressively invest to realize our goal of launching at least 1 new therapy per year.

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

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

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

Turning to the fourth quarter. Our strong sales performance in transcatheter valves drove significant top and bottom line growth versus the prior year. Underlying sales grew 16%, and adjusted earnings per share grew 25% to $0.94. GAAP earnings per share was $0.17, driven by several onetime adjustments, including a noncash charge of $211 million or $0.98 per share, related primarily to the enactment of the new U.S. tax law, partially offset by a gain from litigation Mike mentioned. A full reconciliation between our GAAP and adjusted earnings per share is included with today's release, and I will provide further details on the impact of tax reform a bit later.

I'll now cover the details of our results and then discuss guidance for 2018. For the fourth quarter, our gross profit margin was 73.5% compared to 72.2% in the same period last year. This improvement primarily reflects the benefit of a more profitable product mix led by growing sales of TAVR, partially offset by expenses associated with the planned closure of our manufacturing plant in Switzerland, which was announced last year. We continue to expect our 2018 gross profit margin, excluding special items, to be between 74% and 76%. Our rate should be lifted by an improved product mix, but tempered by capacity investments.

Selling, general and administrative expenses in the fourth quarter were $267 million or 30% of sales compared to $234 million in the prior year. This increase was driven by personnel-related and performance-based compensation expenses and a strengthening of the euro against the dollar. We continue to expect SG&A, excluding special items, to be between 28% and 29% of sales for the full year 2018, which includes the continued suspension of the Medical Device Excise Tax until 2020.

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

Turning to taxes. Our high reported tax rate for the fourth quarter was driven by a $211 million expense related primarily to the implementation of U.S. tax law changes. The expense is comprised of $289 million of tax on unremitted foreign earnings, which is payable over the next 8 years. This amount is offset by $65 million related to adjustments of tax accounts arising from a lower U.S. corporate tax rate and a $13 million discrete benefit from a tax audit settlement. Excluding the impact of tax reform and other special items, our tax rate would have been 21.3%. This rate includes an approximate 200 basis point benefit from the new accounting for employee stock-based compensation, consistent with our guidance.

Starting in 2018, the benefit of our lower U.S. tax rate will be partially offset by a higher foreign minimum tax and other items. We expect the net impact from tax reform to lower our effective tax rate in 2018 by approximately 300 basis points. We now expect our 2018 tax rate, excluding special items, to be between 15% and 18%, which includes an estimated 2 to 3 percent point benefit from employee stock-based compensation accounting rules implemented in 2017.

Foreign exchange rates increased fourth quarter sales by approximately 2% compared to the prior year. Compared to our October guidance, FX rates positively impacted earnings per share by less than $0.01.

Adjusted free cash flow for the quarter was $174 million. We define this as cash flow from operating activities of $364 million, less capital spending of $77 million and excluding the receipt of the $113 million litigation payment mentioned earlier. For the full year 2017, adjusted free cash flow was $695 million.

Turning to our balance sheet. At the end of the quarter, we had cash, cash equivalents and short-term investments of $1.3 billion, the majority of which is held outside the United States. Total debt was approximately $1 billion.

In November 2017, we entered into an accelerated share repurchase agreement for $150 million. In total, we repurchased 2.3 million shares during the quarter for $251 million. As a result of these repurchases, average shares outstanding during the quarter declined to 215 million. We continue to expect average diluted shares outstanding for 2018 to be between 213 million and 215 million.

And now I'll finish up with our 2018 guidance. Given our strong fourth quarter momentum combined with the strengthening of the euro, at current exchange rates, we now expect to be at the higher end of all of our 2018 full year sales guidance ranges communicated at the investor conference in New York in December. Those ranges are: $2.1 billion to $2.4 billion for Transcatheter Heart Valve Therapy; for Surgical Heart Valve Therapy, $810 million to $850 million; and for Critical Care, $610 million to $650 million. For total Edwards, $3.5 billion to $3.9 billion.

The full year 2018 adjusted earnings per share we expect to be between $4.43 and $4.63, up from $4.10 to $4.30, driven by a lower projected tax rate and higher projected operating performance. This includes the investment of a significant portion of the tax savings to accelerate growth initiatives consistent with our strategy.

Lastly, we now expect full year 2018 free cash flow to be at the higher end of the $700 million to $775 million range that we shared at our investor conference in December.

For the first quarter of 2018, we project total sales to be between $900 million and $950 million and adjusted earnings per share of $1.04 to $1.14.

And with that, I'll hand it back to Mike.

Thanks, Scott. Our strong 2017 reinforces our confidence in our focused innovation strategy and our longer-term outlook, and we look forward to an exciting 2018 as we continue to aggressively invest in our future. We expect to achieve a number of important milestones supporting progress in the development of transformative therapies across all of our product lines. Our differentiated strategy continues to benefit patients and serve us well as we plan for future growth and value creation. And we're focused on staying at the forefront by creating strong evidence for promising new therapies for patients we serve in the many years to come.

And with that, I'll turn it back over to David.

Thank you, Mike. We're ready to take questions now. (Operator Instructions) Operator, please go ahead.

(Operator Instructions) Our first question comes from the line of Bob Hopkins with Bank of America.

The first question I wanted to ask about was really the TAVR performance in the quarter because, obviously, it was stronger than I think most everybody was looking for. So maybe I'll focus the question on the U.S. performance. Can you just talk about what went on in the quarter in terms of both your performance in the market, and really, in your minds, what drove the outperformance in the quarter? How broad-based was it and how sustainable is it?

Yes, thanks, Bob. So the key driver was therapy adoption. Therapy adoption in the U.S. continues to be rapid. We estimated it was somewhat consistent with our own growth, so therefore, you're talking about over 20%. What was a little different -- well, the other thing that I mentioned in our comments here is the procedures sort of grew broadly across the network, but particularly strength in lower-volume centers. And so we take that to mean places where there may be just a lower adoption rate around the U.S. seemed to grow faster. And then we also didn't see the typical seasonal falloff that we see as well. And so that combination of effects was very meaningful, and we were very pleased to see it.

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

Yes, so let me start with CENTERA, as you mentioned it. We expect to receive that CE Mark this month, and we're really looking forward to launching that. We're going to introduce it as a premium self-expanding system. We're very enthused about it. It is feature-rich and the early results are terrific with it. The label is still not clear and it's going to be probably a little different by country. But we're pleased to be able to launch that, and then we expect to bring that to the U.S. later on this year and then begin a trial, an IDE trial later at that time. Ultra, again, we're expecting a CE Mark this quarter. And it has a lot of advanced features and particularly, we think it's going to help simplify these procedures and reduce the risk of complications. And this taller skirt is not to be underestimated as well. We're so pleased with the performance of SAPIEN 3 already. We think Ultra has a chance to even take it to the next level.

Our next question comes from the line of Larry Biegelsen with Wells Fargo.

Scott, at the analyst meeting, you expected sales growth to ramp through 2018. Is that still the case? And could you remind us why that's the case?

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

Okay, that's helpful. And then on the tax rate, Scott, the 15% to 18% is a relatively wide range. Could you talk a little bit about what would get you to the high and low end on that?

Sure, thanks. And as you know, there's still guidance coming out from Treasury and the IRS and the AICPA is asking questions, and so there's some uncertainty. We also have the excess tax benefit that could cause fluctuations within that 15% to 18% range. But as you know, typically, we'll guide people to the middle of that range for modeling purposes.

Our next question comes from the line of David Lewis with Morgan Stanley.

I wanted to talk about a couple of the big debates from the Analyst Day, if I could. And Mike, maybe one for you, and one for you, Scott. So Mike, I know people talked about the quarter already, but as I think about the guide, the real focus for investors at Analyst Day was your expectations for market growth seemed more draconian than I think people were expecting. I think you're obviously taking THV guidance to the high end of the range. So in relative to your view at Analyst Day, you're clearly feeling better about the market this year. So my real question is, that high end of the THV range, do you feel better about the market in 2018 or better about your relative share?

So I think the -- if there's anything changed, it's really, it's our view of how fast adoption will be of the market, the way you say it. That's the change. And actually, as this gets large, we'd actually assumed it would slow down more, and we saw some pretty robust growth in the fourth quarter and we're very pleased by that. We don't think there's going to be much of a story in terms of market share in 2018. We think that's going to be a relatively flat story, so I don't know if that gets at your question.

Perfect, Mike. And I think, Scott, the second question from Analyst Day, I think was margins broadly. I think people left feeling there was more room to go on the margins. THV is moving higher, GMs are not. So could you talk about some of those capacity investments and where they're going? And sales are growing higher, yet relative margins are not, so there is some reinvestment, as you mentioned, which I think most investors would support. But where are some of those dollars going that are keeping these margins relatively stable in light of the fact that the revenue's growing faster here early on in the year?

Sure. And we are expecting more leverage than we did at the investor conference, largely because we've got better top line growth expectations now. In terms of investments, a lot of our investments are going into facilities and expanding our capacity, both in the U.S. and outside of the U.S. And so we've got pressure on gross margin -- headwinds on the gross margin from that perspective. But THV is our highest-margin business and as we're expecting higher growth now, that helps our overall margin performance and leverage to the P&L.

Our next question will come from the line of Mike Weinstein with JPMorgan.

So I just want to clarify the guidance update in a couple of different ways. So you moved your revenue guidance to the higher end of the range, but those are all reported revenue ranges, and obviously, the dollar has moved. So can you share with us on an underlying basis how your guidance has changed, underlying meaning constant currency? And then just on the FX question. So FX getting more favorable since your initial guidance, how much is that adding to your 2018 EPS outlook relative to what you were assuming at the time of the initial guide?

Sure. So as we are moving our sales expectations higher in the ranges that we provided earlier, about half of that is driven by FX and half of that is driven by operating performance, mostly from THV. And so we're expecting sales results in the higher end of the dollar ranges for all 3 businesses and at the higher end of the underlying growth rate range for THV, but still right in the middle of the underlying growth rate ranges for HVT and Critical Care, because more of their business are outside of the U.S.

Okay. So just to clarify that, so THV, you are looking at 15%, you call underlying, which is constant currency. And the other 2, you're still in the middle of the underlying range?

Yes, so higher end of that 11% to 15% range for THV and right in the middle of the 2% to 4% range for HVT and 6% to 8% range for Critical Care.

And Scott, the EPS swing from FX?

Yes, so EPS has a number of different contributing factors. And if you just isolated FX, then it would be reflected by that increase in the non-FX-related earnings growth in THV. So in other words, about half of the sales increase is FX, the other half is actual underlying performance. And that underlying performance would largely drop through to the bottom line. But there are a lot of other contributing factors as a result of the tax legislation and the incremental investments that we're planning to make with some of the proceeds from those tax benefits.

Yes, I understand that. The tax should be about $0.20 or thereabouts and you're reinvesting some of that, but I was asking specifically to FX. You don't know what that EPS contribution is relative to the initial guide?

Yes, FX specifically is about $0.03.

Okay, that's perfect. And last one, I'll drop. Just to clarify, Mike, you said the CLASP trial, that you expect to complete enrollment in '18. I think on ClinicalTrials.gov, we had that it was supposed to complete follow-up in '18. Just want to clarify there.

Yes, we do expect to complete the CLASP trial in -- complete enrollment in 2018, and we continue to expect the European launch in 2019. Does that get at your question?

Yes, but we won't see the data in '18?

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

Our next question comes from the line of Isaac Ro with Goldman Sachs.

A question on your comments around the update to guidance. Mike, I think you said that the adoption of therapy has been going a little faster than expected. Were there a handful of events or themes as you look across the customer base that really drove that increased adoption that you can point to? Was there any initiatives with sales, something to that effect, that you guys kind of were able to execute upon in the quarter that allowed you to take a more bullish view?

Yes, it was funny. The -- it was quite broad-based, so we probably exceeded expectations at every region around the world. So we saw very strong performance out of Europe, very strong performance out of Japan and the U.S. as well. And even OUS, in places where adoption is very low, we saw a contribution. We are making an investment, as we mentioned in the past, to help with awareness of the disease. And we believe that, that is starting to have some kind of impact, whether it had a little bit of lift to the growth rate, I think our team thinks so, but that's difficult to measure at this point. But we are investing some energy and helping identify patients and physician communication and trying to facilitate the pathway for patients and doing a little bit of work, Direct to Patient and Director to Referrer, around the world. And so that may be making a small contribution, but I think it's the -- it's more that we just have an outstanding procedure here, where we're getting just great results and you have patients and physicians gravitating toward it.

Okay, that's helpful. And then just as a follow-up, to the extent that the rest of the year, you're obviously working on all those fronts on an ongoing basis. How much do you need the low-risk market to play in to achieve the high end of your range? Is that something that's sort of in the cards? Or is it still early for low risk to be moving the needle this year?

Yes, I could tell you, in our guidance, we haven't projected any contribution from low risk. We continue to think that it's an intermediate-risk patient, again, with severe aortic stenosis. And so low risk, we would think there to be some kind of impact beginning in 2019. The results of that PARTNER III trial, which will be powerful, we expect to be available at ACC in 2019 and then the approval come later on that year. So no, I would think that you wouldn't really see low-risk impact in 2018.

Our next question comes from the line of Vijay Kumar of Evercore ISI.

So Mike, maybe just to touch on the U.S. TAVR performance rate. I'm just trying to tie a couple of comments you made. So one, we've seen that number move quite a bit, and I think you guys have gone to great lengths to explain, don't look at the quarterly numbers, it moves quite a bit. But then now we have you guys raising guidance towards the high end. And I think the other comment was you saw adoption in low-volume centers, right? Is this something that we have seen in the past? Is that what gives you the confidence here on TAVR? So any color, I think, would be helpful.

Yes, you correctly observed that we've been trying to indicate it is difficult for us to be exact in terms of predicting our volume on a quarter-to-quarter basis and it is -- continues to be lumpy. So that's just what it is. But maybe the more important point is the second point that you raised, which is what's going on in these lower-volume centers. Part of our theory is -- remember, our belief is maybe only 1 out of 5 patients with severe aortic stenosis in the United States actually gets treated, and that if there isn't a center that was actually doing therapy, and let's say these large centers, they've been at it for a while, they maybe were in the PARTNER Trial and then we actually got approval in 2011. So they've been mining their referral base for a while. But for new centers, we think there may be a referral base there that physicians and patients are hearing about for the first time. And that may be stimulating it, and we just don't find that patients flow to centers of excellence like you might imagine. So new centers opening and centers starting to develop their referral base seems to really make a difference.

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

Sure. So for EPS, it's not the higher end, we're actually changing the range, and it's going up from the midpoint of the prior range about $0.33. And I know it's a little bit precise, but just to break it down in basic terms, if you were to isolate higher sales expectations and the lower tax rate from the tax legislation, both would contribute about equally to that higher range.

Our next question comes from the line of Jason Mills with Canaccord Genuity.

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

Yes, thanks, Jason. You know what, we had a great fourth quarter. We had a great year. That really doesn't change our long-term outlook. We continue to feel very good about the idea that this will be more than a $5 billion opportunity by 2021 and it will grow in the mid-teens. I know we had a quarter here where it's over 20%, but we really try and look at this on a longer-term basis and realized that there's going to be some ups and downs probably along the way. So I'm not trying to signal that, but it certainly builds our confidence that these are solid estimates that we believe in. Separately, you're right about length of stay coming down. We find it remarkable, the kind of success that we're seeing in the marketplace. Clinicians continue to do these procedures very efficiently, and length of stay, that it's been averaging maybe around 3 days, is beginning to decline. There was a study at TCT that showed that they could have outstanding results in just 1- and 2-day length of stays. And so I think that's momentum that's building that doesn't consume so much capacity in hospitals and also has very favorable health economics for them. So we think that's a nice tailwind, if you will, behind us. But no, I didn't try to indicate here that we're necessarily going to get to those goals sooner. We'll keep an eye on that, but really, no change at this point.

I guess it really doesn't seem like it's going to take longer to get to those goals, I guess was my point. But just moving on a more specific question on CENTERA. Could you talk about how -- a little bit more about how you'll position that? I have to assume, obviously, that you expect it to be -- to augment your overall franchise instead of cannibalize. But I suppose there may be some cannibalization within some regions or some hospitals for SAPIEN 3. But at maybe a higher price, you're positioning it as a premium product. I guess, that -- 2 questions, is it premium to SAPIEN 3 from an ASP standpoint? And then generally speaking, do you expect it to be share accretive as well?

Yes, so we're primarily going to bring this to those clinicians that are already using self-expanding systems. And we're going to go there with a simple argument and say we believe that this is the best-in-class self-expanding system. There are some excellent early data and it a feature-rich platform and if they like what they're using now, we think they're really going to like CENTERA. Now of course, people that are using SAPIEN 3, for the most part, they're very happy and obviously, it's a leading platform and we think it's best-in-class in balloon expandable. But if those customers wanted to try CENTERA, we won't deny that to them, but that's not really going to be the focus of our introduction. It is going to be priced more like SAPIEN 3 at a premium price, and so we're not going to try and be competitive with the prices. And I think we've mentioned in the past, prices for self-expanding systems in Europe probably run a good 20% lower than what Edwards' SAPIEN 3 price is, and we're going to be not in that pack, but we're going to be more like the way we price our other premium product, SAPIEN 3.

Our next question comes from the line of Joanne Wuensch of BMO Capital Markets.

You added roughly 75 centers this year as implanting centers, a little bit more than we had expected originally. How much or how many more do you have to go? And what is the stocking pattern, if any, in those centers?

I'm sorry, we just heard a noise there. I don't know if you...

Did you hear any of my question or was it just some (inaudible)?

Yes, I did. No, we did hear it. Thanks very much, Joanne. So yes, I think your estimate is right. It's probably around 75 centers that were added. And it is probably a little bit more than we thought. This has turned out to be pretty organic. This isn't necessarily driven by Edwards. These are hospitals that I think, in many cases, already have surgical valve programs. They think about their future and they say, "Boy, if I'm going to be an asset to my community going forward, I'm going to need to offer catheter-based system as well." And so there's a strong driving force for others to be able to move toward it. Stocking is pretty minimal. That's really not part of the equation here. So I -- we do a fair amount of consignment. So I think this is really organic growth that you're seeing.

That's very helpful. My second question is, you talked about, if I heard you correctly, that you think your market share will remain flat in 2018. But I'd love your view of what the competitive landscape is looking like and why do you think yours would stay flat?

Well, I mean, I don't know, we could see -- when you look back at what happened in 2017, there was, we probably, I don't know, in the U.S., we may have lost a point or 2 of share and that was at a time when our competitor had the approval of intermediate risk and introduced larger sizes. And we think for the most part, that's done. And when we look at what's going on in Europe, there aren't so many competitors anymore, and those competitors are there probably having mid-teens market share. So when we look forward, we say what's the share picture going to look like, we think probably it's close to we're going to grow about with the market. Remember, we have 2 new platforms that we're going to be introducing. And that's probably some of the most novel products that are being introduced by anybody in 2018. So we think it's a reasonable estimate to say that share position stay pretty stable.

Our next question comes from the line of Matt Taylor with Barclays.

So I wanted to ask a follow-up question on some of your earlier mitral comments. You talked about the Cardioband sales in the fourth quarter and seeing a little bit of a slower ramp in the first half and then jumping up in the second. And so the question is, is that just learning curve? And how can we apply that kind of a ramp to, let's say, PASCAL next year? Can you get a little bit more into the dynamics there?

Sure. So yes, probably on Cardioband, at this stage, it's probably less about the demand from customers and more about us. So we are preferentially funneling units to our clinical trials, which are very important from a long-term perspective. And then in terms of, "Gee, why don't we just make more?" We are also in the process of migrating Cardioband to the Edwards Quality System. We think this is -- this causes us a little bit of short-term pain, but it's for a lot of long-term gain. We think it's a good move for us. And so it's going to limit how many units we have available for commercial sales in the fourth quarter and first quarter, but we think that we should clear that hurdle and get this product line moved into Edwards facilities in pretty short order. And as we do that, it will allow us to get on a more normal ramp. By comparison, PASCAL was not an acquired product, but a product line that was built within the Edwards system. So we won't have those same kind of system migration issues and I would expect it not to go through the same sort of process.

Okay, helpful. And the second question is just what would you have us look out for at ACC? Or is there any meaningful data in the first half of the year at PCR in mitral or any of your pipeline programs that you're looking forward to?

Yes, we don't think that there is going to be a lot of new information at ACC this year. There may be some minor things that are coming. The -- and PCR, there could be more. It's a little early for us to project. But bigger picture, I think there's going to be information that becomes available on our system routinely throughout the year. We've got a lot of big milestones in 2018, including related to Ultra and CENTERA in transcatheter heart valves and then PASCAL and the tricuspid Cardioband in the mitral system, and then even more in Critical Care and surgical heart valves. So I think there's going to be no shortage of news. But I don't know how much news flow there'll be at ACC or PCR.

Our next question comes from the line of Chris Pasquale with Guggenheim.

Mike, your U.S. growth was particularly impressive this quarter. And by my math, the non-TAVR portion of the business really saw a big jump versus the first 9 months of the year. We've seen something similar with some other companies this quarter, too. So when you look at that, is there any part of you that thinks you may have underestimated the impact of some of the weather events in 3Q and that, that may have played a role in what we saw this quarter?

Yes, I suppose that's possible. This is difficult for us to estimate. And again, we don't call on 6,000 hospitals in the U.S. We have a smaller universe in total. So yes, it's possible that we underestimated the impact of weather in the third quarter. But clearly, we saw a robust fourth quarter across the board. So your observation is correct, Chris, but we probably, we're too focused of a company to be a good barometer for the entire market.

Okay, that's helpful. And then I want to circle back on the opportunity for CENTERA in Europe. So you touched on the lower pricing of some of the competitive systems there. And my sense was that historically, some centers may have gravitated to self-expanding products in part because of that lower price point. So first, do you think that's accurate? And then if so, what portion of the roughly half of the market that's self-expanding today do you think is really open to you with a premium-priced product?

Yes, so thanks, you're on a great point, Chris. To be honest with you, we're not positive exactly why that part of the market is buying what they are. Might it be on price, it could be their primary motivator. Might it be they just happen to have a great relationship with the company that's serving them, that's possible. And it might be that they learned on self-expanding systems or have a preference for self-expanding systems, and that's the bigger issue. So we're going to find that out. But from Edwards, they're not going to get self-expanding at the same kind of low price. So we'll figure that out pretty soon.

Our next question comes from the line of Raj Denhoy with Jefferies.

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

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

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

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

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

Yes, so we're very excited about what's going on in surgical heart valves, and the INTUITY growth is particularly exciting. And I think as we mentioned, we think this could become 1/4 of our sales here in 2018. But you have to also understand what's going on there, which is this is a -- the big part of this business is aortic valve implantations. And with the tremendous growth of TAVR, there's a natural cannibalization that takes place. And so -- and you see our continued optimism in TAVR is a headwind for the surgical business. And I think the surgical business is very well prepared to deal with that and how -- and really forward leaning, have great innovations for surgeons. But that's one that causes us to be a little bit moderate in terms of getting in front of ourselves.

Okay. But I guess, one would expect, given we won't see low risk for at least another year, 1.5 years or so, you should have another kind of nice season here of surgical valves, I would think.

Well, again, we're pretty pleased with all of Edwards' business. Critical Care feels pretty good right now, too. But at this point, we're not changing our estimates. It builds our confidence that we'll be able to put 2% to 4% up in surgical and 6% to 8% in Critical Care. At the same time, we're gravitating toward the high end of what we had previously estimated in transcatheter heart valves.

Our next question comes from the line of Glenn Novarro with RBC Capital Markets.

Three real quick questions for you, Mike. First, in the U.S., how many TAVR centers do you think will open up, new centers in 2018? That's one. Two, the imaging study in the low-risk SAPIEN trial, has that finished enrolling? And will that also be at ACC? And then is there anything we should be paying attention to on the litigation front, particularly between you and Boston Scientific, LOTUS versus SAPIEN, and the skirt issues?

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

Yes, yes. The imaging study that's (inaudible).

Yes, the imaging study is yet to enroll. So we're still engaged in enrolling that. That's something that we're very focused on. The -- in terms of upcoming events, we had a U.S. IPR hearing on the validity of the Boston patents that were in December and we expect a decision in Q1. And -- but just bigger picture, there is going to just be a number of court actions over an extended period of time. So I don't know that there's going to be anything decisive here in the near term.

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

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

Okay. So it's the main body that we see at ACC next year?

That's correct.

Our next question comes from the line of Bruce Nudell with SunTrust Robinson Humphrey.

Mike, to fully exploit and cannibalize the surgical tissue valve market, it seems like you need both the low-risk study and kind of an unencumbered ability to go after patients with bicuspid valves. Do you feel that the low-risk label will be in any way restrictive with regards to bicuspid valves? And then I have a follow-up.

Sure. Well, I mean, there's a couple of directions here. First, as it relates to the surgical valve business, we think people with isolated aortic stenosis, many of those are going to become great candidates for TAVR. But there are also a number of great surgical candidates, those that have complex conditions that are going to need surgery that address a number of issues, including their aortic valve. And there are also going to be the younger, more active patients that are not going to be naturally great candidates for TAVR. So we think both the combination of those and our innovations is going to keep the aortic side growing at the same time we're growing mitrals. As it relates to your question about bicuspid, it's not contraindicated now. There is debate in the clinical community about it, but we are running a bicuspid registry, and that should further inform that question.

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

Yes, so right now, it's just early, Bruce. And so we're involved in early feasibility and we're trying to evaluate that. From an optimism point of view, I think we mentioned that we have quite a bit of experience with SAPIEN 3 in the mitral position, and so that gives us some confidence that if we can do a great job of anchoring and being leak-free, that it could be an interesting platform. But it's just early. And we're pleased to have 2 platforms. I mean, we're optimistic about M3. We're also optimistic about the CardiAQ platform. We're making nice progress there, and we're pleased with our cadence of implants and the results that we're getting. And again, all the cases that Edwards is doing today, we're doing transseptal. So true percutaneous procedures.

Our next question comes from the line of Margaret Kaczor with William Blair.

Two for me. First, I wanted to follow up on the U.S. TAVR growth that you guys have seen, and you referenced some of the low-volume centers seeing some nice growth and maybe that's due to referral networks. Any idea whether that's being driven by you guys through maybe some of the DTC marketing that you've done? And maybe will you increase that? Or do you think it's investments on behalf of the hospitals themselves that understand the profitability of TAVR?

Yes, we think that the contribution is coming from our direct to physician and Direct to Patient is still relatively small. And so we think that there is a real contribution that when centers add TAVR, that they open up a referral network that hadn't been tapped into in the past, and that's been a helpful driver. And so whether it's a brand-new center or centers that are still relatively new at it and only been at it for a few years, that's where we're seeing some significant growth.

Okay. And then a 2-part guidance question. In terms of your guidance as you're looking out, how much do you assume for CENTERA and Ultra in 2018? And then when you referenced saying more steady growth throughout the year given the momentum in Q4, were you referencing global TAVR? Or were you referencing U.S. TAVR?

So in terms of CENTERA, we really haven't penciled in very much. If we have success there, that could be a positive for us. It's relatively small in our guidance. And in terms of where did we see the growth in the fourth quarter, it was everywhere. I mean, of course, the U.S. is our biggest region and so that stands out. But we saw strong momentum, we think, in all of our geographies.

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

And I'm sorry, just to follow up on that. When you look at 2018 and that steadier growth, is that specifically to the U.S., global or both?

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

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

I wanted to ask about the PARTNER III Continued Access Program and just to make sure that, that's up and running. And any details you can provide, just in terms of number of patients per year? Are there restrictions per quarter, per year? Should we think about 1,000 patients per year, like we saw in the intermediate cap?

Yes, so at this point, our focus is on completing the CT study. We don't have any kind of a cap program. Once we enroll that CT Substudy, we'll evaluate the cap program at that time and we'll let you know if that's in the cards.

Understood. And just on the international performance. I mean, clearly, the European performance was, you mentioned, was aided by the comp with the absence in France last year. But still, if you exclude for that, you'd still have at least high teens growth by our calculations. Are you seeing anything in Europe, particularly in intermediate-risk penetration? Are they moving down, I guess, the intermediate-risk curve into that lower end of younger, less sick patients, if you will, with lower STS scores?

No, I think generally not. You have to remember that Europe is this combination of many countries. Some of the countries that just didn't have reimbursement in place in the early days are starting to have it in place, so that may help. But just broadly, it's those places that were less penetrated. So the smaller countries, if you will, that are probably making the bigger contribution to growth in Europe.

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

Thank you for joining us on today's call. Reconciliations between GAAP and non-GAAP numbers mentioned during this call, which include underlying sales and growth rates and amounts adjusted for special items, are included in today's press release and can also be found in the Investor Relations section of our website at edwards.com. If you missed any portion of today's call, a telephonic replay will be available for 72 hours. And to access this, please dial (877) 660-6853 or 210 -- sorry, (201) 612-7415 and use conference number 13674893. In addition, an audio replay will be available on the Investor Relations section of our website. Thank you very much.

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