Edwards Lifesciences Corporation (NYSE:EW) Q4 2024 Earnings Conference Call February 11, 2025 5:00 PM ET

Company Participants

Mark Wilterding - Senior Vice President, Investor Relations
Bernard Zovighian - Chief Executive Officer
Scott Ullem - Corporate Vice President and Chief Financial Officer
Daveen Chopra - Corporate Vice President, TMTT
Larry Wood - Corporate Vice President and Group President of TAVR and SSH

Conference Call Participants

David Roman - Goldman Sachs
Robbie Marcus - JPMorgan
Larry Biegelsen - Wells Fargo
Pito Chickering - Deutsche Bank
Travis Steed - Bank of America
Vijay Kumar - Evercore ISI
Frederick Wise - Stifel
Matthew Miksic - Barclays
Matthew Taylor - Jefferies
Joanne Wuensch - Citibank

Mark Wilterding

[Starts Abruptly] included in the press release and accompanying financial schedules and then use the remaining time for Q&A.

Please note that management will be making forward-looking statements that are based on estimates, assumptions and projections. These statements speak only as of the date on which they were made, and Edwards does not undertake any obligation to update them after today. Additionally, the statements involve risks and uncertainties that could cause actual results to differ materially. Information concerning factors that could cause these differences can be found in today's press release and on Edwards' other SEC filings, all of which are available on the company's website at edwards.com.

Mark Wilterding

[Starts Abruptly] included in the press release and accompanying financial schedules and then use the remaining time for Q&A. Please note that management will be making forward-looking statements that are based on estimates, assumptions and projections. These statements speak only as of the date on which they were made, and Edwards does not undertake any obligation to update them after today.

Additionally, the statements involve risks and uncertainties that could cause actual results to differ materially. Information concerning factors that could cause these differences can be found in today's press release and on Edwards' other SEC filings, all of which are available on the company's website at edwards. com.

Unless otherwise noted, our commentary on sales growth refers to constant currency sales growth, which is defined in the quarterly results press release issued earlier today. Reconciliations between GAAP and non-GAAP numbers mentioned during the call are also included in today's press release. Quarterly and full year growth rates refer to continuing operations and do not include contributions from Critical Care, which was sold in Q3 of 2024 and a small noncore product group that reduces the sales of Surgical.

With that, I'd like to turn the call over to Bernard for his comments. Bernard.

Bernard Zovighian

Thank you, Mark. Welcome, everyone, and thank you for joining us. We have a lot to cover today, including our Q4 and full year 2024 results as well as our vision for 2025 and beyond.

You will recall at the December investor conference we talked about Edward's focused strategy and our vision to solve a large complex and growing unmet patient needs in structural heart. We have a very unique strategy to create, define and build new categories, and this will position us for extended leadership and sustainable long-term growth. Now I want to reflect on the full year 2024.

It was a year of strong growth and meaningful progress for Edwards as our 16,000 employees advanced life-saving structural heart technologies for patients around the world. We are pleased with our solid 2024 full year financial performance, where sales grew 9% to $5.4% billion, in line with our original total company sales growth guidance. While we got there in a different way than we originally anticipated, with TAVR growth lower than expected, we were pleased that TMTT overachieved the expectation.

We continue to focus on the substantial long-term prospects for TAVR. And we expect TMTT to become an even more important contributor to Edwards' growth as our unique and broadening portfolio of technologies addresses the unmet needs of more patients. We made a number of strategic decisions to strengthen our company.

In Q3, we completed the sale of Critical Care, and we took action to optimize Edwards in order to increase agility and accelerate innovation. We also invested significantly in internal research and development to augment our portfolio with new breakthrough technologies. In addition, we completed the strategic acquisition of JC Medical, JenaValve and Endotronix.

These acquisitions provide an expanded opportunity in new therapeutic areas to address the unmet needs of aortic regurgitation, mitral disease and heart failure patients. Together, the strategic decision and investments reinforce our confidence in Edwards sustainable long-term growth. Turning to the fourth quarter, our first full quarter focused solely on structural heart.

Total company sales grew 9%. We were pleased with our sales performance that was ahead of expectation and drove higher-than-expected earnings per share. We exited the year in a strong position with three important growth drivers, TAVR, mitral and tricuspid and two emerging opportunities, structural heart failure and AR.

Our foundation fortified by our patient-focused culture is more solid than ever and the strategic decision we made in 2024 position us well for 2025 and beyond. Looking ahead to 2025, the results of early TAVR trial represent a catalyst for improved patient care that will begin to materialize after FDA approval in mid-2025 and set the stage for guideline and policy changes in the U.S. and globally, which present a multiyear growth opportunity. In TMTT, we are transforming care for the millions of patients suffering from mitral and tricuspid valve disease.

We are pleased with the impressive trajectory of our business, which is now a meaningful contributor to Edward's growth. TMTT is on track to deliver over $500 million in sales in 2025. In Surgical, our category-leading business is positioned to grow consistently and expand globally, driven by increasing adoption of our premium Resilia-based technology in INSPIRIS, MITRIS, and KONECT.

As you can see, 2025 is set to be another meaningful year for Edwards with multiple catalysts across our businesses that will contribute to our 8% to 10% total company sales growth guidance this year. And beyond 2025, Edwards will be even better position to transform care and to have a positive impact on more lives with our pioneering innovations and expanded global leadership in structural heart. Our plan is to grow total company sales 10% annually on average with some variability based on the timing of key catalysts, while strengthening profit margins to drive long-term value for shareholders.

We expect that the actions our employees around the world have taken to advance our strategy will deliver significant value to payments and the health care ecosystem. Now I'll provide some additional detail by product group for Q4 and 2024. In TAVR, our full year 2024 global sales of $4.1% billion increased 6% year-over-year.

Our U.S. and OUS sales growth rates were similar. In the fourth quarter, our global sales of $1.04% billion increased 5.3% over the prior year. Growth was driven by the U.S. and Europe.

Edwards strong competitive position and pricing remained stable globally, although we experienced a few instances of regional pressure. We remain confident in our differentiated technology high-quality evidence and the value we demonstrate to patients, clinicians and health care systems. Our commitment to advancing clinical evidence and expanding indication for patients was highlighted by results from the early TAVR trial, which were presented at the annual TCT Conference in October.

Early TAVR is the first and largest randomized controlled trial to date, studying asymptomatic severe AS patient and the impact of early intervention with SAPIEN. The trial results demonstrated superior outcome for asymptomatic severe AS patients, receiving the SAPIEN platform compared with guideline recommended clinical surveillance, or simply, watchful waiting. Even patient without symptoms of severe artic stenosis have a deadly disease that can progress rapidly and in an in predictable way and require urgent treatment.

This data is compelling and should drive changes to the standard of care to streamline patient flow, improve outcomes and reduce costs to the system. In the U.S., we continue to be pleased with the performance of our market-leading SAPIEN free Ultra RESILIA platform. Capacity remains the focus as we continue to see rapid growth in structural heart procedures.

In the near term, new technologies and education put pressure on the system, but in the longer term, it provides a hospital the clarity and incentive to make investments to expand their ability to treat structural heart patients. Outside of the U.S., in the fourth quarter, sales growth was supported by the continued launch of SAPIEN 3 Ultra RESILIA in Europe. We are pleased with the exceptional patient outcomes delivered with this best-in-class platform and we expect this momentum to continue as more centers adopt the technology.

Sales in Japan grew at a slower pace than in other major regions, but still increased sequentially and year-over-year. We remain dedicated to expanding this therapy to address significant undertreatment of aortic stenosis among the substantial elderly population in Japan. Long term, outside of the U.S., we foresee excellent opportunities for growth as international adoption of TAVR therapy remains quite low in many regions.

Turning to TMTT. Our unique portfolio of repair and replacement technologies for both Mitral and Tricuspid valves continues to deliver strong growth with an increasing contribution to overall company performance. The PASCAL repair system, the EVOQUE tricuspid replacement system, and the forthcoming SAPIEN M3 mitral replacement system provide the broadest set of treatment options to the many patients with varying mitral and tricuspid valve disease.

We are pleased with both our fourth quarter and full year sales result. In Q4, we reported $105 million in sales. Full year sales of $352 million increased 77% year-over-year.

Sales of the PASCAL repair system and the EVOQUE tricuspid replacement system, both contributed meaningfully to growth. PASCAL adoption is strong in both the U.S. and globally and the EVOQUE launch is expanding in the U.S. and Europe. PASCAL continues to demonstrate its value for patient care.

It's differentiated features are driving excellent clinical outcome leading to increased adoption at existing centers and encouraging new centers to use the technology. The base of compelling clinical evidence is strengthening with longer-term follow-up data from randomized trials as well as new real-world evidence. Physicians appreciate the Edwards high-touch clinical support model, which improve the efficiency of planning and performing procedures, while ensuring optimal outcome for patients.

The EVOQUE commercial launch continues to progress well in the U.S. and Europe. We are investing in our field-based teams to have deep expertise and remain committed to our disciplined approach to launching the therapy, prioritizing excellent patient outcomes. We are observing strong growing in price in EVOQUE from both providers and patients, which reinforces the significant unmet needs of these patients.

We are pleased that CMS continues to develop a final national coverage determination or NCD for transcatheter Tricuspid valve replacement. We believe the policy as proposed, provides a pathway for Medicare patient access to EVOQUE. We look forward to the final NCD which we expect by the end of Q1 2025. In Mitral replacement, we continue to look forward to European approval of SAPIEN M3 by midyear 2025 with U.S. approval expected to follow in 2026. We expect the result of ENCIRCLE study, our U.S. pivotal trial studying SAPIEN M3 to be presented at this year TCT Conference in October.

In summary, our bold vision for TMTT has become a reality. We are confident in our unique portfolio strategy with repair and replacement options to treat patients suffering from Mitral and Tricuspid disease. Our full year 2025 TMTT guidance remains consistent with the expectation we laid out at our Analyst Day with sales between $500 million and $530 million, driven by our two differentiated commercial technologies, PASCAL and EVOQUE.

In our Surgical product group, full year 2024 global sales of $981 million increased 6% versus the prior year. Fourth quarter global sales of $244 million increased 5% over the prior year, with healthy global adoption of Edwards premium RESILIA portfolio with MITRIS, INSPIRIS, and KONECT. We continue to expect positive procedural growth globally for the many patients best treated surgically, including complex and concomitant procedures.

We are generating evidence on the RESILIA portfolio to expand access globally, the excellent outcome of our one year multi-center real-world KONECT study were shared at the recent STS conference. In summary, before I turn the call over to Scott, we continue to expect that our full year 2025 surgical sales growth will be in the mid-single digits, driven by continued adoption of our RESILIA portfolio and growth in overall heart valve surgeries globally. And now Scott will cover the details of the company's financial performance.

Scott Ullem

All right. Thanks a lot, Bernard. Today, I'm going to provide a wrap-up of 2024, including detailed results of our fourth quarter and guidance for the first quarter and full year of 2025.

We were pleased with our better-than-expected Q4 sales performance with strength across all product groups. Total sales of $1.39% billion grew 9% on a year-over-year basis. Adjusted earnings per share was $0.59%, led by strong top line performance. GAAP earnings per share was $0.58%.

A full reconciliation between our GAAP and adjusted earnings per share is included with today's press release. I'll now cover additional details of our P&L. For the fourth quarter, our adjusted gross profit margin was 79% compared to 80% in the same period last year. We continue to expect our full year 2025 adjusted gross profit margin to be between 78% and 79%.

Selling, general and administrative expenses in the quarter were $492 million or 35.5% of sales compared to $417 million in the prior year. This increase in spending reflects growth in our TMTT field-based teams, transition expenses following the sale of Critical Care and strategic growth acquisitions. We plan to hold operational SG&A spending approximately flat at these levels throughout 2025 and expect a lower SG&A ratio over time.

Research and development expenses in the fourth quarter grew 12% over the prior year to $271 million or 19.6% of sales. This increase was primarily the result of a full quarter of R&D spend from previously announced acquisitions that closed in 2024. We expect to maintain R&D spending at these levels during 2025 and to moderate R&D as a percentage of sales over time.

Adjusted operating profit margin in Q4 of 25.6% was in line with our expectation for the quarter. Our guidance for 2025 operating margins continues to be 27% to 28% with annual operating profit margin expansion thereafter as we outlined at the company's investor conference back in December. Turning to taxes.

Our reported tax rate this quarter was 11.6% or 13.3%, excluding the impact of special items, in line with our expectation for the quarter. For the full year 2024, our reported tax rate was 9.8% or 11.0%, excluding the impact of special items. As a reminder, our original 2024 adjusted tax rate guidance range was 14% to 17%.

And we benefited last year from several onetime tax events, resulting in a lower than originally expected rate. We continue to expect our 2025 tax rate, excluding special items, to be between 15% and 18%. Regarding tariffs, based on what we know today, our guidance ranges could accommodate any potential impact of tariffs, which we expect to be immaterial for Edwards.

Foreign exchange rates increased fourth quarter reported sales growth by 60 basis points or $7 million compared to the prior year. FX rates negatively impacted our fourth quarter gross profit margin by 30 basis points compared to the prior year. Relative to our October guidance, FX rates had a nominal impact on fourth quarter earnings per share.

At current rates, we now expect FX to have an approximately $130 million or 2.5% percentage points downside to sales in 2025 compared to prior year. Turning to the balance sheet. We continue to maintain a strong and flexible balance sheet with approximately $3 billion in cash and cash equivalents as of December 31, 2024.

Average diluted shares outstanding during the quarter were $591 million. We continue to expect average diluted shares outstanding for 2025 to be between $585 million and $595 million. We have approximately $1.4% billion remaining under our current share repurchase authorization.

Our healthy balance sheet gives us the flexibility to advance our growth strategy, and we look forward to a year of robust financial performance in 2025. I'll finish with comments related to guidance. We are maintaining the financial guidance for 2025 that we provided at our December investor conference.

Absent additional moves in foreign exchange, we expect total company sales of $5.6% billion to $6 billion, TAVR sales of $4.1% billion to $4.4% billion, TMTT sales of $500 million to $530 million and Surgical sales of $970 million to $1.05% billion. We expect a sequential increase in first quarter sales. We also expect Q1 total company and TAVR year-over-year growth rates to be below the low end of our full year guidance ranges of 8% to 10% and 5% to 7%, respectively.

We expect some benefit from the asymptomatic TAVR approval in the U.S. and even more support for growth when guidelines and policy change in the future. For the first quarter, we're projecting sales of $1.35% billion to $1.43% billion and adjusted earnings per share of $0.58% to $0.64%. And with that, back to you, Bernard.

Bernard Zovighian

Thank you, Scott. In conclusion, we are proud of our employees and their significant achievement in transforming care for structural heart patients around the world. As we enter 2025, solely focused on structural heart disease, we are stronger than ever before with significant growth driver in TAVR and TMTT and emerging opportunities in other areas of structural heart.

I am optimistic about the tremendous opportunities in front of us. With that, I'll turn it back to Mark.

Mark Wilterding

Thank you very much, Bernard. We're ready to take your questions. As a reminder, please limit the number of questions to one plus one follow-up to allow for broad participation.

If you have additional questions, please reenter the queue and management will answer as many participants as possible during the reminder of the call. Alicia, I'll turn it back over to you.