Greetings and welcome to the Edwards Lifesciences First Quarter 2020 Results. At this time, all participants are in a listen-only mode. After the formal presentation, we will follow with a question-and-answer session and instructions will be given at that time. [Operator Instructions].Without any further ado, I will now turn the call over to Mark Wilterding. Mr. Wilterding, you may begin.

Thanks, Victor. Good afternoon and thank you all for joining us. With me on today's call are Mike Mussallem, Chairman and Chief Executive Officer; and Scott Ullem, Chief Financial Officer. Just after the close of regular trading, Edwards Lifesciences released its first quarter 2020 financial results. During today's call, management will discuss the results included in the press release and accompanied financial statements and then use the remaining time for Q&A.Please note that management will be making forward-looking statements that are based on estimates, assumptions and projections. These statements include, but aren't limited to financial guidance and expectations for longer-term growth opportunities, regulatory approvals, clinical trials, litigation, reimbursement, competitive matters and foreign currency fluctuations.These statements speak only as of the date on which they are made and Edwards does not undertake any obligation to update them after today. Additionally, the statements involve risks and uncertainties including but not limited to those associated with COVID-19 pandemic that could cause actual results to differ materially. Information concerning factors that could cause these differences and important product that safety information may be found in the press release, our 2019 annual report on Form 10-K and Edwards' other SEC filings, all of which are available on the company's website at edwards.com.Finally, a quick reminder that when using terms underlying and adjusted, management is referring to non-GAAP financial measures, otherwise they’re referring to GAAP measures. Reconciliations between GAAP and non-GAAP numbers mentioned during this call are included in today's press release.With that, I'd like to turn the call over to Mike Mussallem for his comments. Mike?

Thank you, Mark. Before we dive into our first quarter results and updated 2020 outlook, I'd like to give you a broader sense of what's happening at the company in light of COVID-19 and how Edwards has responded during these challenging times. As you'd expect, our priority has been to continue to serve patients counting on us, support our clinical partners and protect the wellbeing of our employees.We are striving to maintain continuous access of our lifesaving technologies, as well as offering frontline in-hospital support. Most importantly, on behalf of everyone at Edwards, I want to express our gratitude to our clinician partners and the global healthcare community for their tireless dedication to serving patients during this challenging time. We appreciate their strong leadership and brave commitment to patient care and we're dedicated to supporting them as they address this global health crisis.I'm encouraged by the recent indication of plateauing and even declining infection rates and deaths from COVID-19 in many areas around the world. But we know that healthcare workers on the frontline continue to face unprecedented challenges.In the words of Dr. Craig Smith from Columbia University, I am confident that we will sail through this together in due time. I also want to recognize the extraordinary actions of our 14,000 employees around the world that have taken to overcome the unique challenges associated with COVID-19.Edwards is proud to be a member of the critical healthcare infrastructure and I admire the agility, resourcefulness, and passion of our employees in maintaining their important work on behalf of patients and also volunteering their help in our communities during this difficult period of time. Thanks to our global supply chain team and our government and regulatory partnerships around the world.Despite significant challenges, our manufacturing operations have continued to deliver and we've been…

Hey thanks a lot, Mike. Today I'll provide a perspective on the first quarter along with some additional directions on how the rest of the year may unfold based upon what we know today. I'm very pleased with the overall financial results in Q1, including our sales of $1.1 billion. Appreciate that our results reflected two very different periods during the quarter. Through early March, our total sales were running a little ahead of our expectations, with notable strength in TAVR in Europe. Pre-COVID we were running at underlying growth rates closer to the fourth quarter of 2019 than to our Q1 guidance expectations.The second phase of the quarter was when we felt the impact of COVID in Europe and the U.S. and sales in the last few weeks of March were substantially lower than we originally expected. Our sales in April remain depressed, even though COVID admissions appear to be plateauing.While our sales in Q1 were lower than expected, so was our spending, so that adjusted earnings per share in the first quarter was $1.51, which was within our guidance range. GAAP earnings per share was $1.47. a full reconciliation between our GAAP and adjusted earnings per share is included with today's release.Now, I'll cover the details of our first quarter results as well as discuss guidance for the balance of the year. For the first quarter, our adjusted gross margin was 76.7% consistent with the prior year quarter. This year's rate benefited from a favorable product mix offset by lower foreign exchange hedge gains and spending in support of the new European Medical Device regulations. COVID didn't have much of an impact our GP rate in the first quarter. Although we'll see the negative impact from COVID later this year as the higher cost inventory is sold.Regarding operating…

Thanks, Scott. So whether you're new to our story, or you follow the company since we went public 20 years ago, you know that our talented and dedicated team at Edwards has always put patients first. Never has this been more important than today. As we stand together with the global community, I'm grateful for our extraordinary team and our partners, and I'm optimistic about the future of continuing to deliver innovations to patients around the world.And with that, I'll turn it over to Mark.

Thank you, Mike. We're ready to take questions now. In order to allow for broad participation we ask that you please limit the number of questions to one, plus one follow-up. If you have additional questions, please reenter the queue and management will answer as many participants as possible during the remainder of the call. Victor?

Thank you. You have now reached our question-and-answer session. [Operator Instructions]. Our first question comes from Bob Hopkins of Bank of America. You may proceed with your question.

Thanks, Mike. So glad to hear everybody is well and congratulations on the strong results. I guess my first question is just on the guidance that you're providing. It seems like the Q2 guide at the midpoint is down about 25% year-over-year. Just curious, is that the run rate that you're on currently or is your current run rate a little worse than that?

So the -- it varies different as you can imagine by geography. It also varies very different by business. I can summarize it this way Bob. Q2 is going to be a really tough quarter. It's come down hard, and we're living that right now. Even the numbers that we're providing for Q2 is probably moderately better than it is right now. I might add that our structural heart businesses feel it even more acutely than our critical care business.

And then the follow-up -- and thanks for that, is just on the Q4 guidance, you just -- Mike or Scott, what are the things you guys considered, what are the things that sort of informed your view that we'll be all the way back to a normal quarter in Q4, despite this kind of, once in a lifetime, once in a generation type event we're going through right now? I am just curious, what are the data points that gave you that confidence that by Q4 you'll be all the way back to normal?

So it's a good question, Bob. And this is very tough to do. So we know that it's challenging time to estimate revenues. We're starting to see positive signs already. And so in the tone of the tenor we really -- we hear people preparing themselves to start recovery. And we know that that's going to take some time. We also know that the diseases we treat are very serious and that we expect those diseases are not easy to postpone. And we know that many of the patients that might have been treated in Q1, Q2 and so forth, might indeed be treated in Q4. And so the combination of those factors that encourage us to say that we’re likely -- and again, there's a broad range of possibilities but we’re likely to be in a more typical volume situation in Q4.

Victor, next question, please.

Our next question comes from David Lewis with Morgan Stanley. You may proceed.

So one kind of just follow-up question and I’ve a quick second one. Mike, just thinking of the fourth quarter recovery and not really talking about 2021 yet, but a lot of investors are fixated on if fourth quarter is going to be normal, it probably implies some sense of procedure recapture. But given the age of these patients and as you think about the low risk referral channel, to what extent do you think about or to what extent should investors be concerned about disruption to that referral channel, just considering the age of that patient and their willingness to sort of re-access the system in a post-COVID world? And then a quick follow-up for you.

Yes, no, it's very real. One thing for sure David is our patients were scared. They're afraid of COVID and it's meant that they have in many cases decided to stay home. So, there's many factors that influence the recovery. But if you do think of it as a bowl, as a funnel, there's been a bunch of patients that are waiting. So beginning the screening process again, that really needs to begin months in advance of the fourth quarter, is going to be key. It's going to be a big effort by the whole community. But I think the community is going to come to grips with the fact that this these heart valve patients, and AS patients in particular, really need to be treated and that they're in a dangerous situation, and we think that they are going to respond to that.So right now, the screening rates have not returned to prior levels, not even close. But we're anticipating that that's going to happen. And that's what will cause Q4 to be what it is.

And I know it's challenging to think about share right now just given the moving dynamics. But if we assume the first 2.5 months of the quarter, we're running kind of close to 30% consistent with fourth quarter, it's pretty clear that you were taking share in the market certainly in certain regions. Can you sort of talk about what you're seeing out there in the channel in the early part of the quarter as it relates to whether you think share was tied to capitalizing better than peers on new center expansion? Or you think this is now sort of definitive evidence that the unique attributes of S3 and low risk patients are sort of shining through with the clinicians?

Yes, thanks, David. Well, you know how we feel about SAPIEN 3 platform. We think it's outstanding and we think the PARTNER 3 study reinforced that and it's even nice to see this data that was generated at two years. But as we said, trying to estimate overall procedure growth is just really challenging right now in the current environment. We're going to be in a much better position to do that sometime in the future, but right now trying to speak to competitive share just seems inappropriate to us and will be -- make a lot more sense to do that once things normalize.

Victor, next question please.

Yes. Our next question comes from Joanne Wuensch with Citi.

A couple of questions here. I wanted to spend a moment on the ACC data. What did you think about the two year data? We did get some pushback comments from investors that at the two year mark the TAVR versus SAVR results close the gap a little bit. I would like to see your thought or hear your thoughts on that? And then I just want to go back to your comments on procedures. I'm trying to get my head around this concept of a catch up in terms of the patients that are being delayed. Did you dial that in, in your thought process for sort of a normal fourth quarter and/or are these patients ultimately just left out of the system? Thank you.

Yes. So I'm going to have a little bit of a follow-up on your second question, Joanne. Let me try and get at your first one. Overall we were just -- we were extremely pleased with the outcomes of SAPIEN 3 in low risk patients at two years. Now remember what this was. This was a one -- it was a one year trial, right, with a one year endpoint. But we agreed to follow these patients for 10 years. And so you're going to get a snapshot each year into the future.Yes, the numbers did come closer together. But one of the things that's positive is numerically TAVR stays superior to surgery at two years. Then it gets -- and it's still numerically better. So the numbers are quite small at this point, Joanne. So just a couple of deaths or a couple of strokes can change that - can be the difference between statistical superiority and just being called equivalent. And so if it's very small differences, but no we weren’t discouraged by that at all. We continue to be very encouraged.And your second question is about catch up and resuming normal of expected treatments. So I want to make sure that I'm answering what you're asking, Joanne. Are you asking what about the patient? Even if we catch up, there's a lot of patients that won't have been treated during 2020. Are you asking me to comment on those?

Yes. Because we have been trying to think about, okay, patients who are deferred now, at what stage should they come back into the system and the answer may be at the end of the year, 2021 or sadly never?

Yes. So if this is a really tough time for patients. And ultimately, there may be some structural heart patients who’ve delayed the treatment, who never get treated. And just because of deadly nature, some are not likely to survive. If you just run the numbers here, it gets to be an extraordinary large group of patients and that distresses us greatly. It's just the difficult times, the disease is clearly progressive. And so we know about some patients already anecdotally who have passed away on the waiting list, which is very sad. But no, this is a tough time as the world has turned their attention to COVID. It's not a great set of conditions for structural heart patients.

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

I guess from that line of thinking, I was just hoping you might give us some color that you're getting from your customers, or that you're thinking about in terms of supporting them through kind of the different phases of recovery? Have you talked to your possible customers about how they're going to manage in triage, some of the structural heart cases in the early phases of recovery and how they'll move to more normal operations to kind of inform some of your assumptions here?

Yes, thanks. Yes, we certainly have had a lot of conversations about that. And so what I'll share here will be somewhat anecdotal. It varies a great deal by region. You can imagine the situation in New York City is very different than what you might see in other parts of the U.S. and in other parts of the world, frankly.In the U.S. there are many people that are turning their attention to trying to get back to doing procedures again. You know hospitals are very dependent on doing procedures to be able to maintain their income and they also know that there are patients out there with real needs, and so they want to get back to it. There are various state regulations that they need to work through and then there's just a lot of machinery to start again.And in our case, we have to influence patients to come in and get screened again and begin that whole process. And so when procedures stop, screening also stops. And so that's the restarting of the system that's going on right now. And it's going to take some time, but I think people are clearly motivated to get it going and it is going to be highly variable, depending on where you are.

Just one follow-up. I know you've paused the TMTT trial, which makes sense. Do you have any sense for in your framework that you laid out here when you might be able to get those restarted?

Yes, that's a challenging one for us. The way it was paused, we're going to be able to open up individual centers when they're ready. If you're going to ask us broadly, what does that mean? Probably around two quarters. It's going to -- you're going to have a site-by-site restart. But I think a fair estimate is something like that we'd be disappointed if it went much longer. And we know that we have a lot of really motivated clinical investigators who encourage us to stop, but I think they are going to be the same people that encourage us to get started again.

Thank you. Our next question comes from Rick Wise with Stifel. You may now proceed with your question.

Hi, Mike. A couple of questions. One bigger picture to start with. And you've touched on this a little bit but as you reflect on -- as I start to reflect on a post-COVID environment, and again, you've highlighted that patients are going to be anxious coming back to hospitals, et cetera. It seems to me there's an argument that the post-COVID recovery environment actually accelerate TAVR adoption, given the desire to get patients better, faster, get them out of the hospital quicker. The opposite side of that coin obviously is that could accelerate pressures on surgical valve growth outlook. Is there any merit in that accelerate TAVR and pressure on surgical valve thought?

Yes. Thanks, Rick. And as you might imagine, there is indeed a wide range of outcomes. And so although it's very hard to say, but I think there are a number of people that are going to be motivated to go. The resources and equipment to restart TAVR given the short length of stay and the fact that it doesn't need an ICU could encourage people to try and get that procedure going, particularly considering how serious AS is. And so yes, there is a scenario where it could come up faster. But the other thing that we have to be clear on is, we've watched the system really screech to a halt. And so this -- it's a restart process. And indeed, I'm sure you know from your own research that patients are scared. And so getting them to re-enter whether it's hospitals or whether hospitals create places that patients can go and feel more comfortable, this is going to be the test of getting the system restarted. It's just a -- it's a wide range of possibilities.

And just as a second question. You emphasized a couple of times that there will be informative updates, which sounds like, I don't know, strong language to me at EuroPCR on PASCAL, Cardioband and EVOQUE. Can you just share with us what you're thinking, what it could -- not what the data will be, but what the updates are likely to consist of and what we should expect? Thank you so much.

Yes. Thanks very much, Rick. Yes, there are going to be a number of things accompanying probably a late-breaker and some oral abstracts and some posters, but probably two of that we call your attention to, on EVOQUE in the tricuspid position. I believe the early experience is going to be shared, which I believe is going to be 19 patients at 30 days. And so that will be the first time that the community has had a chance to see how that valve performs. And then in PASCAL, the CLASS study, actually the CE Mark study that evaluated both DMR and FMR patients, we will have 62 patients at one year and 109 patients at 30 days and six months. So it will be a nice informative update on those product lines for sure.

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

So Mike, how are you thinking about the pace of recovery for TAVR and may be SAVR compared to other types of procedures? Do you think valve procedures will come back faster because they're more medically necessary or do you think the advanced age of the patients make them reluctant to go to hospital? How do you think about that dynamic? And I had one follow-up.

Yes. Thanks, Larry. I don't have a strong view on other procedures. You know us, we're so focused on structural heart diseases, that's where we really put our energy. What we do know is that AS is particularly deadly and there is some data there that reinforces that. And so that makes us think that there is going to be a strong motivation for people to do this. And at a time when hospitals really want to get back to providing the care, and also I think they're frankly concerned about their economics, here is something that they can do that I think is really good for patients and it also helps them get back on their feet again.

That's helpful. And then, Scott, just on the guidance, just to put a finer point on it. Q3, should we be thinking about that as basically kind of flattish year-over-year or actually maybe down a little bit? Thanks for taking the questions.

Yes. Thanks for the question, Larry. It's tough to say, and we've intentionally not tried to breakout Q2 versus Q3 versus Q4. What we know is that our assumption is based upon second quarter being the most severe followed by a gradual recovery in the third quarter and a fourth quarter that ultimately better resembles our original expectation for sales. But where that crosses from being below our original expectations to meeting our expectations, there is something that we just can't put a fine point on it at this point.

Thank you. Our next question comes from Robbie Marcus with J.P. Morgan. Please proceed with your question.

Yes. Thanks for taking the question. I wanted to follow-up on Bob's question about second quarter. So we pretty much have one-third of the quarter in the bag here and $700 million to $900 million. I was hoping you could give us a little bit of what has to happen from this point to get to $700 million, what has to happen to get to $900 million? I know there is a wide range of outcomes. But just help us understand what hits the bottom end from here, what hits the top end? Thanks.

Yes. We're not accustomed to sort of slice it by month, Robbie, but I'll try and give you a little bit of color here. So the -- a lot of it is going to depend what COVID does itself and whether COVID keeps receding or not. Based on what we've seen so far, there needs to be improvement from where we are today to get to the middle of the range or certainly the top of the range. If we continue where we are today, we're going to be much closer to the bottom of the range. And it's just a wide range of possibilities in terms of how this quarter will play out. We probably never had a quarter that has a greater level of uncertainty as the second.

Got it. And Scott, I love hearing when companies do right by their employees during tough times. I was wondering if you help us think about some of the moving pieces down the P&L here for gross margin, SG&A and R&D, it sounds like you're investing in R&D. But maybe just help us put it all together down the P&L and how you reach the EPS? Thanks.

Yes, sure. So on gross margin, there are number of things that are really unusual that are happening right now, and it includes, obviously starting with reduced manufacturing volumes. We're proactively managing our capacity and our supply chain. We are looking for alternatives in terms of logistics and trying to offset expedited freight that will show up in our gross margin in a negative degree. And we just got other extra costs that are involved in supporting our manufacturing operations in our seven facilities around the world. So there will be pressure on gross profit.In terms of SG&A, we've had some natural declines just in travel and conferences and the timing on headcount growth because we're still a growth company. But there are just some natural headwinds to being able to complete those investments on the time schedule that we had originally envisioned.In R&D, most of it is just delays in clinical trial enrollment that we've talked about, and that's what's going to a certain extent gate our ability to invest in that R&D growth. And then you get into tax and shares outstanding, which we've talked about a little bit. I'm not sure those are really as dependent upon the recovery or specific to Q2 being so soft. Does that get to your question?

Yes. And I just might add that we have tried to really focus on prioritizing and protecting our employees and their jobs and we're not planning layoffs associated with this pandemic. And as I said earlier, we continue to support cases in every state and the countries around the world and we're going to do everything we can to continue to be a great partner through this entire process.

Thank you. Our next question comes from Matt Miksic with Credit Suisse. Please proceed with your question.

Hey, thanks for fitting us in. So a couple of follow-ups. One on new centers. Mike, if you could talk a little bit about -- that's been an important trend for developing the market and rolling out across the U.S., what were you seeing and what do you expect over the next couple of quarters as the system kind of restarts? And then I had one follow-up.

Yes. I don't have hard data on that one. We currently estimate that there is more than 700 centers and we said that -- and this was following the NCD that was approved last year that we're probably headed toward 850 in total. So I don't know the exact number to where we are right now. I can tell you that since COVID hit, we've stopped doing the training and are really focused on the existing sites. And so that’s probably going to change that adoption rate to some extent. But the bigger driver in terms of the way the Q1 was going before COVID hit was new patients coming off the sidelines. And that wasn't all concentrated in new sites, that was across the board.

That's helpful. Thank you for that. And then just the other on sort of some of the other geographies, and we're all quite focused obviously on what's happening in the U.S. and the hopeful signs that some hospitals that you mentioned are starting to open back up or thinking about opening back up to more like the surgeries. But in other geographies, can you give us some sense of either re-improving, reemerging elective procedures or the ability anywhere else in the world or how would you compare the rest, let's say, Europe and Asia to what you're seeing here?

Sure. So we would say in Europe, we saw a phenomena that was very similar to the U.S., which is a strict drop-off in March. Within Europe, some countries got hit much harder than others. But the net-net effect was Europe wasn't so different than the U.S. and we actually think that the recovery in Europe and the U.S. may not be so different. Interestingly enough, procedures in Japan in Q1 were not meaningfully impacted by COVID-19. We think that there is going to be a more pronounced effect in Q2. And it just seems from our perspective that the kind of the wave of COVID-19 patients in Japan is trailing what's happening in the U.S. and Europe by a matter of maybe weeks of some sort tough to know for sure. Those are the biggest markets. I mean there are other places around the world where TAVR is still young, like Australia and Latin America where there is still growth and not much impact from COVID. But those are kind of small numbers by comparison.

Thank you. Our next question comes from Raj Denhoy with Jefferies. Please proceed with your question.

I just wanted to build on these comments you made about the fourth quarter and getting back to where you thought you would have been kind of prior to this. And so when one thinks about kind of 2021, right, do you think about a growth rate in 2021 that is kind of normalized or do you think we actually will be at kind of a heightened growth rate in that year as we maybe make up some of these loss procedures in 2021? When do you expect the fall off to be as significant on a dollar basis as we're going to see here in 2020?

Yes. Sorry Raj, I mean, we're -- obviously it's premature for us to get into 2021 in a big way, but you can tell. When we say that we're going to start approaching recovery in Q4, you'd like to think that in 2021 we've got some pretty favorable comparisons. And so I would anticipate that.

Understood. And maybe just as a follow-up, a little bit of a follow-up to the last question. Germany is getting set to open up in a broad way, I guess the entire country in just next week. Have you picked up anything in terms of in anticipation for procedures to start to ramp in Germany or any early feedback as that country gets ready to open up again?

Yes. We don't have anything broad at this point, Raj, but we do hear anecdotal comments. I mean the physicians there are very active researchers and many of them want to start conversations about getting going again. So there's a few anecdotal conversations about that, but really no hard data about how Germany will start up.

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

Thanks for squeezing me in, and I'll try to ask both of them at the same go. One, Mike, back to ACC, your competition was making some noise on bicuspid data in low risk. Just curious to get your views on have you seen any impact in the market? And related, on the competitive front, any update on the mitral litigation side? Thank you.

Sure. Yes, thanks, Vijay. So there's a lot of data on bicuspid and there has been some extensive published real world experiences. At Edwards, you know we're not contraindicated for these patients that we treat bicuspid patients with SAPIEN valves all the time. And our real world outcomes and these patients have been outstanding with the balloon-expandable SAPIEN 3. So we think that body of evidence is just going to grow and we expect there will be more data at cardiology conferences in the future. Your other question was about the IP. Yes, so big picture, I think we believe that our IP positions and we're prepared to defend them. We don't believe litigations necessarily in the best interest of patients, and we're going to hope that we can move through this. But there is a lot of litigation going on in a lot of countries with a lot of dates. And so it will be a continued source of noise at this point.

Thank you. Our final question comes from Danielle Antalffy with SVB Leerink. You may now ask your question.

Just if I could -- I just have one question. Just if I could on the recovery and the commentary, Mike, around losing some of these patients. I appreciate that these patients are very sick. However, in my checks, I'm hearing that the most urgent patients, i.e. designated their disease will progress too much that there they'll be re-hospitalized or won't survive over the next few months are being done today. Therefore, will these patients necessarily be lost? I guess I'm a little more bullish on the recovery curve as you probably saw with my upgrade. So just trying to get a sense of how confident you are that, that is going to be the case, because it sounds to me like a lot of those very sick patients are actually getting done? Thanks so much.

So you're right. Danielle. Certainly, there are very sick patients that aren't being done, right, we're not doing zero. But it's much lower than we expected to be doing at this time. And what I was trying to express, if you just think about it in a growth sense and it's a little bit dehumanizing. But if you think about what we were going to do and how many patients we're going to be treated during 2020 compared to the number of patients that we believe we're going to treat now, it's a much smaller number and that's a deep concern. We know that many AS patients do not get treated. And that's why that's actually one of the reasons why we are so enthusiastic about our work because we can get after this population that's not treated. So that pool of untreated patients just gets bigger, and we know that there is mortality associated with that.

Thanks for your continued interest in Edwards. Scott and Mark and I welcome any additional questions by telephone.

We have one final question with Josh Jennings here. Mr. Jennings, your line is now open.

Thanks for fitting me in here. I guess, I'll just keep it to one. Just in terms of your outlook for the competitive landscape, when a competitor is in the market, potentially a new competitor with an approval later this year, any change in terms of all in terms of the competitive headwinds, because we just imagine that getting cases proctored and moving forward with the launch could be a little bit challenging for the competitors. I just wanted to hear your thoughts on that? Thanks again.

This is the conference operator. My apologies. I believe we may have just lost our speaker. Mr. Wilterding, can you hear me? Ladies and gentlemen, I apologize. I believe our speaker has concluded the presentation here. You may now disconnect your lines at this time. Thank you for your participation.