Edwards Lifesciences Corp

NYSE:EW

Earnings Call Transcript 2023-Q1

[Operator]

Greetings, and welcome to the Edwards Lifesciences' First Quarter 2023 Earnings Results. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note that this conference is being recorded.

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

[Mark Wilterding, SVP, IR and Treasurer]

Thank you very much, Diego, and thank you everyone for joining us. With me on today's call are Mike Mussallem, Chairman and CEO; Scott Ullem, CFO; and Bernard Zovighian, President of Edwards Lifesciences. Also joining us for the Q&A portion of the call are Larry Wood, our Group President of TAVR and Surgical Structural Heart; Daveen Chopra, our Global Leader of TMTT; and Katie Zimon our Global Leader of Critical Care.

Just after the close of regular trading, Edwards Lifesciences released first quarter 2023 financial results. During today's call, management will discuss those results 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 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 that could cause actual results to differ materially. Information concerning factors that could cause these differences and important safety information may be found in the press release, our 2022 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 constant-currency and adjusted, management is referring to non-GAAP financial measures. Otherwise, they are referring to GAAP results. Reconciliations between GAAP and non-GAAP numbers mentioned during the call are included in today's press release.

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

[Michael Mussallem, Chairman and CEO]

Thank you, Mark.

We're pleased with our first quarter performance, which exceeded our expectations and reflected an improvement in the healthcare staffing along with strong execution of our patient-focused innovation strategy. Sales of $1.46 billion represented 13% growth on a constant-currency basis versus a year-ago period. Strong therapy adoption of transcatheter heart valves drove the majority of growth in the first quarter aided by better-than-expected performance of Surgical Structural Heart and Critical Care.

By geography, strong growth in the U.S., Europe and the rest of the world was partially offset by Japan where COVID impacts lingered. First quarter results in the U.S. were also positively impacted in the quarter by some catch-up in procedure volumes following a seasonal slowdown late last year. While staffing remains a concern at many sites globally, we are optimistic that the environment will continue to improve.

In TAVR, first quarter global sales were $948 million, an increase of 11% year-over-year on a constant-currency basis. We estimate global TAVR procedure growth was comparable with our growth. Local selling prices were stable.

In the U.S., our first quarter TAVR sales grew in the low-double-digits versus the prior year, and we estimate total procedure growth was comparable. As we indicated, we believe that first quarter trends were lifted by improved hospital staffing levels. Results were also lifted by a catch-up in procedure volumes early in the quarter following the holiday season slowdown.

We're optimistic about the early results of our SAPIEN 3 Ultra RESILIA launch in the U.S. As you know, the RESILIA tissues anti-calcification technology has demonstrated a strong track-record of performance in Edwards surgical valves. Adoptions of this advanced technology is proceeding well, and we expect it to represent the majority of our U.S. TAVR sales before year-end.

TAVR growth in the first quarter was driven by larger volume centers and our SAPIEN valves continue to demonstrate distinguished clinical performance. We're pleased with the continued enrollment of our PROGRESS clinical trials studying patients with moderate AS. Related to this, last month at the ACC Conference data were presented that examined mortality rates in cardiac damage of 600,000 early-stage AS patients in the U.S. This study concluded that all degrees of untreated AS severity were associated with increased mortality risk.

Of note, that mean two-year all-cause mortality for moderate AS was approximately 20%, approaching the rate of those with severe AS. Outside the U.S., in the first quarter, our constant-currency TAVR sales grew approximately 10% on a year-over-year basis. Growth reflected positive contributions from all regions, excluding Japan, which was still impacted by COVID and the recent trialing of competitive products. We expect to see higher OUS growth as international adoption of TAVR therapy remains low.

In Japan, although growth was below our expectations, we were encouraged that conditions improved as the quarter progressed, and we expect COVID headwinds to diminish substantially over the course of 2023. With the launch of the SAPIEN 3 Ultra RESILIA in Japan late last month, we expect growth rates to improve in this country where aortic stenosis remains significantly undertreated relative to other large developed countries.

In Europe, Edwards' sales growth was driven by the continued strong adoption of our SAPIEN platform and was broad-based across all countries. Total TAVR procedures grew over previous quarters despite persistent disruptions related to hospital staffing shortages. It's encouraging that healthcare systems across Europe are prioritizing lifesaving structural heart therapies including TAVR amidst these challenges.

Looking ahead to the EuroPCR Medical Congress next month in Paris, we anticipate additional data from the Edwards benchmark study focusing on strategies to optimize TAVR programs across 28 European centers. Data will also be presented on the outcomes of balloon expandable valves for TAVR in TAVR procedures.

In summary, given the strength of our first quarter performance, we now expect constant-currency growth of 10% to 12% versus our previous expectation of 9%to 12%. Our outlook assumes that hospital resource constraints continue to improve during the year. We remain confident that this large global opportunity will increase to $10 billion by 2028, which implies a compounded annual growth rate in the low-double-digits.

Turning to TMTT. Our confidence continues to grow in the long-term potential to transform care for the many patients with mitral and tricuspid disease who need better solutions. We remain steadfast on our three key value drivers to unlock this opportunity, developing a portfolio of differentiated therapies for the complex mitral and tricuspid anatomies, driving positive pivotal trial results to support approvals and adoption, and prioritizing favorable real-world clinical outcomes.

First quarter sales of $42 million grew substantially, driven by overall tier procedure growth, the ongoing launch and growing adoption of PASCAL Precision in Europe and the initial launch in the United States. We're pleased that we continue to have excellent outcomes for patients and clinician feedback on PASCAL Precision has been consistently positive, particularly highlighting the differentiated premium features of the system. We are ramping production to support the launches of Europe and the U.S.

In Mitral, we look forward to presenting one year data from the full cohort of CLASP IID pivotal trial later this year. Meanwhile, we continue to enroll the CLASP IIF pivotal trial with PASCAL for patients with functional mitral regurgitation. In mitral replacement, enrollment of ENCIRCLE pivotal trial with SAPIEN M3 is ongoing and we anticipate completing enrollment of the main cohort around the end of 2023. We believe that this replacement therapy will expand options for a broader population of mitral patients.

In tricuspid, we've completed enrollment of the TRISCEND II pivotal trial of the EVOQUE Tricuspid Valve Replacement System and remain on-track for a European approval by the end of 2023 and in the U.S., around the end of 2024. The FDA recently approved continued access allowing U.S. hospitals that were involved in the clinical trial to continue to offer EVOQUE as a therapy option. In addition, the CLASP II TR pivotal trial with PASCAL continues enrolling well.

In summary, we're pleased with our continued progress toward bringing a portfolio of therapies combined with contemporary clinical data in order to achieve our vision of transforming the lives of patients with mitral and tricuspid valve disease. We now expect full year 2023 sales of $170 million to $200 million versus our previous $160 million to $200 million.

In Surgical Structural Heart, better-than-expected first quarter 2023 global sales of $248 million increased a robust 17% on a constant-currency basis over the prior year. Growth was driven by penetration of our premium products across all regions and valve surgery growth was higher than our expectations as hospital staffing levels improved leading to some catch-up in procedures.

We continue to see strong momentum of the RESILIA portfolio globally. Surgeons and patients value the features and benefits of this proprietary tissue technology for both aortic and mitral surgical valve replacement procedures.

And we've seen adoption of the MITRIS Valve in the US increase in the first quarter. The 7-year data from our COMMENCE clinical trial will be presented at the Annual Meeting of the American Association of Thoracic Surgeons next month. We also began enrollment of our MOMENTIS clinical trial to demonstrate the durability of RESILIA in the mitral position.

In summary, based on our first quarter sales, we are raising our full year sales expectation to the high-end of our $870 million to $970 million guidance range. We now expect high-single-digit underlying growth in 2023, driven by the adoption of our most advanced technologies and an increase in the overall heart valve surgeries.

In Critical Care, first quarter sales of $222 million increased 9% on a constant-currency basis, driven by balanced contributions from all product lines. Growth was led by our Smart Recovery portfolio and strong adoption of our Acumen IQ sensor and finger cuff featuring our unique Hypotension Prediction Index algorithm.

Demand for our Swan-Ganz pulmonary artery catheters and our HemoSphere monitoring platform also remained strong in the first quarter with a healthy pipeline of future opportunities. Based on the strong first quarter performance, we now expect Critical Care full-year 2023 sales of $870 million to $940 million versus our previous $840 million to $940 million.

We remain excited about our pipeline of Critical Care innovations as we can to take continue to shift our focus to Smart Recovery technologies designed to help clinicians make better decisions and get patients home to their families faster.

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

[Scott Ullem, CFO]

Hi, thanks a lot, Mike.

We are very pleased by our start to the year. Q1 was particularly strong in January relative to historical seasonality and the rest of the quarter was more consistent with our growth expectations. All product groups performed well, and sales were balanced across all regions with the exception of Japan, which was impacted by lingering COVID headwinds.

We achieved total sales in the quarter of $1.46 billion, which represents 12.6% year-over-year constant-currency growth. We achieved adjusted earnings per share of $0.62. Our GAAP EPS was $0.56 and impacted by an intellectual property agreement, which I will speak to later. Contribution from our stronger-than-expected sales performance was partially offset by a higher provision for performance-based compensation. A full reconciliation between our GAAP and adjusted earnings per share for these and other items is included with today's release.

For total Edwards, based on the strong start to the year, we now expect 10% to 12% year-over-year sales growth on a constant-currency basis, an increase from our prior guidance of 9% to 12%. We now expect to be at the high-end of our previous range of $5.6 billion to $6.0 billion.

Absent material moves in foreign exchange, we now expect full-year TAVR sales of $3.8 billion to $4.0 billion, TMTT sales of $170 million to $200 million and Critical Care sales of $870 million to $940 million. For Surgical Structural Heart, we now expect to be at the high-end of our previous guidance range of $870 million to $970 million.

Lastly, we now expect our full-year adjusted EPS to be between $2.48 and $2.60. We're projecting second quarter sales to be between $1.48 billion and $1.56 billion. We're also projecting second quarter adjusted earnings per share of $0.62 to $0.68.

I'll now cover additional details of our results. For the first quarter, our adjusted gross profit margin was 77.5% as expected, compared to 77.8% in the same period last year and 81% in Q4. This slight year-over-year reduction was driven by a less favorable impact from FX. We continue to expect our full-year 2023 adjusted gross profit margin to be between 76% and 78%.

Selling, general and administrative expenses in the first quarter were $436 million, or 29.9% of sales, primarily reflecting increased investments over the prior year in transcatheter field-based personnel in support of our growth strategy. These investments were partially offset by the weakening of the euro and yen against the dollar. We continue to expect full-year 2023 SG&A as a percent of sales to be 29% to 30% as we continue to invest in field-based personnel and our therapy adoption initiatives.

Research and development expenses in the quarter grew 14% over the prior year to $261 million, or 17.9% of sales. This increase was primarily the result of continued investments in our transcatheter valve innovations, including increased clinical trial activity. For the full-year 2023, we continue to expect R&D to be 17% to 18% of sales as we invest in developing new technologies and generating evidence to support TAVR and TMTT.

Turning to taxes. Our reported tax rate this quarter was 14.6%. This rate reflects a 70-basis-point excess tax benefit from stock-based compensation. We continue to expect our full-year tax-rate, excluding special items, to be 13% to 17%.

Earlier this month, we were pleased to enter into an intellectual property agreement with Medtronic in which we agreed to a 15-year mutual covenant not to sue with regard to certain structural heart products.

We previously had a long-term IP agreement that expired last year. The terms of the new agreement limit what we disclose, but there will be a reference to it in our Form 10-Q, which we will file soon. In consideration for the agreement, we paid Medtronic $300 million, approximately half of which has been recorded as a one-time charge and the other half will be amortized over time.

Foreign exchange rates decreased first quarter reported sales growth by 380 percentage points, or $44 million compared to the prior year. At current rates, we continue to expect an approximately flat year-over-year impact to full-year 2023 sales as compared to 2022. FX rates negatively impacted our first quarter gross profit margin by 70 basis points compared to the prior year. Relative to our January guidance, FX rates had a minimal impact on first quarter earnings per share.

Free cash flow for the first quarter was $253 million defined as cash flow from operating activities of $314 million less capital spending of $61 million. We continue to expect full-year 2023 free cash flow will be between $1.0 billion and $1.4 billion.

Before turning the call back over to Mike, I'll finish with an update on our balance sheet and share repurchase activities. We continue to maintain a strong and flexible balance sheet with approximately $1.3 billion in cash, cash equivalents and short-term investments as of March 31.

In the first quarter, we repurchased approximately $250 million in stock through an accelerated share repurchase agreement as well as pre-established 10b5-1 programs. As a result, average diluted shares outstanding during the quarter declined by approximately 5 million shares to 611 million. We continue to expect average diluted shares outstanding for 2023 to be between 610 million and 615 million. We have approximately $650 million remaining under our current share repurchase authorization.

And with that, I'll hand it back to Mike. But before I do, I know everyone on both ends of this call joins me in congratulating you on this your 92nd earnings call. We're now in our 10th year of working together, and it's been a privilege at every step along the way. Your leadership and support as the CEO of Edwards has been an inspiration to me, our employees and I know it's also fair to say the investment community.

So with that, Mike, back to you.

[Michael Mussallem, Chairman and CEO]

Thanks so much, Scott.

That means a lot and I've truly valued your trusted partnership over the years. It's also a great segue. As part of the upcoming planned CEO succession, Bernard has been serving as President of Edwards Lifesciences since January 1. Since then, we've invested all our time to successfully transition responsibilities and I feel confident passing the baton. Next month, I expect to transition to my new role as Non-Executive Chairman of the Board and Bernard will assume the CEO role. I'm excited with the Board's selection of Bernard, and I'm confident that the company is in great hands and will prosper under his proven leadership.

But before we go to Q&A, I'll ask Bernard to say a few words. Bernard?

[Bernard Zovighian, President]

Thanks, Mike.

I feel extremely fortunate to be leading this special company that has pioneered breakthrough technologies and transformed care for patients around the world. During the well planned five month transition, Mike has been extremely generous in sharing learnings and experience, having successfully transformed Edwards over the last 20 plus years. I am also grateful for the support of the Board and the partnership of the executive leadership team.

In recent months, I have had the pleasure of meeting and listening to our patients, our trusted pioneers and our employees around the world. I've come away from the discussion even more confident in Edwards' bright future.

For our patients, we will continue to advance breakthrough innovation that will positively impact their lives. While Edwards has grown and evolved, we never lost sight of why we are here. We will stay focused on our long-term strategic goals and foster a patient-first culture and drive everything we do.

We know healthcare innovation requires trusted partnership with physicians, regulators, peers, providers and innovators, and we will continue to build upon and further strengthen our deep partnerships to take on ambitious goals and address large unmet needs.

Transforming care like we do at Edwards is complex. So we remain committed to fostering a culture where our employees really enjoy their impactful work. Our unique, organic innovation strategy requires an expert, motivated and dedicated global team. I want Edwards to continue to be a place that inspires our employees to grow and succeed and attract bright talent.

As you heard from Mike and Scott, we believe that 2023 will be an important year for Edwards as we expect a return to higher sales growth and meaningful progress on our innovations to improve care for many more patients. Looking beyond 2023, I remain confident that our long-term strategy and pipeline of innovative therapy will create significant value for patients and healthcare systems enabling strong organic sales growth. Finally, I am confident that as we deliver on our innovation strategy, we will create exceptional shareholder value.

With that, I will pass it back to Mark to open up for Q&A.

[Mark Wilterding, SVP, IR and Treasurer]

Thank you very much, Bernard.

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.

Diego, please go ahead with additional details on accessing the Q&A portion of the call. Thank you.

[Operator]

[Operator Instructions] Our first question comes from Larry Biegelsen with Wells Fargo. Please state your question.

[Larry Biegelsen, Wells Fargo]

Good afternoon, and thanks for taking the question. Mike, I just want to say I think I've been at almost 70 of your 92 calls, so I just wanted to take this opportunity to congratulate you on what you've accomplished at Edwards and wish you well on retirement. I just wanted to take a minute to say, I think your pursuit of transcatheter valves may seem obvious now, Mike, but we know that it was a big risk when you decided to go down that path and it was clearly the right decision. So, congratulations again, Mike, and I'll move on to my questions now.

So I'd love to start just with two on TMTT. Just first on the TMTT results in the quarter, the $42 million. I'd love to hear a little bit about the U.S., OUS trends, how much does the U.S. contribute and just any color on the launch of PASCAL and I have one follow-up.

[Michael Mussallem, Chairman and CEO]

Yes, why don't I get started. First of all, thanks so much Larry, that's very meaningful to me. And you're right, we've a long journey together and I really appreciate the support from the investment community. So why don't I turn it over to Bernard and Daveen to sort of answer your questions.

[Bernard Zovighian, President]

Yes, sure. No thanks, Larry. Good question. You know about your TMTT, we are very pleased with the first quarter results. As you can imagine, we started in Europe way before and we also got approval in Europe for PASCAL Precision before the U.S. So it is going very well in Europe, but we have been in the U.S. now for quarter, quarter plus, and it is going well also, it is at the beginning of it, I don't know, Daveen, if you want to add anything here?

[Daveen Chopra, Global Leader of TMTT]

Yes, I would also say, obviously, Europe's obviously been the majority of our revenue, but in the U.S. and in Europe we're in launch mode with PASCAL Precision. We've gotten really positive feedback so far from physicians, they love the technology. They see excellent safety and efficacy and we're continuing to grow, we're continuing to open new center, training physicians for the first time and giving exposure to this new great technology.

[Larry Biegelsen, Wells Fargo]

That's helpful. And then just to follow-up on TRILUMINATE. The reaction seem to be mixed from some physicians. I'd love to hear you guys, your reaction to the data and put EVOQUE what you've just completed the U.S. pivotal trial for TRISCEND II, the enrollment, I'm sorry. One would expect with replacement, you're going to see better efficacy in terms of TR reduction, but how confident are you that you'll see an improvement in outcomes such as mortality and hospitalization with the reasonable safety profile? Thank you for taking the questions.

[Daveen Chopra, Global Leader of TMTT]

Yes, sure. Thanks Larry, it's Daveen again. I'll jump-in a little bit in our thoughts on TRILUMINATE. Honestly, on TRILUMINATE, we're very pleased to see a high-quality randomized controlled data for the treatment of tricuspid regurgitation for the first time. We're excited to see that this trial show that tricuspid tier is not only see but offers significant TR reduction and also offers really meaningful quality-of-life for patients. And I think what we see is that the TRILUMINATE data actually kind of helps confirm outcomes that we've seen in previous PASCAL studies in the tricuspid space like our CLASP TR EFS TriCLASP study, et cetera, that we really see the significant TR reduction great safety and good quality of life.

For us, obviously, the CLASP II TR study is ongoing, and maybe I'll give you some more potential on tricuspid tier therapy. But we also believe that you need a toolbox of technologies for tricuspid disease and that not only does tier offer a great solution, but we also think that tricuspid replacement also offers great solutions. Obviously, as the data comes out in the future will help figure out and impact a lot of the questions that you just asked right there, but I think we'll all figure this out together on this journey.

[Larry Biegelsen, Wells Fargo]

All right. Thanks for taking the questions.

[Operator]

Your next question comes from Robbie Marcus with JPMorgan. Please state your question.

[Robbie Marcus, JPMorgan]

Okay. Thanks for taking the question. And Mike, I'll add my congratulations as well. Maybe to start, I want to spend a minute on TAVR trends U.S. and OUS, and you said there was some pent-up demand at the beginning of the quarter, but then also it sounds like staffing continues to improve around the world. And if you get a little pricing benefit on SAPIEN 3 Ultra RESILIA that might help sales throughout the year. So just love to get your thoughts on what you're seeing, do you think there was a bolus in January and a diet offer, or are these trends that can continue to improve and accelerate throughout the year?

[Michael Mussallem, Chairman and CEO]

Yes, thanks Robbie and I appreciate your comments. Why don't we go to Larry on this one?

[Larry Wood]

Yes, thanks Robbie. If I look at the quarter, we typically see a lot of seasonality in January as we come out of the holiday, just kind of refilling up the pipeline we're screening, and we saw a much stronger January than we historically have seen. I mean, we just saw less seasonality. I'd say, February and March, played out pretty much in-line with our expectations. We've anticipated that staffing was going to gradually improve, and I think we see that and I think that's evidenced in the Q1 results, but we expect it to also continue improve throughout the rest of the year.

So in terms of trying to judge your backlog, I'm not really, it's hard for us to do that, but we do think there were certainly some catch-up in January.

[Robbie Marcus, JPMorgan]

Great. And Scott, maybe one for you, OpEx came in a little higher than the Street had been expecting in the quarter, yet you reiterated the margin targets for the year. How should we think about the cadence of spending and anything in the first quarter that stood out to you that won't repeat going forward? Thanks.

[Scott Ullem, CFO]

Yes, so we did end up with higher spending in the first quarter than we had originally budgeted. Our plans for spending for the rest of the year really unchanged. And for the full year, our guidance for SG&A and R&D as a percentage of sales are unchanged.

In the first quarter, we came in a little bit higher for several reasons. We had some performance-based compensation. It's highly sensitive to sales by design. And so, we'd like to reward people when the topline is performing well. We also had some little things, some onetime one-off expenses for projects we're working on. We had a little bit higher tax rate as a result of income mix that came in U.S. and OUS. So those were some of the special things that you saw flow through in Q1.

[Robbie Marcus, JPMorgan]

Appreciate it. Thank you.

[Operator]

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

[Vijay Kumar, Evercore]

Hi guys, thanks for taking my question and congrats on a good start here. And Mike, let me add my congratulations as well. I wanted go back to the prior question here on, when you look at TAVR, I think it was 4% or 5% in Q4, Q1 double-digit growth. Can you quantify what that improvement from mid-single to double digits, what part of that was perhaps a catch-up versus an underlying improvement in procedure trends and when you're thinking about procedure trends, can you perhaps talk about how the quarter progressed and what the exit rates were?

[Michael Mussallem, Chairman and CEO]

Yes, thanks for your comments, Vijay. I appreciate that, and I'll give it to Larry. Although, I think he already gave it his best shot, but wanted to see if you have anything to add Larry, right?

[Larry Wood]

Yes. I don't know if I have a lot more to add from the last question, you know, you'll note we took up the bottom of our range and I think so we tried to reflect all of this in our guidance, but we're just encouraged overall by the staffing trends and where we're going and I think to see TAVR back in double-digit growth after a couple of tough quarters just really I think highlights that the system is getting capacity back and I think that that's a real plus for patients.

[Vijay Kumar, Evercore]

Maybe I'll try to ask this a different way, Larry. Let's see if we can pin this down. The SAVR, this is the second straight quarter SAVR is outgrowing TVAR. Is that 17%, what percentage of that 17% is what is volume versus price? And do you have any thoughts on why is SAVR continuing to outgrow TAVR? Shouldn't TAVR be growing faster than SAVR?

[Larry Wood]

Yes, well I mean, I think first of all, we're very excited by the surgical growth that we saw in Q1. I think we probably reached probably at an all-time high, that we haven't seen in a long-time. I think that's really a reflection of the innovation and the investments we've made over the last several years, so I think part of this has been the adoption of our premium products and the premium we get and that certainly helps our competitive position and at the same time we did see procedure growth on that happened that I think we results from the capacity, similar to what we saw in TAVR.

We saw that capacity improvements on the surgical side of our business as well, but we do get some of the price from our premium products in addition to the growth in the market and then probably a little bit of competitive position as well. So there's probably more drivers on the surgical side than there are on the TAVR side.

[Vijay Kumar, Evercore]

Sorry, volume versus price, Larry, can you comment whether majority of this growth was volume versus price on TAVR?

[Larry Wood]

I mean, volume was certainly a key contributor to it and there's no question about that. So that's a big thing, but again yes there are three things that are contributing to the growth on the surgical business, whereas TAVR it's pretty much primarily units.

[Vijay Kumar, Evercore]

Fantastic. Thanks guys and congrats again.

[Operator]

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

[Joanne Wuensch, Citibank]

Good evening, and Mike, you will be missed, but nice quarter to do your 92nd quarter four. I just want to spend a little bit of time on Japan and China, and particularly in Japan, if you had a tough beginning of the quarter with COVID overhang, what is your run-rate looking like right now and just down there what's happening in the region?

[Michael Mussallem, Chairman and CEO]

Yes, thanks, Joanne, and I appreciate your kind comments. Bernard, do you want to take a shot at that?

[Bernard Zovighian, President]

Yes, so Japan has been and still largely impacted by COVID headwinds. When we believe it is going to diminish over the course of 2023. We are also bringing our latest technology in Japan, S3 Ultra RESILIA and we are starting to see some positive reaction from our customers here. So together with the recovery from COVID and us bringing our latest technologies, we are very hopeful for the year.

[Michael Mussallem, Chairman and CEO]

Yes, the other thing I can add, Joanne is that. China is still relatively small on the TAVR front for us. Remember we launched during the COVID years, but Japan is also going to benefit from the launch of the Ultra RESILIA product this year. And so, we think that's going to be a lift for Japan as the year goes on. And that's just launched here this last, this month.

[Joanne Wuensch, Citibank]

Thank you very much.

[Operator]

Thank you. Our next question comes from Travis Steed with Bank of America. Please state your question.

[Travis Steed, Bank of America]

Hey, thanks a lot and congrats Mike you'll be next as well. Couple of questions here, I guess the first just did you normalized January. I don't know, if you could say, the U.S. still grew double-digits, if you just normalize the January in Q1? But then the real question is like how to think about Q2 from here, both U.S. and worldwide TAVR, how much of a step-up we should expect in Q2 total - TAVR sales or growth rates or just any color on what to expect for Q2 in TAVR?

[Michael Mussallem, Chairman and CEO]

Okay. Thanks, Travis. I appreciate that. So, could you repeat your question about the Q1 growth, so I make sure we get it right?

[Travis Steed, Bank of America]

Yes, of course, so January, if you normalize the January catch-up if you will, January looks more normal did the U.S. TAVR still grow double-digits or it's high single-digits?

[Michael Mussallem, Chairman and CEO]

Well again, just to try to expand, we typically see pretty fairly extreme seasonality in January where it's our worst month of the quarter. We just didn't see as much extremism, but January was by no means our strongest month. We continue to see a ramp in a quarter, it's just February and March were pretty much in-line with our expectations, but January was stronger, but it wasn't like it was our strongest month, so I hope that gives more context.

And I think what we're seeing is the gradual improvement in staffing and I think what we've tried to build into our guidance is we took up the bottom of our range, because we felt we had a strong Q1, but it's kind of in our expectations now to be in that 10% to 12% range globally.

[Scott Ullem, CFO]

Yes so Travis, it's Scott. I'll just add to that, our guidance at the midpoint for Q1 was around 9% growth. That was the $1.41 billion. We beat that by $50 million, almost half of that was Surgical, and so we probably were rounded to low double-digits, something like that, if we were to normalize January, but we're getting pretty precise at this point trying to isolate every single month of the quarter.

[Travis Steed, Bank of America]

Yes, that's helpful, and I guess the next question would be on the RESILIA rollout, in terms of where you're at in penetration there. And then as you move into 2024, how you're thinking about some of the competitive launches in the U.S.?

[Michael Mussallem, Chairman and CEO]

Yes, we're very pleased with how the S3 UR rollout has gone. We're really following on in the footsteps of our surgical franchise, and RESILIA, which is on in INSPIRIS and now on MITRIS has become extremely popular with surgeons. And so, we get to follow the legacy that they've really started for us. And we've seen really positive impact from S3 UR. And we expect by the end of the year that that's going to be our leading platform in both the U.S. and Europe.

And remember we went for a list price increase with that which is never easy to do and we've been pretty pleased with how that's gone so far and I think that just shows that positions respect and appreciate the value that RESILIA brings to the platform. So we're very encouraged with how the launch has gone to-date. We'll continue to roll it out through the rest of the year, but we do expect it to be our leading platform. I think you had a follow-up question on competitive launches, is that correct?

[Travis Steed, Bank of America]

That's correct, yes.

[Michael Mussallem, Chairman and CEO]

I mean, competitive launches have been going on for a long time, if we look at Europe, there's a whole complement of products out there. And outside of number one and number two, all of the competitors command about probably around 15% of the market and that's been fairly stable. So I think it's for us it's more about us continuing to innovate and rolling out our leading platforms than it is about anything else.

[Travis Steed, Bank of America]

Okay. Great and congrats on a better quarter.

[Operator]

Our next question comes from Danielle Antalffy with UBS. Please state your question.

[Danielle Antalffy, UBS]

Hey, good afternoon, everyone. Thanks so much for taking the question. And Mike, we sound like a broken record over here. But it's the end of an era and you definitely will be missed, and it's been such a pleasure being on this journey with you as you have such a meaningful impact on so many patients' lives, so thanks for letting us share that with you. And I guess my first question is on the TAVR growth guidance for the year?

And if you look at from a comp perspective, I mean Q1 is a tough comp, you guys put up 11% constant currency growth. So I guess that we had some sort of backlog worked down in January, but I guess my question is why not a little bit more aggressive on the TAVR growth guidance given the strong Q1 print, is there anything to consider as it relates to moving through the quarters, comps actually get easier as you move through the year. So just wondering if you could comment on that and then I have one quick follow-up?

[Michael Mussallem, Chairman and CEO]

Yes, thanks so much for your nice comments, Danielle, it has been a pleasure for me. Why don't I turn this over to Scott to go through your question.

[Scott Ullem, CFO]

Yes, so I mean the short answer is, we did increase the bottom of our range. So we're expecting 10% to 12%, not 9% to 12%, it's not a huge move, but it does indicate that we had a nice January and we're still positive on the rest of the year. At this point, it's premature to start tinkering any more than that with guidance. We think this is the right modeling assumption for us in that 10% to 12% range for TAVR.

[Danielle Antalffy, UBS]

Okay. That's fair. And I think historically, you guys don't tend to release guidance very aggressively after the first quarter. So that's fair. And quick question for - on the TMTT side of things, I know it's very early in the U.S. on PASCAL launching, but Bernard just curious what you're seeing as it relates to market growth there and how much you're seeing that market recover, again, I know you guys are so early?

So, not sure what you can say, but usually second entry comes to market and markets accelerate in a net tax, but just wondering if we're getting any signs on what market growth could look like going-forward there? Thanks so much.

[Bernard Zovighian, President]

Yes I know it's a fair question, indeed, we are pleased about the Q1. We have seen some positive signs that the market is recovering. I'm sure you remember the mitral market during COVID was not growing as expected and in Q1 we saw that the market was growing again. But again we are, if you think about the U.S., we are not the share leader, correct.

So, we look at the market, we see a good sign that it is recovering and we are very pleased about the introduction of our technologies, our customers of reacting very well to PASCAL Precision, the seal of a differentiated benefit. So, we feel good about the impacts we can have here to this many patient in need. Thank you.

[Danielle Antalffy, UBS]

Thank you.

[Operator]

Thank you. And our next question comes from Richard Newitter with Truist. Please state your question.

[Richard Newitter, Truist]

Hi, thanks for taking the questions. So two from me I guess, just the first, I know we've talked about hospital staffing. Is that just a catch all phrase? I know in the past you said it's the whole worked up and everything for getting the patient diagnosed to the entire kind of worked up to referrals to getting the patient there. So with respect to the improvement that we saw from late last year, just trying to get a sense for - what specifically kind of are you referring to when you say hospital staffing is improving?

And kind of the second question on that just I think you talked about in the past a very varied kind of level of recovery across your installed base. Any comments you can provide as to the - or characterize kind of where and which types of implanting centers are recovering and at what rates or was it just more uniform across the entire installed-base at this point? Thanks.

[Michael Mussallem, Chairman and CEO]

Yes, maybe I'll start, and I'll take your second question first, because it might take a couple of to answer your first question. I think we saw the growth being driven more by larger centers than smaller centers during this quarter and I think this is sort of a trend that we've seen throughout COVID. I think when COVID has spiked, we've seen people stay closer to home, we've seen probably more growth in the smaller centers.

And as COVID wanes, we see people traveling, maybe a little bit further and going to larger centers. And so, I think this is consistent with trends we've seen over the last year and a half or so. In terms of, when we talk about staffing, it depends when you're talking about our surgical business our TAVR business. When you're talking about the surgical business, it's primarily OR staff and ICU nurses in sort of the post-care initiative.

When you're talking about TAVR, there's a lot more that goes into it, because there's a lot more upfront workout. So it requires staffing improvements for CT and for angio and sort of the broader cath lab and we don't need it so much on the after-care side. So - I think we've seen, just generally, and I think hospitals have been working at this for probably better than a year now, trying to get people trained and get people in.

I remember, you don't just hire a person and then they're effective from day-one. They have to go through a training process with that hospital, but I would say, generally speaking, you can look at the quarter and say, we saw staffing get better and - that's reflected in our and I think our broad performance. Well, we certainly saw it in TAVR, and we certainly saw with surgical.

But it needs to continue to improve over the rest of the year. It's not like we're done yet. And I think hospitals continue to work hard at this maybe I'll ask Daveen to comment on the TMTT side what he saw.

[Daveen Chopra, Global Leader of TMTT]

Yes I mean. I think it's a similar kind of comment that you made there, probably not the differences where there's a lot of people, a lot of different steps that go into a TMTT case. And again, as Bernard said, we're still a minority player here. But we continue to be optimistic that all those different parts of the fall patient pathway are continuing to get a little bit better in staffing.

[Operator]

Thank you. Our next question comes from Matt Miksic with Barclays. Please state your question. Matt Miksic, your line is open. Please go ahead un-mute yourself.

[Matt Miksic, Barclays]

Hi. Thanks so much. Thanks for fitting me in. So a couple of just quick follow-ups here, so one on the color that you gave on RESILIA, I appreciate the target of kind of getting that to the majority of U.S. revenues by the end of the year on the TAVR platform, if I understood that correctly. But just broadly, I know you've had a policy of maintaining this kind of set price across your TAVR platform - even as you sort of moved it up to the generations of products, and that is a little bit unusual?

Most companies in med devices do tend to sort of contract and rebate and make adjustments to pricing across like particularly in the U.S, given the way DRG's work and different hospitals non-teaching hospitals get different payments than urban hospitals or hospitals here in New York. I'm just wondering if this having RESILIA in a portfolio at a premium, having S3 call it standard or whatever - however you're referring to it in the portfolio?

If you're giving any thought to, it's sort of joining the rest of the group to sort of to help some of the smaller centers maybe be able to afford to do TAVR when paying for $30,000 or $32,000 for a round just might be have reached given especially given the way staffing costs have gone up. Love to get your thoughts on that and then I have one quick follow-up?

[Michael Mussallem, Chairman and CEO]

Sure. Well, we haven't changed really our pricing philosophy. We do try to be good partners with our hospitals, and we did take a list price increase, but that's the first price increase we've rolled out really since launch. This is the first time that we've gone through a price increase. And so, the other thing that we've always done is, we've always rebated based on volume. So large volume centers, obviously you get discounted out.

But we tried to treat everybody fairly across the country by having a standardized price, that's the way that we try to do that. And we try to recognize different centers performance based on their volume and that's been our philosophy throughout. I don't see us changing that philosophy.

I think that's worked really well for us and we do try to work with hospitals and bring a lot of value. We still have people supporting virtually every case in the U.S. and the majority of cases in Europe and virtually all the cases in Japan and that's just sort of the model that we have in. And the other thing we try to do is partner with hospitals and run our things like our benchmark program to help them be more efficient, but if you look at all the data that's been produced for our clinical trials, this is an incredibly cost-effective procedure with almost unprecedented benefits when you look at it, mortality and you look at some of the other things that it's done. So we feel the prices that we have are more than fair for the value creation that we have.

[Matt Miksic, Barclays]

That's fair. And then I guess as centers have done more active and staffing does, and pressure starts to ease a little bit, one of the pressure points has been around the extensive imaging and sort of additional sort of staffing -- specialized staffing that's required for some of these mitral procedures, tier procedures. Any thoughts on along the same lines of facilitating broader utilization and adoption through partnering with hospitals, anything that you can see yourself doing to sort of help facilitate those procedures given sort of the specialized staffing needs behind them?

[Daveen Chopra, Global Leader of TMTT]

Yes, this is Daveen. I mean, obviously, I think we are always going to look to partner with hospitals, we are going to look to try to help them across the board. We're obviously in our early days, we tried to provide excellent training, top-notch training to get these patients as efficiently and effectively treated getting through the recovery process, et cetera. And I think our teams since a little bit more in the infancy, we don't have the same kind of detailed programs that kind of Larry has, like Benchmark et cetera in the TAVR program, but we're working really hard to try to on the tier side as well start creating those as we start getting more scale and being a great partner. I mean, it's a part of it, we all together Just want to help more patients together in a cost-effective manner. And that's kind of how we think about it over the long-term.

[Matt Miksic, Barclays]

That's fair. And Mike, I have to say it's been something to behold the culture, the accomplishments of the company. Congrats, and you will be missed. Thanks so much.

[Michael Mussallem, Chairman and CEO]

Thank you, Matt.

[Operator]

Our next question comes from Cecilia Furlong with Morgan Stanley. Please state your question.

[Cecilia Furlong, Morgan Stanley]

Good afternoon and thank you for taking the questions. I wanted to return to Japan, some of the comments that you called out just around competitive trialing, how you would frame Edwards growth there versus the market understanding you. So we're seeing recovery in the region. And then looking-forward to really what's reflected in guidance from Japan recovery at this point as well as Ultra RESILIA rollout?

[Michael Mussallem, Chairman and CEO]

Cecilia, this is Mike here, can you just zero-in a little bit on the first part of that question again, I want to make sure that I understand it.

[Cecilia Furlong, Morgan Stanley]

You talked a bit about competitive dynamics you were seeing in the region, I believe. So just curious if you could provide a little more detail on just how that impacted your growth versus market growth?

[Michael Mussallem, Chairman and CEO]

Yes, so we had two other competitors in Japan, both rolled-out new products. And so, it's not uncommon when new products rollout that we see physicians trying those products and understanding how they work and what the features and benefits are and I think we've seen this throughout our history, and usually that ends up being largely transient. And we're excited because we're just getting to our biggest launch that we've done in Japan since our initial launch, which is S3 UR.

And so, we're excited about that. I think broader on what's in the guidance for Japan is we're expecting a broader COVID recovery, COVID was still pretty big in Q1 and we're looking for a broader COVID recovery and continued uptake, it got better during the quarter, but we're looking-forward to continue to improve throughout the year and that's what's in our guidance.

[Larry Wood]

Yes, the only thing I'd add to it is Japan has been a pretty strong grower for us over the last couple of years and then really slowed down when COVID hit in the second half of last year. So, we're looking-forward here, especially with the launch of -- with the COVID waning and the launch of SAPIEN Ultra RESILIA that it's really going to make a difference starting in Q2 and moving forward.

[Operator]

Thank you. And ladies and gentlemen, we have time for one final question before turning it over to management for some closing remarks. And that question comes from Josh Jennings with TD Cowen. Please state your question.

[Joshua Jennings]

Hi, good evening. Thanks for taking the questions. And Mike, really appreciate all your insights on these 92 earnings calls we have been on half of them. But question really, I mean for Larry, just wanted to -- we're getting questions on the TAVR and TAVR replacement cycle. I'm wondering if you could just size up the percentage of the market currently in the TAVR and TAVR represents and imagine it becomes a bigger, more meaningful piece as you get out to 2028 in that $10 billion market that you guys have forecasted, but when should we start to think about TAVR and TAVR contributing more meaningfully to market growth? Thanks for taking the question.

[Larry Wood]

Yes, no, it's a good question. I don't know that I can quantify it for you today, but we do TAVR and TAVR, but we also do TAVR and SAVR for patients that have gotten tissue valves, but I think one of the things that TAVR enabled with its development was the opportunity for more patients to get tissue valves. So even on the Surgical side of our business, younger patients can get tissue valves now because physicians and patients now payout let their valves that there is a catheter-based option for them down the road.

So certainly, in time TAVR and SAVR will continue to grow and TAVR and TAVR will become a bigger part. TAVR valves now are just probably starting to get to the customer reaching that age that that will start to be more meaningful, but it will be something that grows in time, certainly as we look at the period that you discussed, which is through 2028.

[Joshua Jennings]

Appreciate it.

[Michael Mussallem, Chairman and CEO]

Okay. Well, this is Mike, I'll make some closing comments. First of all, thank you so much for many of your warm remarks. It's been a special honor and a privilege to lead our team at Edwards Lifesciences for more than 20 years. And I really want to thank our employees who have made immense contributions to advancing care and helping millions of patients around the world.

I'm particularly proud of our patients-first culture and our commitment to innovation and excellence. Our success is really a testament to the talented and passionate executive leadership team and our employees worldwide. And I believe we are well-positioned for an even brighter future. It's truly been my greatest honor to be Edwards CEO, and I look forward to supporting Edwards as I transition to my new role with the Board of Directors.

So thanks a lot for your continued interest in Edwards and the team will welcome any additional questions after the call.

[Operator]

Thank you. And with that we conclude today's conference. All parties may disconnect. Have a great evening.