Edwards Lifesciences - Earnings Call - Q2 2025

Executive Summary

• Double-digit top-line and estimate beats: Q2 revenue $1.53B (+11.9% YoY) and adjusted EPS $0.67 beat S&P Global consensus; management cited broad-based strength and raised FY sales growth to 9–10% and TAVR growth to 6–7%. Results outperformed Street revenue and EPS estimates for the last three quarters (see Estimates Context). Values retrieved from S&P Global.*
• Mix tailwind from TMTT and resilient TAVR: TMTT grew 61.9% to $134.5M on PASCAL and EVOQUE; TAVR rose 8.9% to $1.13B with stable competitive/pricing dynamics; a competitor exit in Europe modestly aided share.
• Guidance raised; Q3 guide set: FY total sales to $5.9–$6.1B (9–10% growth), TAVR to $4.3–$4.5B (6–7% growth), FY adjusted EPS to high end of $2.40–$2.50; Q3 sales $1.46–$1.54B and adjusted EPS $0.54–$0.60.
• Margins mixed near-term: Gross margin contracted 240 bps YoY to 77.5% on manufacturing ramp and FX; CFO flagged mid-20% operating margins in 2H due to deferred spend and expected Genovalve/JenaValve costs, though FY EBIT margin remains 27–28% target.

What Went Well and What Went Wrong

What Went Well

• Broad-based beat and raise: “We are pleased to report strong second quarter results… raising our sales and EPS guidance”.
• TAVR execution and catalysts: Better-than-expected TAVR, with asymptomatic indication now approved in U.S. and Europe; “competitive position and pricing remained stable”.
• TMTT momentum: PASCAL adoption and EVOQUE real-world outcomes consistent with TRISCEND II; SAPIEN M3 received CE Mark, positioning a comprehensive repair/replacement portfolio.

What Went Wrong

• Gross margin pressure: GM fell to 77.5% vs 79.9% YoY on manufacturing expenses for new therapies and FX headwinds.
• Elevated opex and 2H step-up: SG&A rose to 32.8% of sales (vs 32.7% LY) with expected spending increase in 2H, including anticipated JenaValve-related spend; CFO reiterated lower 2H operating margins (~mid-20s).
• Impairment charge and higher tax rate: Recorded a $47.1M impairment (net $37.6M) and an effective tax rate of 16.1% vs 5.2% LY, diluting GAAP EPS vs LY.

Transcript

Operator (participant)

Greetings and welcome to the Edwards Lifesciences second quarter 2025 results conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow a formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Mark Wilterding, Senior Vice President, Global Finance. Thank you. You may begin.

Mark Wilterding (SVP of Global Finance)

Thank you very much, Diego. Thank you all for joining us this afternoon. With me on today's call is our CEO, Bernard Zovighian, and our CFO, Scott Ullem. Also joining us for the Q&A portion of the call will be Larry Wood, our Global Group President of TAVR and Surgical, Daveen Chopra, our Global Leader of TMTT, Wayne Markowitz, our Global Leader of Surgical, and Dan Lippis, Corporate Vice President. Just after the close of regular trading, Edwards Lifesciences released second quarter 2025 financial results. During the call today, management will discuss the results included in the press release and accompanying financial schedules, and 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 Edwards' other SEC filings, all of which are available on the company's website at edwards.com. Edwards' guidance reflects its current estimates of the impact from tariffs that are in effect or have been announced to date, and assumes such tariffs remain in place for the remainder of 2025. Any modifications to such tariffs or any new tariffs could have a material impact on the company's future financial results and guidance.

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

Bernard Zovighian (CEO)

Thank you, Mark, and welcome, everyone. Thank you for joining us today. Before getting into the numbers, let me highlight the many significant achievements we have made across the company. When we introduced our sharpened focus strategy, we did so in anticipation of an asymptomatic AS approval. The expansion of an EVOQUE launch, the expected introduction of a SAPIEN M3. And our strategic entry into structural heart failure and aortic regurgitation, which represent remarkable synergies to our 65 years of valve leadership. These areas represent large and growing opportunities, and we are just getting started. Our focus on structural heart has positioned the company for agile execution of our strategy and provides a foundation for sustainable growth. It is supported by our conviction in mid to high single-digit TAVR growth over the long term, given the under-treatment globally. The potential of our market-leading surgical valve franchise.

Based on compelling ATTR-Resilia data, and finally, the significant patient benefits of our pioneering TMTT technologies. While TAVR is and will remain an important growth driver for our company. Edwards is increasingly defined by a balanced portfolio of differentiated therapies across aortic, mitral, and tricuspid that will position us for leadership for many years to come as we help even more patients around the world. During the call today, we will go into more details on the company's strong second quarter performance across product groups and geographies and our confidence in the outlook for Edwards in the years ahead. We are pleased to report double-digit sales growth in the second quarter, driven by broad-based growth across our unique portfolio of structural heart therapies. Total sales of $1.53 billion grew 10.6%. Which was better than expected.

Based on our strong first-half performance and the many catalysts across our portfolio, we are increasingly confident in our full-year outlook and are raising our full-year 2025 sales growth guidance to 9-10%. And adjusted EPS guidance to the high end of our original range of $2.40-$2.50. Now, I will provide some additional detail by product group for Q2. In TAVR. Our second-quarter global sales of $1.1 billion increased 7.8% over the prior year. Growth was comparable in the U.S. and OUS. On a global basis, Edwards' competitive position and pricing remain stable. TAVR growth in the quarter was better than expected as clinicians continue to adopt our best-in-class SAPIEN technology. We are encouraged by the renewed focus on TAVR across the clinical community since the early TAVR data released last October.

We are pleased with the recent approvals that make the SAPIEN 3 platform the first and only TAVR to receive U.S. and European approvals for the asymptomatic indication. These two approvals enable all patients diagnosed with severe AS to be evaluated and considered for treatment with TAVR, regardless of symptoms. The evolution of policy and guideline changes, together with the potential of a new U.S. NCD, will provide important catalysts, resulting in a multi-year growth opportunity for TAVR overall. We remain focused on continuing our deep commitment to advancing evidence for AS patients with three important studies. In May, at the EuroPCR Conference, results of the Optum RealWorld study of more than 24,000 patients demonstrated that intervening on aortic stenosis before symptoms develop reduces the economic and resource burden on the healthcare system and improves patient outcomes.

Additionally, compared with asymptomatic severe AS, delaying treatment until the disease progressed resulted in a higher rate of death within one year after aortic valve replacement. Alongside data from the early TAVR trial, these results reinforce the value of early referrals and evaluation by a heart valve team for all patients with severe AS. Second, at the New York Valve Conference last month, 10-year outcomes from the PARTNER 2 study were presented, underscoring the excellent long-term outcomes and durability of the Edwards TAVR platform. This is the first FDA-approved TAVR study to report 10-year follow-up and represents the largest TAVR patient cohort studied through 10 years. Finally, new data from the DETECT AS study were also presented. The sub-analysis demonstrated that electronic provider notification, or ECHO alerts, increased both treatment and survival rates in all patients with severe AS.

Looking ahead to TCT in October, we expect to be the first company to present seven-year data studying a low surgical risk cohort of TAVR patients. I am proud of our team's commitment to advancing robust evidence to improve outcomes for patients with severe aortic stenosis, supported by a decade of clinical research. This significant body of high-quality science underscores the excellent clinical outcomes delivered by Edwards' premium SAPIEN technology, which has benefited over 1 million patients around the world since its launch. In the U.S., we are pleased that the clinical conversations about the successful early TAVR trial have brought a renewed focus to streamlining the management of patients with severe AS, enabling closer follow-up and more timely treatment of patients with aortic stenosis.

Outside of the U.S., we continue to focus on the value of our differentiated technology and increasing therapy adoption, especially in areas where many patients go without care. In Europe, the exit of a competitor resulted in a rebalancing of market share and a modest contribution to our sales. In Japan, TAVR sales grew in the mid-single digit, an improvement over last quarter and consistent with the company's total sales growth in the region. Rest of the world, growth remained strong. In summary, we are raising our full-year guidance to 6-7%, up from previous guidance of 5-7%. Longer term, we are enthusiastic about the mid to high single-digit growth opportunities in TAVR, supported by the recent early TAVR indication approvals, future guideline and policy changes, including an updated NCD. Finally, you have a potential to serve patients with moderate AS.

I also want to take this opportunity to share with you that Larry Wood, who has been leading the TAVR team, has made the personal decision to depart Edwards in early September and pursue a leadership opportunity outside of cardiovascular. We sincerely thank Larry for his 40 years of dedication to Edwards and our patients. During that time, Edwards TAVR has helped more than a million aortic stenosis patients around the world. As we heard today, TAVR is well-positioned for continued growth and success, and we are pleased to announce that Dan Lippis will assume leadership of the TAVR franchise globally. We are fortunate to have a very well-prepared successor who has more than 15 years of deep TAVR experience in the US and Europe. Most recently, Dan has also been leading our JPAC region with responsibility for our full portfolio of technologies.

I'm very confident that the TAVR leadership team will build on our momentum and deliver long-term success. Dan and Larry will work together on a smooth transition through early September. Now, let's turn to our TMTT product group. Our unique portfolio of repair and replacement therapies to treat mitral and tricuspid diseases drove another quarter of impressive growth, with a meaningful contribution to overall company performance. Second-quarter sales of $133 million grew 57%, reflecting the strength and differentiation of our portfolio of repair and replacement technologies and demonstrating our team's long-term and steadfast commitment to solving large, unmet patient needs. Pascal and EVOQUE were both significant contributors to growth as they continued to scale. With the addition of SAPIEN M3, Edwards is uniquely positioned to meet the broad and diverse needs of patients with mitral and tricuspid valve diseases.

Mitral TIR procedures continue to grow in the double digits globally, and the developing tricuspid opportunity is growing much faster across both repair and replacement. Adoption of our differentiated Pascal technology remains strong in both new and existing centers around the world. We continue to see growing interest in the therapy, reinforcing the significant unmet needs of these patients. We are also pleased to announce the completion of enrollment in our 1,000-patient European MyCLASP post-approval study in patients with both DMR and FMR. Publications and presentations of data from this study continue to demonstrate the excellent clinical results delivered by the state-of-the-art Pascal technology. The EVOQUE commercial launch is progressing well in the US and Europe, with excellent real-world outcomes for patients, in line with the successful TRISCEND II clinical trial results.

Consistent with Edwards' science-based approach to establishing categories for the many patients in need, we are continuing to generate evidence for EVOQUE. At the recent New York Valve Conference, results from a real-world 176-patient study across 12 centers and five countries in Europe demonstrated excellent clinical outcomes that were similar or better than the results shown in TRISCEND II patients receiving EVOQUE. We look forward to an EVOQUE late-breaking sub-study at next month's European Society of Cardiology Conference. We have also begun enrollment in the large TRACING-FREE clinical trial in Europe. This prospective multi-center study of up to 500 real-world patients with TR disease will track clinical outcomes out to five years. In summary, for EVOQUE, there is a great demand for the therapy, and we are continuing to develop important evidence to support expansion globally.

We are pleased with the addition of our latest TMTT technology, the pioneering SAPIEN M3 valve, which received CE mark approval in Q2. Clinical feedback, while early, has been positive. We will deploy our differentiated high-value model to support therapy expansion, with a continued focus on ensuring access and excellent outcomes for patients. We continue to expect that results from the ENCIRCLE pivotal trial studying SAPIEN M3 will be presented at the TCT Conference later this year. We now expect US approval of SAPIEN M3 to follow in the first half of 2026. In closing, with Pascal, EVOQUE, and the recent CE mark of SAPIEN M3, our vision for TMTT has developed into a growth portfolio of groundbreaking transcatheter repair and replacement technologies, meeting the complex needs of underserved patients with mitral and tricuspid diseases.

We are committed to bringing these impactful therapies to the many patients in need around the world. We are pleased with our year-to-date performance in TMTT and remain on track to achieve our full-year sales guidance to $530 million-$550 million. In our surgical product group, second-quarter global sales of $267 million increased 6.8% over the prior year. We continue to see positive procedure growth globally for the many patients best treated surgically with our premium Resilia technologies, including Insperis, Mitris, and Connect. Our surgical team is making progress around the world, advancing important innovation for patients. We continue to see the impact across the clinical community from the recent presented Resilia eight-year data, demonstrating excellent durability and better freedom from reoperation due to structural valve deterioration compared to non-Resilia valves. We are also pleased to have received CE mark approval for Connect in Europe during the quarter.

For the full year, we continue to expect mid-single digit sales growth in our surgical product group. Now, Scott will cover the details of the company's financial performance.

Scott Ullem (CFO)

Hey, thanks a lot, Bernard, and good afternoon, everyone. As Bernard mentioned, we are pleased with our better-than-expected Q2 performance and the progress we made during the quarter advancing our strategic initiatives. Our double-digit sales growth drove adjusted earnings per share of $0.67. Our GAAP EPS for the quarter was $0.57, which included a one-time charge related to our portfolio of external investments. A full reconciliation between our GAAP and adjusted earnings per share for this and other line items is included with today's release. Now I'll cover additional details of our P&L. For the second quarter, our adjusted gross profit margin was 77.6%, in line with our expectations, compared to 80% in the same period last year.

This year-over-year change was driven by additional manufacturing expenses related to the expansion of new therapies, as well as foreign exchange. We continue to expect our full year 2025 adjusted gross profit margin to be within our original guidance range of 78%-79%. Our guidance continues to assume some pressure from the weakening dollar and the impact of announced tariffs, albeit less than initially expected, as well as the acquisition of Genovalve, which is not closed yet. Selling, general and administrative expenses in the quarter was $502 million, or 32.8% of sales, compared to $448 million in the prior year. We expect increased SG&A spending in the second half of the year due to deferral of certain spending year-to-date, as well as anticipated spending related to Genovalve.

Research and development expense was $276 million in the second quarter, or 18% of sales, compared to $272 million, or 19.8% of sales, in the same period last year. This increase in spending and decrease in R&D as a percentage of sales reflects our strategic prioritization of investments in our expanding structural heart portfolio. The year-over-year improvement in second-quarter adjusted operating profit margin of 28.2% benefited from our better-than-expected sales performance and the deferral of certain spending to the second half of the year. As mentioned on the Q1 earnings call, we continue to expect lower second-half operating margin levels compared to the first half, reflecting expenses associated with the planned acquisition of Genovalve. We continue to expect full year 2025 operating margin of 27%-28%. We remain committed to annual constant currency operating profit margin expansion in 2026 and beyond, consistent with our guidance at our investor conference in December.

Turning to taxes, our reported tax rate this quarter was 16.1%, or 16.8% excluding the impact of special items, in line with our expectation for the quarter. We continue to expect our 2025 tax rate, excluding special items, to be between 15% and 18%. 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 June 30th. Edwards currently has approximately $1 billion remaining under its share repurchase authorization. Average diluted shares outstanding during the quarter were 588 million. Based on year-to-date share repurchases, we now expect lower full-year shares outstanding to be between 585 million-590 million versus original guidance of 585 million-595 million. Foreign exchange rates increased second-quarter reported sales growth by 130 basis points, or $15 million, compared to the prior year.

FX rates negatively impacted our second-quarter gross profit margin by 60 basis points compared to the prior year. Relative to our April guidance, FX rates had a nominal impact on second-quarter earnings per share. At current rates, we now expect FX to have an approximately $30 million upside to full year 2025 sales compared to the prior year. I'll finish with comments related to the sales and EPS guidance. As Bernard mentioned, we are increasing our underlying growth rate guidance for TAVR to 6%-7%, driven by strong performance, and our sales guidance range for TAVR to $4.3 billion-$4.5 billion, to also reflect stronger OUS currencies. We are also increasing our total company sales growth guidance to 9%-10%, with sales of $5.9 billion-$6.1 billion. We now expect full-year adjusted earnings per share guidance at the high end of our original range of $2.40-$2.50.

Regarding Genovalve and the potential impact on our P&L this year, we are reaching the end of the regulatory review process and expect a decision soon. We remain hopeful that we will be able to close the acquisition during the third quarter. For the third quarter, we're projecting sales of $1.46 billion-$1.54 billion and adjusted earnings per share of $0.54-$0.60. With that, I'll pass it back to Bernard.

Bernard Zovighian (CEO)

Thank you, Scott. We are pleased with our strong performance in the first half of 2025 and our outlook for the full year. The milestones achieved showcase the strength of our focused strategy to drive breakthrough innovation in pioneering and leading categories. Looking ahead to 2026 and beyond, Edwards is positioned to transform care for the many structural heart patients in need.

We are confident that our unique innovation strategy, supported by the many important catalysts across our portfolio and the exceptional work of our 16,000 employees around the world, will deliver significant value to patients, the healthcare ecosystem, and shareholders. With that, I turn it back over to Mark.

Mark Wilterding (SVP of Global Finance)

Thank you very much, Bernard. We're ready to take your questions now. 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 re-enter the queue, and management will answer as many questions and participants as possible during the remainder of the call. Diego?

Operator (participant)

Thank you. To ask your question, please press Star 1 on your telephone keypad. A confirmation tone will indicate that your line is in a question queue. You may press Star 2 if you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the Star keys. Once again, please limit yourself to one question, plus one follow-up. Our first question comes from Robbie Marcus with JPMorgan. Please state your question.

Robbie Marcus (Medtech Senior Analyst)

Oh, great. Good afternoon and congrats on a very nice quarter. Maybe to start, two for me. First one, US TAVR. Looks like when I try and back in based on the color you gave, it was a little better than the street expected. What really drove that? Was there asymptomatic already coming into play, or any other trends or color you could add would be helpful? Thanks.

Bernard Zovighian (CEO)

Hey, hi, Robbie. Thanks for the question. Yes, the quarter came better than expected for TAVR. We are very pleased about what we have seen. If you big picture, we are the leader in TAVR.

We have been focusing a lot on bringing evidence. This early TAVR study drove a lot of conversation among the clinical community. What we have experienced since the approval is a renewed focus on TAVR, a renewed focus on how to better manage these patients, how to make sure that these patients are timely, taken care of. All of that together, basically, we created a catalyst in the TAVR space. The good news about that, it is just starting. We are waiting for the big catalyst. We are waiting for guidelines. We are waiting for NCD, which are yet to come. That is great to see this kind of positivity in the space, the reaction of the clinical community. At the end of the day, for a leader like us to be leading this conversation. I am going to ask Larry to provide additional details here also.

Larry Wood (Global Group President of TAVR and Surgical)

Yeah, thanks, Bernard.

Thanks, Robbie, for the question. I do not think we are seeing a lot of asymptomatic patients come in. I think in centers that participated in the early TAVR trial, we probably see a little bit of it, so there might be some in there. As Bernard kind of alluded to, I think what we are seeing is just a renewed attention on the management of patients with severe aortic stenosis. This data set was very powerful. We know in the system from a lot of the work that Samuel Lemire has done that even patients with mild symptoms often get held in the process and do not move forward for referral for therapy. I think people are paying a lot more attention to these patients. This new data set is just reprioritizing these patients within the structural heart programs. That is a little bit of what we are seeing.

Obviously, we are very pleased with the quarter.

Robbie Marcus (Medtech Senior Analyst)

Great. Maybe a follow-up from me. US TAVR obviously gets a lot of attention. We hear less about outside US trends. Maybe you could talk about what you saw outside the US in Japan, and particularly Europe with the exit of your competitor. Thanks.

Bernard Zovighian (CEO)

Yeah, thanks, Robbie. Maybe I am going to take this opportunity to ask Dan to answer this question. We are very fortunate to have an amazing talent at Edwards. Dan Lippis is going to come here in the US and lead the TAVR franchise. Maybe, Dan, you want to answer this question?

Dan Lippis (Corporate VP)

Sure. Thanks, Bernard. Hopefully, you can hear me well. First of all, it has been a real privilege working alongside Larry so closely for the last 15 years, first in the US, then in Europe, and now most recently in Asia.

Given that I led the TAVR team in Europe, maybe I will start with Europe. The rollout of our S3UR platform is progressing really nicely. The feedback from physicians continues to be very positive. I guess what we are most optimistic about is the recent asymptomatic indication. We think that is going to be a real game changer for the longer term. Switching to Japan, this is an important market for us. We remain very dedicated to expanding our therapy there. The under-treatment is significant, and the elderly population there is very substantial. While we are market leaders there, we are working really hard to regain some of the ground we have lost as new competitors have entered the market. Beyond that, we continue to grow in a very nice manner internationally beyond Europe and Japan. Hopefully, that answers your question.

Bernard Zovighian (CEO)

Thanks, Dan. Thanks for the question, Robbie.

Robbie Marcus (Medtech Senior Analyst)

Thank you.

Operator (participant)

Your next question comes from Travis Steed with Bank of America. Please state your question.

Travis Steed (Managing Director and Medtech Equity Research)

Hey, thanks for the question. Congrats on a good quarter. I wanted to ask about EPS, both more kind of shorter term. Why not maybe raise the EPS even more at this point? The tariffs are probably, what, a couple cents better, and you beat the street by five cents. Then kind of longer term, when you think about EPS leverage, do you think you can grow EPS faster than the 10% revenue growth that you have kind of laid out going forward?

Scott Ullem (CFO)

Yeah, Travis, it is Scott. Thanks a lot for the question. Yeah, we had a nice second quarter, and we saw the benefits of that drop through to the bottom line. We ended up coming in above the top end of our guidance range, which was not expected.

At the same time, we have some headwinds that we talked about last quarter, and those have not necessarily all abated. Especially things like Genovalve, where we expect to have a negative effect on our earnings per share. When it closes, that gives us some cause for pause. Overall, we are feeling good about the trends in earnings per share this year. That is why we raised our guidance from $2.40-$2.50 all the way to the high end of $2.40-$2.50. In terms of longer-term EPS expectations, you know our plan, which is to, on average, grow the top line double digits and to get some leverage on the bottom line beyond that. Our expectations and our intentions have not changed, and we are going to stay focused on not just delivering short-term in 2025 strong earnings per share, but longer-term consistent, sustainable, growing EPS as well.

Travis Steed (Managing Director and Medtech Equity Research)

Great. Thank you.

Maybe just a question on the international competitor that has exited the market. When you think about the share you are capturing there, is it kind of in line with your international share above or below? Just kind of get a sense for that opportunity.

Scott Ullem (CFO)

Yeah, thanks for the question, Travis. What I will say is. Our first order of business when our competitor exited the market was to make sure we reached out to the centers that we knew were heavy users of their technology and make sure that we had inventory there, that we had people there, that we were able to train folks and make sure that the patients did not get delayed or denied access to high-quality care. That was sort of really our focus, and that is what drove a little bit of the benefit that we saw there.

I think longer term, they sold at a different price point than we did. I think it is on us to speak to the value of our technology and why it is worth our price point. That is what the team's focused on right now. We will see how that plays out over the longer term. Certainly, we are optimistic that our platform has showed really well. We continue to put data on the board that I think highlights the advantages and why our platform is worth what we charge for it.

Travis Steed (Managing Director and Medtech Equity Research)

Makes sense. Thanks a lot. Congrats.

Operator (participant)

Your next question comes from Larry Biegelsen with Wells Fargo. Please state your question.

Larry Biegelsen (Managing Director and Medtech Senior Analyst)

Good afternoon. Thanks for taking the question and congrats on the nice quarter. Larry, congratulations on all your success at Edwards. You are going out on a high note, and it is hard to imagine Edwards without you.

It was a pleasure working with you, and I wish you the best of luck in your new role. I will start with a question for you. Larry, when do you expect CMS to reopen the NCD, and what is the likelihood of moving to a single operator? If that happens, what do you think the implications are? I had one follow-up.

Scott Ullem (CFO)

Yeah. Thanks, Larry. Thanks for your kind words, and thanks for your question. We think the time to open the NCD is now. The ball is really in CMS's court, but we are going to continue to work with them and provide information to them. Hopefully, it opens sooner rather than later because there are a number of changes that need to be made. The first one is making sure that asymptomatic gets covered so that all asymptomatic patients are eligible for therapy across the country.

That is really important. This technology has advanced so far at this point that I think everybody agrees we could streamline the operator requirements and the facility requirements. That is going to open up access for patients and improve care for patients because we know there are waiting lists and there are other challenges. That will relieve a lot of the capacity and the system challenges that we have now. I think the big advantage too, if we go to one specialty doing the procedure is, in essence, you would have two teams now that could do procedures. You could have a surgeon-led TAVR team, and you could have a cardiology-led TAVR team, which would allow people to optimize their patient flow through. I think that'd be a big benefit.

When we look at the data, the conversion now from TAVR to surgery is the same rate as the conversion rate between PCI and surgery. Obviously, we do not have all these restrictions and requirements. We think the time is now. We just need to continue to work with them and make the case for it. Hopefully, they open it sooner rather than later.

Larry Biegelsen (Managing Director and Medtech Senior Analyst)

That's helpful. Bernard or Scott, you set a goal of 10%. It's a follow-up to an earlier question. You set a goal of 10% annual top-line growth, I think 50-100 basis points of margin improvement, and double-digit EPS growth in 2026 and beyond. You have a lot of momentum now. You have catalysts coming like M3 and hopefully Genovalve. Is there anything you're aware of today that would cause you to be below those goals next year? Thanks for taking the question.

Bernard Zovighian (CEO)

Oh, thanks, Larry.

Let me start, and then I'm sure Scott can add any details here. No, we are confident, Larry. Like you said, we posted a great quarter. We are on track to have a great year, better than expected. We have so many catalysts across the company. In TAVR, in TMTT, in surgical. We have some new businesses also coming our way. There are so many things to do in the U.S., outside of the U.S. I feel very confident. It is very much aligned to what I shared with you at the investor conference last year. We saw that coming. We knew it was coming. We are making all of this happen. I am super proud of the team we have. This team is amazing. We have a very bold strategy altogether. We are the only company having this kind of bold strategy, a very unique innovation process.

We are executing in a very flawless fashion. We make things happen. That is truly who we are as a company. I am very confident about our commitment here for 2025, 2026, and beyond. Scott, anything to add?

Scott Ullem (CFO)

I share that view. We feel positive about not just the top line, but what contributes to the bottom line as well. At the same time, there are all kinds of different scenarios that can unfold. Part of this has to do with uncertainties like tariff exposure that none of us can predict. Part of this is just what happens to the baseline against which we're comparing 2026. Just based upon all the different scenarios, we're feeling pretty good at this point in July of 2025 as we look ahead to the full year 2026 and the ability to meet those annual average targets that we laid out in December.

Larry Biegelsen (Managing Director and Medtech Senior Analyst)

Thank you.

Operator (participant)

Your next question comes from David Roman with Goldman Sachs. Please state your question.

David Roman (Managing Director)

Thank you. Good afternoon, everybody. I wanted to start on the TMTT business and maybe very specifically around EVOQUE. There have been a variety of publications—I would not call them studies necessarily—questioning some of the safety and real-world outcomes around EVOQUE. I think when we last engaged with you, you talked about the impact that learning curve has had on centers. Those centers that had greater experience were seeing better outcomes. Can you maybe just elaborate a little bit on what you are seeing from a real-world evidence standpoint as it relates to adverse events surrounding EVOQUE and when we might be able to see some of that data in a more public setting?

Dan Lippis (Corporate VP)

Yeah. No, sure, David. I really appreciate the question.

I think for EVOQUE, we continue to see a lot of excitement around EVOQUE. We see a lot of physician excitement, and we see a lot of patient excitement, how the technology is changing their life. I think we saw in TRISCEND II that is the baseline clinical data we have for this product. What we have seen in the real world is actually results that are similar or better than TRISCEND II. For instance, even at the very recent New York Valves conference, we saw coming out of our European almost 200 patients, we saw initial results coming from that study at 12 centers across five European countries, results that were equal to or better than TRISCEND II.

Beyond that, we also at New York Valves had a one-year study on echo gradients that continued to show how the right ventricle and the heart get so much better with EVOQUE. You will see, I think, coming up both at ESC, some more sub-analysis on EVOQUE. Going in the future, you will see TVT registry analysis. I think for us, it is a data set after data set showing similar real-world outcomes that we have seen from TRISCEND II.

Bernard Zovighian (CEO)

Maybe, David, to add something on what David just said. In a typical Edwards fashion, the TMTT team is continuing to innovate. We have a Gen1 today. We are very pleased with Gen1. The same way we did with SAPIEN, we are Gen5 today. You can expect EVOQUE Gen2, Gen3, Gen4, and each platform will be better. The physicians will have more experience. We will bring more evidence.

We will have more innovation. You can expect the same kind of trajectory where we are going to create this amazing category for so many patients in need. Right now, the demand, like David said, is very high. We can barely fulfill the demand.

David Roman (Managing Director)

Okay. Very helpful. Maybe, Scott, I appreciate the continued emphasis on the P&L and maybe just kind of summarizing things longer term. I think if you look back over Edwards the past several years, at one point in time, the company was generating 10% plus top-line growth with low 30s operating margins. Is it realistic to think that that is the direction you aim to take the business now and that the company did operate at 30% plus at one point and 10%? And given the totality of drivers you have here, that that's a reasonable profile to think about longer term?

Scott Ullem (CFO)

Yeah.

I think at this point, we're not going to set a specific target. 30% is a nice round number, but we're not really focused on hitting a three-handle so much as we are focused on increasing our operating profit margin by 50 to 100 basis points annually going forward starting in 2026.

Operator (participant)

Thank you. And your next question comes from Matt Taylor with Jefferies. Please state your question.

Matt Taylor (Managing Director and Senior Equity Research Analyst)

Hi. Thanks for taking the question. I just wanted to ask a couple of follow-ups on some of the nuanced TAVR dynamics that were asked about before. One is, would you venture a guess at what proportion of the Boston Scientific exited sales you could get? What's kind of your fair share of that? And then Larry was asking before about the NCD, and I understand the motivations to open that up.

But what actual impact do you think that could have on capacity and volumes if it were to change to one operator and to reduce the volume requirements, etc.?

Larry Wood (Global Group President of TAVR and Surgical)

Yeah. Thanks, Matt. Thanks for the question. It's really too early to comment on both, but I'll try to give you some directional comments. I think as it relates to Boston, the biggest thing is that there's a difference in price point here. And I think this has been one of the things that we've been talking about for a while that I'm sure everybody's aware of. Our platform is backed by the most evidence, by long-term data, by our long-term clinical trials. I mean, we just put out 10-year data from our Partner 2 trial that shows the incredible durability of our platform and low re-intervention rates.

And what we really need is people to value that long-term data and value all the things that our platform brings to the table rather than making their decisions based on price. But we're going to have to see how the market plays itself out. If they stay price-focused, then they'll just move to another similarly priced product. If there's a lesson to be learned from this, hopefully, it's that evidence matters and these long-term trials matter. And so we'll see what our fair share is when we get to the end of that. As it relates to the NCD, it's impossible to know what they're going to do with operator requirements, and it's impossible to know what they're going to do with facility requirements.

Given where this procedure has come and how safe it is and the long-term data, and we've already proven that we can roll it out to more than 850 centers really successfully and drive high-quality outcomes, there really is a time to open up a lot more centers that would be able to do this procedure that have the expertise. How many they allow us to open will determine how much it'll impact capacity, and we'll see how that goes. If we look at the other NCDs that have been done recently, there seems to be directionally taking a lot of these operator requirements away and taking a lot of these facility requirements away.

Given the evidence we have on TAVR, well over 1.2 million patients treated with our platform alone, we seem to have a lot of data and a compelling case to make for reducing a lot of these restrictions. We'll just have to see how that plays out when it opens.

Matt Taylor (Managing Director and Senior Equity Research Analyst)

Thanks, Larry. Congratulations.

Operator (participant)

Your next question comes from Anthony Petrone with Mizuho Group. Please state your question.

Anthony Petrone (Managing Director and Medtech Senior Equity Research Analyst)

Thanks. I'll echo Larry. Congratulations. Great working with you, and good luck on the next chapter here. Maybe a little bit on the US TAVR backlog. It typically sits at around somewhere in the three to six-month range. With asymptomatic not being in there in this quarter, it seems like at least something changed that the backlog was able to be mined a little bit more efficiently.

Maybe just a little bit on TAVR backlog in the US, and maybe did you see any workflow improvements? I'll have one quick follow-up on Mitral.

Larry Wood (Global Group President of TAVR and Surgical)

Thanks, Anthony. Thanks for your kind words. I think what you're calling a little bit of backlog there, I don't know that we would necessarily use that terminology. I think as patients move through the system, there's just a lot of steps they have to go through. They have to see two specialties. They have to be scheduled for multiple visits. They have to get a CT. There are all those things that they have to go through the process. Depending on the center and depending on what their image capacity is and the waiting times to get imaging, it can easily take a patient three to six months to work through that system. That's just what it takes to do.

I think what I referenced earlier and what I think we are seeing now is just a real renewed focus on these patients. I don't think we've seen a marked reduction in the time that patients are moving through the system. I think we're probably hopefully seeing an uptick in referrals and just a renewed focus on making sure these patients get timely referral and timely treatment. I think that's what we're seeing now. It's going to take a couple of quarters to really quantify this. That's what we're waiting for. Clearly, we've seen some momentum here and a lot of attention. If you were at the New York Valves meeting, they opened the meeting with the early TAVR data. There was a huge debate about how patients should be referred.

Samuel O'Reara talked about the Tech AS and that completely normalized the gender biases that we see in treatment rates. There is just a tremendous amount of attention on this. I think that's what's really driving things from a mind share standpoint.

Anthony Petrone (Managing Director and Medtech Senior Equity Research Analyst)

A quick follow-up on mitral is just you think about mitral following TAVR, severe symptomatic is kind of the on-label indication. The penetration in severe asymptomatic is marked in the low single digits. Abbott's out there with the repair MR study, which I think reads out early next year. Where do you see severe asymptomatic for mitral for minimally invasive in terms of penetration? What do you think can happen when we get more data, potentially from competition here early next year? Thanks.

Larry Wood (Global Group President of TAVR and Surgical)

No, sure. Appreciate the question.

Dan Lippis (Corporate VP)

If you look at the treatment of mitral disease, we see that there's a huge number of patients with mitral disease, very similar to what we see in the severe symptomatic aortic stenosis numbers in the U.S. But the actual number of treatments are much, much smaller. As a result, we're much, much earlier than TAVR as we think about, "Hey, how do we just penetrate? How do we penetrate? Or how do we help more patients with this technology?" You spoke about it from a little bit of a tier angle, but I think we look at it a little bit more broadly, meaning that mitral disease today, there are so many different patient anatomies where we actually really believe having multiple modalities, both tier and mitral replacement, will help us help treat the most number of patients.

Probably a little bit differently than aortic stenosis, we have both degenerative and functional etiologies where different technologies like repair and replacement can help these technologies a little bit more differently. What we're starting to see in Europe, and we just got M3 now into our European market, is that M3 is really adding treatment to patients who didn't have treatment before. I know you're speaking a little bit about it from an asymptomatic or other kind of thing. I guess I'll just speak about it from a severe symptomatic group where there are tons of patients out there who tier, unfortunately, is not a great solution for and is uneligible. With M3 now, we can treat a larger number of people.

We're excited that with M3 now in Europe, we'll eventually be bringing it to the US now in the first half of next year so the US can fulfill that next part of having both a repair and a replacement technology to help treat Mitrel. For us, I understand how you took it from different angles. I guess I'll put it on the, we have so many patients coming through the pool right now. There's such under treatment that people today with mitral disease don't have a treatment that as we get repair and replacement, we have a whole great number of patients that just help with these new solutions.

Operator (participant)

Thank you. Your next question comes from Vijay Kumar with Evercore ISI. Please state your question.

Vijay Kumar (Senior Managing Director)

Hey, guys. Thanks for taking my question. Larry, wish you all the best.

Our transition, maybe my first question, Scott, for you on the back half margins here. I know there were moving parts between FX, tariff. Can you just walk us through on what the implied back half gross margin is? I think the EPS guidance for 3Q implies maybe a 25-ish kind of operating margins. Am I looking at the right way on margins? If 25 is the right number, are you assuming a full quarter for Genovalve impact?

Scott Ullem (CFO)

Yeah. There are several questions in there. Let me try to hit them. I'll start with the last one. For Genovalve, our hope is that we get it closed in August. We'd see some impact in Q3, full quarter of impact in Q4. That's in the assumption for 2025. In terms of margins, FX has hurt our gross profit margin rate.

It's actually benefited earnings per share because we're getting more sales and profit from outside of the US translated into the weaker US dollar. It's sort of a two-edged sword, lower gross margin rate, but higher EPS dollars. I think what was the rest of your question, Vijay?

Vijay Kumar (Senior Managing Director)

Tariff. What is a tariff impact? Essentially, I think CQ.

Scott Ullem (CFO)

And operating margin. For tariffs, yeah, we said, think a nickel for the full year back last quarter. It's probably less than half that now is our current expectation, which is similar to what you probably heard from other companies. In terms of operating margins, yeah, mid-20% operating margins for the second half of this year is the right modeling assumption. It's lower than the first half of this year, both because of some deferred expenses that we expect to incur going forward, as well as the Genovalve impact that you'd see.

This has not changed from last quarter. Last quarter, the same math for the second half, around 25-ish percent and same expectation now at this point.

Vijay Kumar (Senior Managing Director)

Let's help us, Scott. If I may, one more. You said double-digit revenues and EPS for 2026. Do you expect operating leverage for 2026?

Scott Ullem (CFO)

First of all, we did not say double-digit revenue for 2026. We said that we feel good about the prospects as we look ahead to 2026. It's certainly our target, as you know, because that's our annual average revenue target. Do not assume that 10% is going to be the bottom of our guidance range when we get to the December investor conference. In terms of operating leverage, as we've said, we're targeting 50-100 basis points of EBIT margin on a constant currency basis increase starting in 2026.

Vijay Kumar (Senior Managing Director)

Thank you.

Operator (participant)

Thank you.

Your next question comes from Matt Miksic with Barclays. Please state your question.

Matt Miksic (Senior Analyst)

Hey, thanks so much for taking the questions in advance. I know it was a strong quarter. Echo everyone's comments. Larry, it's been great working with you. Hope we could continue to connect in your new ventures. Maybe following up on some of the questions on TAVR strength in the quarter. How should we think about that Q2 strength as we move into what's kind of a typical seasonal Q3? Also, just any comments on Japan has bounced back nicely. Europe is strong. The rest of the world really looked like it accelerated this year from last year. Maybe any comments on that? I have one follow-up on TMTT, if I could.

Larry Wood (Global Group President of TAVR and Surgical)

Yeah. Thanks, Matt. Thanks for your kind words. I think we adjust our guidance accordingly.

We try to account for all of the things that we know right now and where our confidence is. We do typically see seasonality in Q3, probably more pronounced in Europe than it is in the U.S., but we tend to see it a little bit globally. All of that is factored into our guidance. I think we feel great about the momentum and where we're going. Hopefully that continues, and that's what we expect. Japan, we remain focused on a little bit of share recapture there and re-accelerating that market. That's really where we are there, and we're continuing to work on that. I think we're all committed to driving that in that manner.

Matt Miksic (Senior Analyst)

Sure. Yeah. The rest of the world, that was the part that I saw that really popped up here this year.

Bernard Zovighian (CEO)

Yeah. TAVR is a global business, Matt. We are very pleased about that.

We are present almost in every country. It is a global business. It's growing everywhere. It's going well. Yes, we mention the rest of the world because it is not just about the U.S. Even though the largest region for us are the U.S., Europe, and Japan. The rest of the world matters, and it's doing very well.

Matt Miksic (Senior Analyst)

Quick, and then just a quote on TMTT. A lot of enthusiasm coming out of New York Valves. It's obvious that you have a lot of runway here as. You'll be the only provider, I think, for some time of repair and replacement in tricuspid and mitral. I know you're getting a lot of attention to those counts. Maybe talk about what is not competition at the moment anyway. Across all of those indications, what are some of the places you're spending your time? Is it new centers?

Is it imaging and radiology support? Training? Maybe help us understand what are the gating factors to growth as you kind of, as you say, work as fast as you can to meet that demand. Thanks.

Bernard Zovighian (CEO)

Yeah. Matt, let me start. I love your comments. Indeed, we are going to be the only provider of repair and replacement technology for many years. And this is the result of who we are as a company and our unique innovation strategy. We are bold. We are long-term focused. And we invest where nobody else is investing. So eight years ago, we believed in this portfolio. And today, indeed, we have this portfolio, and we are the only one who is going to have this kind of portfolio for many years. So thanks. We are going to take care of patients.

We are going to help train physicians to make sure they can take care of these patients. But Vijay, you want to talk about where are you spending your time and all of this?

Dan Lippis (Corporate VP)

Yeah. No, I'll add a little bit more to it. Clearly, there are a lot of angles to therapy development, and that's what we're doing here. We're taking new therapies and bringing it to patients. And so for us, right, yeah, there's a part about technologies we've been talking about. How do we launch these new technologies for the first time and get them to patients to add new treatment? And then, yes, there's new geographies around the world. We're launching Pascal for the first time in countries around the world, and eventually EVOQUE and eventually M3 will then follow up. And then there's new clinical data that's coming out.

We look forward to the Encircle clinical data at TCT, etc. And to do all this, you've got to have that great market access, making sure you have not only regulatory approval, reimbursement, and to your point, great physician training, etc., to ensure that our field force is trained well and physicians are trained well. It's hard to pinpoint just one area, but I think the hope I give you is that we're putting these different layers on top of each other, and they're going to lead to layer or catalyst after catalyst of growth as we keep moving forward across therapies, geographies, etc.

Operator (participant)

Thank you. And ladies and gentlemen, we have time for one final question. And that question comes from Chris Pasquale with Nephron Research. Please state your question.

Chris Pasquale (Partner and Senior Research Analyst)

Great. Thanks for squeezing me in.

I wanted to circle back to the NCD and how that could change things from a practical perspective when it does come. I'm curious what you're seeing so far from the local MACs when asymptomatic cases do get submitted. Are they getting paid for smoothly, or is that a meaningful friction point in certain regions? Maybe help frame the situation over in Europe for us. Does having the indication over there ensure broad access, or are there other steps that need to take place? If it's the latter, what's the timeline we should think about for those?

Larry Wood (Global Group President of TAVR and Surgical)

Yeah. Thanks for your question, Chris. In terms of how things could change from a practical perspective, I think it's a lot of things we talked about before in terms of operator requirements and in terms of the patient flow, in terms of the facility requirements.

I don't know I have a lot more to add to that. In terms of how the local MACs cover this, when something's not covered in a national coverage decision, people submit on a case-by-case basis, and those get evaluated individually by local MACs. I will say in the early TAVR clinical trial, I'm not aware of anybody having difficulty getting their patients covered. I don't know how much of a headwind it is. That being said, we do know that there are some big hospital systems that are saying, "We're going to wait until the NCD is updated because we simply don't want to take the risk of having cases rejected by a local MAC." This is why we've always said that asymptomatic is going to be a little bit of a slow burn. First, you're going to get the indication.

The next thing that we need to do is the NCD and guidelines, and we'll see which of those go first. Each one of these things, I think, is incrementally going to change how patients get managed. That's why we've always said that we think this has. It's not going to be a step function, but it's going to be a long-time contributor to what we're doing as we streamline these things. In terms of Europe. Talking about Europe, it's not a homogeneous place. Every country has their own different reimbursement systems. I think, much like the US, getting the indication first is the number one thing. We do have the CE mark. We just recently received that. That really is what starts the process. Having those approvals, both FDA and CE mark, give us a unique opportunity to engage on guidelines.

It gives us the opportunity to engage with the reimbursement groups and make sure this gets covered for patients. We just got this approval literally like a week ago. It's probably a little early in the process for us to be very definitive. But it gives us a license to go start having those conversations because it's now on label.

Chris Pasquale (Partner and Senior Research Analyst)

Great. Thanks, Larry, and best of luck with your next adventure.

Operator (participant)

Thank you. We have reached the end of the Q&A session. I'll now hand the floor back to Bernard Zovighian for closing remarks.

Bernard Zovighian (CEO)

Okay, everyone. Thanks for your continued interest in Edwards. Scott, Mark, Sidney, and I welcome any additional questions by telephone. Thank you so much, and have a great day.

Operator (participant)

Thank you. This concludes today's call. All parties may disconnect.