Michael A. Mussallem - Chairman and CEO Scott B. Ullem - CFO and Corporate Vice President David Erickson - VP, IR

Brooks West - Piper Jaffray Raj Denhoy - Jefferies LLC Lawrence Biegelsen - Wells Fargo Securities, LLC Jason Mills - Canaccord Genuity David Roman - Goldman Sachs Group Inc. Frederick Wise - Stifel, Nicolaus & Company Bruce Nudell - Crédit Suisse AG Danielle Antalffy - Leerink Partners Ben Andrew - William Blair & Co. Kristen Stewart - Deutsche Bank Securities, Inc. Michael Weinstein - JP Morgan Chase & Co. Robert Hopkins - BofA Merrill Lynch James Francescone - Morgan Stanley & Co. Joanne Wuensch - BMO Capital Markets

Greetings, and welcome to the Edwards Lifesciences Corporation Fourth Quarter 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. David Erickson, Vice President, Investor Relations. Thank you. Mr. Erickson, you may begin.

Welcome, and thank you for joining us today. Just after the close of regular trading, we released our fourth quarter 2014 financial results. During today's call, we'll discuss the results included in the press release and accompanying financial schedules and then use the remaining time for Q&A. Our presenters on today's call are: Mike Mussallem, Chairman and CEO; and Scott Ullem, CFO. Before we begin, I'd like to remind you that during today's call, we will be making forward-looking statements that are based on estimates, assumptions and projections. These statements include, but aren't limited to, our expectations regarding sales, gross profit margin, earnings per share, SG&A, R&D, interest expense, taxes, free cash flow and foreign currency impacts. These statements also include our current expectations for the timing, status and expected outcomes of our clinical trials, regulatory compliance, submissions and approvals, as well as expectations regarding industry growth, adoption rates for new products and competitive positions. These statements speak only as of the date on which they are made, and we do not undertake any obligation to update them after today. Although we believe them to be reasonable, these statements involve risks and uncertainties that could cause actual results or experiences to differ materially from the forward-looking statements. Information concerning factors that could cause these differences may be found in our press release, our annual report on Form 10-K for the year ended December 31, 2013, and our other SEC filings, which are available on our Web site at edwards.com. Also, a quick reminder that when we use the terms underlying and excluding special items, we are referring to non-GAAP financial measures. Otherwise, we are referring to our GAAP results. Additional information about our use of non-GAAP measures is included in today's press release and on our Web site. Now I'll turn the call over to Mike Mussallem. Mike? Michael A. Mussallem: Thank you, David. Reflecting on 2014, we ended the year with uncertainty around our product launch timing and new competitor activity. We are pleased to have exited the year with momentum and having significantly exceeded our initial expectations. We were proud to introduce several innovative products that helped us maintain our strong global leadership position and resulted in annual underlying sales growth of 13%. This growth was led by 29% underlying sales growth in transcatheter heart valves. Importantly, we’re particularly gratified to see the meaningful impact that our dedicated employees are having in helping so many patients around the world. For the quarter, we experienced robust growth across all regions with transcatheter heart valves sales that exceeded our expectations, most notably in Europe, driven by the further adoption of SAPIEN 3. Other new products like our minimally invasive intuitive valve platform and ClearSight also contributed to our growth. Now turning to quarterly specifics. Total adjusted sales were $640 million, representing an representing growth rate of 16%. In transcatheter heart valves therapy, underlying global sales grew 38%. This was driven by strong sales of our innovative new products in Europe and in the U.S. Globally, average selling prices remain stable. Outside the U.S., THV sales grew 41% on an underlying basis during the quarter, once again driven by the strong procedural growth in Europe and the ongoing launch in Japan. Growth was seen broadly across most countries in Europe which speaks to the large number of untreated patients benefiting from strong TAVR adoption. SAPIEN 3 with its enhanced features represented more than 85% of our European THV sales this quarter, and continues to generate favorable clinician feedback. We estimate competitors moderately gained ground in the quarter. While we expect procedure growth rates to slow going forward, we estimate that Europe TAVR procedures grew in excess of 20% in 2014. In Japan, we ended the year slightly below our full-year guidance of $40 million to $50 million. Even though clinicians remain enthusiastic about our SAPIEN XT valve, our launch has been slower than expected due to the Japan’s extensive site certification process. We continue to believe that Japan represents a very attractive market opportunity for TAVR and we expect adoption will continue to steadily increase. In the U.S., reported THV sales for the quarter, including royalties were $130 million. On an underlying basis, sales grew 36% to $126 million. During the fourth quarter we recorded minimal clinical sales due to the completion of enrollment in the intermediate risk arm of the SAPIEN 3 trial in September. Our performance in the U.S continues to be driven by the strong adoption of SAPIEN XT, which was available in all of our accounts by year-end. During 2014, we added approximately 50 new centers which is in line with our estimate. As a reminder, our SAPIEN 3 U.S pivotal trials for both high risk and intermediate risk patients completed enrollment in 2014. And during the year, we received approval for our SAPIEN 3 continued access program for 1,000 intermediate risk patients. Enrollment in this program began in January. As we discussed at our investor conference, we recently submitted our PMA for SAPIEN 3 in the U.S. Our plan assumes a one-year FDA review process. Based on our estimates, we expect the first approval of SAPIEN 3 in early 2016. At the same time, we’re actively engaged with FDA to discuss ways to bring our latest technology to patients in the U.S more quickly. At the upcoming American College of Cardiology conference in March, there will be numerous transcatheter valve sessions including late breaking presentations of five-year data from the partner trial and early clinical outcomes with SAPIEN 3. We are planning on hosting an investor update on Sunday evening March 15 to discuss the latest presentations. Additional details will be forthcoming. Our self expanding CENTERA valve platform featuring an enhanced motorized delivery system continues to make progress. We have a pivotal trial set to start in the second quarter in Europe with the expected commercial launch of this new platform in 2016. In summary, we’re pleased with the strength of our global THV sales performance. We believe current procedure growth rates will moderate and competitive activity will increase. As such, we continue to expect 15% to 25% underlying sales growth in 2015. Turning to the Surgical Heart Valve Therapy product group. Total sales for this quarter were $206 million, up 3% on an underlying basis. Heart Valve unit gains across most geographies drove the majority of the growth, while a favorable product mix also contributed to a slightly higher overall valve ASP. As expected, sales of Cardiac Surgery System products or CSS detracted from this product group’s growth rate. As a reminder, last quarter we discussed the strategic decision to integrate the operations of our Surgical Heart Valve and CSS product lines. Key activities were completed by year-end as planned. Simultaneously we announced our plan to exit certain non-strategic CSS products representing annual sales of $10 million to $20 million as part of our Utah remediation efforts. This is included in our 2015 guidance. Globally underlying surgical valves grew 4% led by unit growth of our premium valves. Growth was strongest in Europe, led by the continued adoption of INTUITY Elite, our minimally invasive valve platform. In the U.S., we experienced double-digit growth in mitral units while pericardial valve adoption propelled significant growth in China. During the quarter, we completed enrollment of our U.S TRANSFORM Trial for INTUITY Elite and continue to expect a 2015 PMA submission. This would keep us on track for a planned U.S approval in 2016. Enrollment in the study of our RESILIA tissue technology remains on schedule and we still expect to complete European and U.S regulatory submissions this year. At the Society of Thoracic Surgery meeting last week, data from the largest single center experience on our INTUITY system were presented which showed favorable early clinical and hemodynamic outcomes. In summary, we are pleased with the continued strength of our premium products in our surgical valve product line. Consistent with our active product portfolio management strategy, we will experience reduced sales growth as we discontinued certain non-strategic CSS products as such we’re reiterating our underlying sales growth for the total product group of 1% to 3% in 2015. Turning to the Critical Care product group. Total sales for the quarter grew 4% on an underlying basis to $144 million. Growth was solid in the U.S and sales outside the U.S were aided by a favorable comparison as in this -- as inventory levels stabilized in China. Enhanced Surgical Recovery product sales, including FloTrac and ClearSight grew in the double-digits. In 2015, we plan to expand the reach of our non-invasive ClearSight system with our upcoming launch in Japan. The optimization of patient’s fluid management through enhanced surgical recovery plays to our strength as leader in hemodynamic monitoring. As clinical support for ESR continues to gain momentum, it should enable us to capitalize on the global under penetrated opportunity. Separately at the start of the year, we were happy to officially welcome Katie Szyman who is now successfully transitioned into a new role as Head of our Critical Care team. To summarize, our Critical Care product line, we're pleased with the continuing adoption of our ESR products and are reiterating our underlying sales growth guidance of 2% to 4%. Before turning it over to Scott, I'll close with a brief statement about our transcatheter mitral valve program. We are continuing to make progress in the study of our FORTIS transcatheter mitral valve. As previously discussed, we recently received approval to begin a multi-center early feasibility study in the U.S and expect to begin enrollment during the first quarter. We are continuing to aggressively invest in the development of additional mitral technologies as we believe multiple solutions may ultimately be needed to address this large patient need. And now, I’ll turn the call over to Scott. Scott B. Ullem: Thanks, Mike, and hello everyone. For the full-year, we reported adjusted earnings per share of $3.50. Net sales increased 13% on an underlying basis. Gross profit margin was 73.7% and adjusted free cash flow was $445 million. In the fourth quarter, we reported adjusted sales of $614 million. Our strong sales performance in transcatheter valves drove an overall 16% underlying growth this quarter. Adjusted earnings per share was $1.06 representing 12% growth over the prior year. The THV sales return reserve added $4 million to reported sales in the fourth quarter. We completed the next-generation product exchanges in the U.S and Europe during the fourth quarter bringing the THV sales return reserve to zero at year-end in closing out this reconciling item. I'll now cover the details behind our results and then share guidance for 2015. For the fourth quarter, our gross profit margin was 74% as expected compared to 73.2% in the same period of 2013. This increase was driven primarily by a more profitable product mix and a positive impact from foreign exchange. These items were partially offset by higher costs associated with our CSS operations in Utah, as well as higher incentive compensation expense. The stronger U.S dollar will have a significant impact to our results in 2015 even more so than we projected at our investor conference in December. Based on current exchange rates, we now expect sales in 2015 to be reduced by $160 million compared to prior year rates. We enter into foreign exchange hedging contracts that generate income at the gross profit line when the U.S dollar strengthens relative to other currencies. If today's foreign exchange rates persist, we expect our gross profit margin for the full-year 2015 excluding special items, to bump up to the range of 76% to 77%. This includes an estimated mix improvement of approximately 100 basis points over last year's adjusted gross profit margin of approximately 74% and currency impact of 100 to 200 basis points. Fourth quarter selling, general and administrative expenses were $223 million or 36% of sales compared to $187 million in the prior year. The largest drivers of the increase were related to the global expansion of transcatheter heart valves and a larger accrual for performance-based incentive compensation. We continue to expect SG&A excluding special items to be between 35% and 36% of sales for the full-year 2015. Research and development investments in the quarter grew 7% to $84 million or 13.6% of sales. This increase was primarily the result of continued investments in our aortic and mitral valve programs partially offset by lower spending on clinical trials. For the full-year 2015, we continue to expect R&D as a percentage of sales to be between 15% and 16%. During the quarter, we recorded three adjustments to our GAAP results as follows: first, the impact of the THV sales return reserve benefited our GAAP net income by $2.5 million or $0.02 per share. Consistent with prior quarters, we excluded this impact from our non-GAAP results. Second, we excluded $10.2 million for a previously announced acquisition of Transcatheter Mitral Valve intellectual property which we expensed as in process research and development. And third, consistent with our reporting convention, we excluded $600,000 of intellectual property litigation expense. Complete reconciliations were included in our press release. Net interest expense for the quarter was $2 million, down from $4 million in the prior year. This reduction was driven by lower interest rates and increased interest income from higher investment balances. For the full-year 2015, we continue to expect net interest expense to be approximately $10 million. Our reported tax rate for the fourth quarter was 17.8% or 16.9% on a non-GAAP basis as we expected. The quarter’s rate benefited from the renewal of the federal research and development tax credit for 2014. Assuming a renewal again in 2015, we continue to expect our full-year tax rate to be between 21% and 23%. Based on an expectation of a fourth quarter renewal, the tax rate for the first three quarters should be higher than the fourth. FX rates negatively impacted fourth quarter sales by $21 million compared to the prior year, driven by the weakening of the euro and yen. Compared to our recent guidance, FX rates positively impacted earnings per share by $0.01. As I mentioned earlier, at current rates we now estimate a $160 million negative impact to full-year 2015 sales, which is $70 million higher than the impact we estimated at our December investor conference. The resulting impact to earning should be mitigated by our foreign exchange hedges. Cash flow from operating activities for the fourth quarter was $93.2 million. After capital spending of $34.5 million and excluding the tax impacts of previously reported special items, free cash flow was $107.5 million. Turning to our balance sheet, at the end of the quarter we had cash, cash equivalents and short-term investments of $1.4 billion. Approximately 55% of which is outside the U.S. Total debt was $598 million. Now turning to our 2015 guidance. Given the impact of foreign exchange, we expect full-year reported sales to be at the lower end of the $2.3 billion to $2.5 billion guidance range we provided at our December investor conference. We also expect each of our product groups to be at the lower end of our previously stated ranges. Those ranges are $1 billion to $1.1 billion for Transcatheter Heart Valve therapy, $780 million to $820 million for Surgical Heart Valve therapy, and $520 million to $570 million in Critical Care. For the full-year 2015, we continue to expect free cash flow excluding special items to be between $375 million and $425 million. Given the momentum of Transcatheter Heart Valve sales and the mitigating effect of our foreign exchange hedging program, we're raising our diluted earnings per share guidance to $4 to $4.30 excluding special items. For the first quarter of 2015, at current foreign exchange rates, we project total sales to be between $570 million and $610 million and diluted earnings per share excluding special items to be between $1.02 and $1.10. And with that, I'll hand it back to Mike. Michael A. Mussallem: Thanks, Scott. In conclusion, Edwards is poised for solid growth in 2015. Our foundation of leadership and our commitment to transform patient care with innovative therapies remain the source of our strength. Our exciting product pipeline positions us well for continued long-term success and greater shareholder value. With that, I’ll turn it back over to David.

Thank you, Mike. In order to allow broad participation in the Q&A, we ask that you please limit the number of questions. If you have additional questions, please re-enter the queue and we will answer as many as we can during the remainder of the hour. Operator, we're ready for questions, please.

Thanks for taking the question. Michael A. Mussallem: Sure.

Mike, can I press you a little bit on the mitral valve comments? You talked about having multiple platforms. Can you give us a little bit more detail on your thought process there? Is it multiple valve platforms, could there be some repair products in there? Just a little bit more about how you're thinking of approaching that opportunity Michael A. Mussallem: Sure, Brooks. Broadly even though we think replacement mitral valve will be a very important offering for mitral patients, we don't think that a single offering is going to be satisfactory for all these patients. We think it's going to take a toolkit, if you will, that will be some replacement products and some repair products and we are pretty aggressive investors to have multiple programs going. We're really only sharing some of the particulars of our Fortis program at this time. But we just wanted to alert you to the fact that we have other programs in the work and that we’re focused on being a leader in the transcatheter mitral space.

Okay. I appreciate that. And then, a follow-up just on Japan, can you give a little bit more detail about how we should think about that market progressing for you guys? And just kind of understand you might want -- not want to give numbers, but where are you in terms of account penetration and how should we think about that from a revenue standpoint for the next couple years? Michael A. Mussallem: Yes, thanks Brooks. We are still early on -- in the launch. I don’t know how far along we’re. I might say that we’ve trained roughly half of the sites that are expected to qualify, but even though those early sites are not really performing at high volume yet. It’s been a pretty deliberate scale up, if you will. Big picture we think it’s a very attractive opportunity. We projected that it will be a $300 million to $400 market in 2019. So that will build over time, but it’s our first share was a slow build and even a little bit below our expectations.

Great. Thanks, Mike. Michael A. Mussallem: Yes.

Thank you. The next question is from Raj Denhoy of Jefferies. Please go ahead.

Hi. Good evening. Michael A. Mussallem: Hi, Raj.

Wonder if I could ask about Europe. I think you commented that you were seeing some -- or you mentioned that competitors had gained some ground in Europe. I’m curious if you could maybe offer a little more detail around that. Any particular competitors, any particular markets where you might be seeing a little bit more impact? Michael A. Mussallem: Yes. So broadly although we experience a lot of success and you can see our growth rate, OUS particularly driven by Europe. So we’ve got very strong growth and probably gained share in a substantial way year-over-year. But if you make a comparison to the prior quarter, there would be a slight loss and this was spread across. We have a number of competitors at this point. This is really spread across competitors, not really concentrated with one competitor or in one country.

Okay. And then my second question is related to what you were first talking about. It’s seven or eight years now since the launch in Europe and you are still seeing very strong growth there. And I think you continue to point at the large inoperable population or underserved population. And I don’t know if you’ve any thoughts around where we’re in terms of penetration into that and really -- how long this growth can be sustained at this point? Michael A. Mussallem: Yes. We haven’t predicted this really well so far, Raj. This has been exceeding our expectations. I mean, we’ve been very vocal that there is a lot of patients on the side line that are underdiagnosed and untreated. And it seems maybe it coincides a bit with the introduction of SAPIEN, but the confidence of physicians is growing, the awareness of physicians and patients is growing. And I think the safety profile have been attractive. So it's continuing to lift as evidence builds. I don’t know exactly where we’re on this journey. You’ve seen the penetration numbers Raj from others about how far it is and its still at pretty light levels at this point.

Thank you. The next question is from Larry Biegelsen of Wells Fargo. Please go ahead.

Good afternoon. Thanks for taking the question. Just two for me. Mike, could you give us a little bit of color on the underlying sales of commercial implants in Q4 in the U.S versus Q3. It looks like it might have been flattish. And if that’s the case, why was that? Was it share loss, was it pent-up demand in the third quarter for the 29 millimeter valve? And I’m asking it that way, because usually Q4 is a little stronger than Q3. And if underlying sales in the U.S were flat, in Q4 what’s the outlook for 2015 in the U.S? And I just have one follow-up. Thanks. Michael A. Mussallem: Yes, thanks Larry. I think I know what's behind your question. Yes, they were pretty similar, but you’ve to remember that we still have significant clinical sales in the third quarter and almost none, no clinical sales in the fourth quarter. So there was quite a difference. There probably was a little bit of a bolus of 29 millimeter demand also in the third quarter. I think that was somewhat muted by comparison in the fourth. I think the biggest difference is clinical sales. We still feel good about our momentum and our share.

Just to understand, I know you said clinical sales were close to zero in the fourth-quarter. But if we -- so when you get the answer you gave about them being similar, Q3 and Q4, that was commercial plus clinical being similar. Is that fair? Michael A. Mussallem: That’s correct.

Okay, thanks. And then, for my second question, it looks like you're guiding to underlying sales of about 17% to 25% in Q1, 2015. But only about 7% for full-year 2015, which implies a very sharp deceleration in the second through fourth quarter. Is my math directionally accurate and what's driving that? Thanks. Michael A. Mussallem: Yes, I don’t know about the specifics, Larry. I’m not sure, I ran the numbers the same way, but broadly I think your point is a correct one. Our growth rate is higher in the first half of the year where the -- broadly the reported sales are going to be of course be impacted by foreign exchange. But separate from that; remember we had a big step up in sales in the back half of the year. So the comparisons are pretty dramatically different in the back half and the front half, and so the growth rate will also moderate on that basis.

Thanks for taking the questions. Michael A. Mussallem: Yes.

Thank you. The next question is from Jason Mills of Canaccord Genuity. Please go ahead.

Congrats on a great quarter, Mike, and thanks for taking the question. Can you hear me okay? Michael A. Mussallem: Yes, Jason. Thanks.

Great. Following Larry’s question on sort of the cadence of the revenue through 2015 and focusing on transcatheter valves in the United States, XT has -- with the launch of that in the second half; you’ve relatively easy comp on a year-over-year basis. But how should we think about sort of the cadence of U.S TAVI revenue through the year? Michael A. Mussallem: Well, I mean, we still think we have a growing market Jason, and that's the biggest thing and so that will step up. At the same time, we expect competition to be intensifying. We know our competitors are going to be coming with a new product as well. So that will happen at the same time. But having said that, we got a lot of confidence in the performance of SAPIEN XT. I think it’s proven to be a very popular valve in the United States. So we’ve tried to reflect all that's in our guidance and I think that's fair, but hopefully that gives you a little bit of color.

That’s helpful. And just as a follow-up on that, clearly your guidance for 2015, specifically in the United States, doesn’t include an expectation that SAPIEN 3 is approved earlier, notwithstanding your conversations with FDA. But I am wondering, what sort of magnitude, just based on what you’ve seen in terms of adoption of SAPIEN 3 in Europe qualitatively you might -- what color you might give us if we were to see a mid or sort of second half approval for SAPIEN 3 in the United States? Michael A. Mussallem: Thanks, Jason. Yes, you’re right. We are clearly assuming that SAPIEN 3 doesn’t come till 2016. Of course it would help us to come early. We think it would be very popular with our customers. But we also -- you have to remember we’re already and what we think is quite an advantage share position and so I don’t know that immediately will drive market growth. So really to see it have appreciable impact on our performance, you’d have to think that it has appreciable impact and share even beyond where we’re today. So I’d just caution us not to get ahead of ourselves on that one. Its something we’d love to make happen and we’re working on, but I don’t think it changes everything.

Okay. And just on the mitral side lastly, is there a conference that you are pointing to that we might expect to see a more robust update on Fortis? Michael A. Mussallem: Yes. I’m not expecting that there is going to be much at all at the ACC meeting, that’s coming up. I’d expect that it would be more likely that there would be presentations at the Euro PCR meeting, in May, probably an update on those patients and some of that.

Thank you. Michael A. Mussallem: Yes.

Thank you. The next question is from David Roman of Goldman Sachs. Please go ahead.

Thank you and good afternoon everybody. Michael A. Mussallem: Hi, David.

I wanted to start on the earnings guidance revision that you presented this evening relative to what you gave in December. And I guess specifically, Scott, I was hoping you could just real walk us on the bridge from kind of the $3.90 to $4.10 number and the $4 to $4.30 between what is obviously a negative currency impact offset by the positive hedging impact. And then the positive trends in the underlying business from a mix standpoint, because my quick math I did got the sort of incremental $70 million of FX headwind and the hedging gains year-over-year as basically a wash with one another, maybe a small positive and then the balance coming from underlying performance of the business. So maybe you could just give us some more clarity there? Scott B. Ullem: I think you just got it exactly right. The FX hedges really -- and our natural hedges from our international locations really offset the incremental $70 million hit to sales. And so by the time you get to the bottom line, it really doesn't have an effect and the reason for the increase from $3.90 to $4.10, up to $4 to $4.30 is really driven by the momentum that we’ve seen coming out of the fourth quarter in our THV business.

Okay. That’s helpful. And then, on that last point on the THV business, is the issue here that you’re sort of reaching a more normalized level of profitability in that franchise, that have to do with its becoming a larger percentage of sales? When you say momentum, is that pricing is holding in better? Maybe just help us understand what that means from a P&L standpoint. Michael A. Mussallem: I could jump in and Scott can supplement David. Yes, we generated more sales in the fourth quarter than we were expected and particularly Europe is performing even at a higher level than we expected. And we expect some of that performance to continue on in to 2015 and that really provides an additional lift from what we anticipated when we gave our guidance at the investor conference.

Okay. That makes a lot of sense. And maybe lastly on mitral, clearly you are spending a lot on it internally, but why not sort of think about the external options. I mean, TVT obviously you’re talking about very different valuations now compared to 2004, but TAVR did come from external investments. Why not reconsider a similar approach here and what does that landscape look like? Michael A. Mussallem: Thanks, David. Yes, now we try to stay very open minded. We have a team that’s specifically charged with keeping track of and staying close to what's happening on the outside, and this is a -- it is a very active space right now. So there are a number of companies with mitral valve alternatives and we try and stay close to them. In the final analysis we just want to be the leader. We’re really committed to being the leader in transcatheter mitrals, and we would be willing to do something outside the company. Even though we’re aggressive investors inside, that doesn’t preclude the opportunity for us to do something externally. One of the things that we’ve learned over time is, it makes us a better acquirer as well if we were to go that direction by having all the experience that we’d have by having our own internal program. So, we learned a lot in the process. But it’s a little early to say what the winning hand is going to be, but its one that we’re very focused on.

Okay and that is all. Really helpful. Thanks for taking the questions. Michael A. Mussallem: Thank you.

Thank you. The next question is from Rick Wise of Stifel. Please go ahead.

Good afternoon, Mike. Hi, everybody. Mike, just going back to Europe a second up over 20% and for all the reasons you said, but coming out from another angle, can you talk a little more? Can you give some more color on, who the incremental EU patient is turning out to be? Is it further penetration of high-risk patients because of SAPIEN 3? Or is it further penetration of being intermediate-risk because of SAPIEN 3? And maybe just how that might sort of portend or foretell what's going to happen as the next generation technology gets to the U.S? Michael A. Mussallem: Thanks, Rick. Yes, good question. We’re trying to understand that better ourselves. As physicians in the U.S. gain experience and they better understand the risk factors that are not accounted for in risk or we think that they’re starting to view some of this a little bit different. We’re clearly seeing patients come off the slide lines, and it’s really not coming from our -- from surgical patients. We’re a market leading surgical valve company in Europe, and we saw very nice unit gains I think in mid-single digits coming out of Europe in the quarter. So, that’s really that’s where it comes from. So, it remains to be seen. We watch the contemporary data sets very carefully. They continue to show an average age above 80 years old and these patients just have a number of serious risk factors. So, those patients are out there Rick, we’re still getting a better handle, but that helps a little to add some color.

Yes, thanks. And maybe Scott for you or whoever, I have asked you in the past, can you grow in the second half. I mean, did this guidance range, is that -- do I feel better about the tough comps you faced in the second half of ’15? And I’ll just ask another part of that, maybe Scott you can give us a little more color on operating margins. It’s sort of hard to tease out. Maybe help us think through the underlying operating margin expansion X the currency gains given the mix and the margins and SG&A. How do we think about it?

We would have to hold you to one question my friend.

I’m sorry about that. Yes, sorry just going on, sorry. Scott B. Ullem: That’s okay Rick, its Scott. Yes, certainly the year-over-year comps in terms of the rates of growth get harder in the second half of the year, but we still feel good about the prospects for growth in the business and what's -- the real headwind is this foreign exchange that’s hitting our sales. Regarding operating margin, we have talked about this, we talk about the investor conference, it’s a really important focus of ours. And I think that during the course of this year and beyond we’re going to be getting more leverage out of SG&A as we grow our top line faster than we grow our expense base. So, we still feel good about the trend. Obviously our current guidance reflects a pretty significant improvement over operating income margins in 2014.

Thank you.

Thank you. The next question is from Bruce Nudell of Crédit Suisse. Please go ahead.

Thank you. Mike, could you hear me okay? Michael A. Mussallem: Hear you great, Bruce.

Great. Thanks for taking the question. My first question is just a clarification, are model assumptions about $10 million of U.S. royalty and negligible de-stocking correct for the quarter in the U.S? Michael A. Mussallem: I think that’s pretty good. The royalty is pretty close, and I think the de-stocking is also similar. It’s not a big number.

Okay, great. And then, just looking at the U.S. market this year for procedures, its about 19,000 or so give or take a couple of 100, and absent indication expansion which doesn’t sound like its going to be 2015 event. How should we be thinking about market procedure growth in the U.S. in 2015, I mean, what have you guys been baking in? How should the streets think about it given your guidance? Michael A. Mussallem: Yes, we have a tough time projecting that, Bruce. I hesitate to take a shot at it. I mean the market grew very fast in the U.S. in 2014 certainly well in excess of 50%. And so, we certainly expect it to slow some in 2015, but I’m just [technical difficulty].

[Indiscernible] with Bernstein. Please go ahead.

Hi, good evening. Thanks for taking my question. Just starting with a quick clarification on guidance. So I appreciate, I understand kind of the underlying momentum in the recent four raising your EPS guidance, Scott. But the transcatheter heart valve underlying growth guidance you’re keeping at [technical difficulty] I understand the interplay there. Should we just think about that as shifting to higher end or [technical difficulty] as well? Scott B. Ullem: Sure. We intentionally gave a pretty broad range when we first put out the guidance and so, certainly we think we’ve moved up a little bit in that range. That’s the short answer.

Okay, great. Thanks. I wanted to spend a minute getting your thoughts on Mike on the intermediate patient risk opportunity. I mean, it seems like this is really the, one of the keys to the underlying market five years from now being a $3 billion market versus a $4 billion or $5 billion market. You had taken out your guidance stuff on the overall underlying market to $3 billion during the Investor Day, what are your thoughts on -- what goes into that in terms of the expansion into their intermediate risks? What are your thoughts on superiority that if that might come through in the intermediate risk group? And then also, maybe give us some guidance on when we might see that data, would that be late this year or early next year? Michael A. Mussallem: Yes, so the -- we’ve got this trial going in our partner too that evaluates intermediate risk patients, and our assumption here and it’s a trial that looks for non-inferiority. We believe that trial will be favorable, that we’ll pass that trial. And we think this therapy will be popular for intermediate risk patients. And there is a significant number, the group that’s measured here goes down to maybe the 50th percentile if you will of surgical patients and so, it opens up a significant population of people whose disease isn’t as severe of those being treated today. Remember it’s probably the top 10% or so of those with severe aortic stenosis that are treated today. And so, it is a substantial driver moving toward that indicator that we gave which we said we thought the market would be more than $3 billion by 2019.

Okay, thank you. And would we be seeing that data. I know that the follow-up will be complete later this year. Would we expect to see that data later this year or would that be more of a next year event? Michael A. Mussallem: Its one we’re not sure about. You can be confident that the physicians are very excited about getting that data and getting that data out. So, I’m sure they would expedite it, we’re happy to help them. But it’s a very large study, all that data needs to be adjudicated because it’s highly scientific in its approach. So, it’s a little tough for us to predict when it’s available at this point.

Okay. Thanks.

Thank you. The next question is from Danielle Antalffy of Leerink Partners. Please go ahead.

Good afternoon, guys. Thanks so much for taking the question. I just wanted to clarify, the data on SAPIEN 3 that we’re going to see at ACC, is that the data in high-risk patients that was submitted to FDA, and if not when can we expect to see that data? Michael A. Mussallem: Yes, we’re never sure exactly what's going to be presented, but our feeling is that yes, [technical difficulty] we’re expecting them to be consistent with what we’ve submitted to FDA.

Okay, great. Thanks for that. And then, if we think about your guidance and potential for SAPIEN 3 to come earlier than expected, just to follow-up on an earlier question. I mean, how do we think about the potential upside there? Or will [technical difficulty] even if it comes say in the fourth quarter isn’t likely to drive upside to the 2015 number, so I mean, how we think about that? Michael A. Mussallem: Well, we tried to be clear, that we really think it’s in everyone’s best interest to assume that we get the launch in early 2016. We’re trying to expedite that and we’ll certainly talk to FDA, we’d love to be able to bring SAPIEN 3 technology to U.S. patients sooner. But based on history and track records that’s not obvious, and we’re obviously also working internally to make sure that we have the capability to do that launch. But I will be speculating to talk about what the impact was and, I spoke about this a little bit earlier too. I would also caution people just to be a little moderate. It would certainly be a lift but I don’t know that if it’s a game changer in 2015.

Okay. Thanks for that.

Thank you. The next is from Ben Andrew of William Blair. Please go ahead.

Good afternoon. Mike, can you talk a little bit about what's baked into guidance for Japan because you had 40 to 50, you did a little less in ’14, but what's in there for 2015 please? Michael A. Mussallem: Yes, we’re going to try and avoid giving specific guidance by region, rather we gave global guidance Ben, we think we’re going to get a nice lift. We’re going to continue to add accounts. The pace of the rollout that we talked about originally was to be able to qualify four new accounts per month, and we struggled at doing that in 2014, we hope to hit that in 2015. But we really haven’t given any specific guidance in dollars for 2015.

Okay. And then given that the reimbursement bump we saw going into effect October 1, has only been in for one quarter. Why wouldn’t the U.S. market expand more aggressively here for the next couple of quarters, even with the easier comparison, its kind of setting you up for a stronger second half? Michael A. Mussallem: It’s a good question. It’s a little early for us to understand what the impact of the reimbursement change is, and the behavior of U.S. hospitals. We think their economics have been steadily improving anyway and that the DRG is only a boost. But it’s tough to sell -- it’s tough to tell for sure. We certainly see it as favorable and it will continue. We think just because the procedure is so popular with patients and their doctors that this will enable more treatment and allow the market to grow.

Thank you.

Thank you. The next question is from Kristen Stewart of Deutsche Bank. Please go ahead.

Hi. Thanks for taking the question. I was wondering if you could comment just on the surgical valve growth. I know you commented that it was healthy in the quarter. But could you break out what U.S. surgical valve inner growth was and Europe as well for the fourth quarter? Michael A. Mussallem: So, the growth rate of dollars in Europe was actually in the high single digits. Units were a little less than that, but we got a lift because this was INTUITY Elite also lifted that growth rate and that is at a premium price that’s probably selling at two to three times the price of a Magna valve. In the U.S. the growth, it was in the low single digits and we’ve -- I think I mentioned in the comments, we got some lifts on the mitral side in particular maybe that paper by Dr. D [ph] that talked about the advantage of mitral replacement versus mitral repair may have stimulated some growth in the quarter.

Okay. And then, just to go back, I guess on the guidance. Again I know David and Derick actually had mentioned this too, but I’m still having a hard time reconciling just the commentary on all the sales by product category and maybe I misunderstood going to the low end of the range, and I thought that also included transcatheter valve and then the increase in EPS is, are there hedging gains that actually come in that benefit the bottom line that not only offset currency, but actually give a lift. Just having a hard time kind of going through those numbers. Michael A. Mussallem: Okay. So, let’s just separate a couple of things. This is Mike, and then Scott can jump in and add further clarification. So when we said that the sales guidance would move towards the lower end of the range, that is -- there’s probably more of a dramatic impact in surgical heart valve therapy and in critical care than it is in transcatheter. So, those move nearly to the -- our estimate is nearly to the bottom of those previous ranges, whereas transcatheter heart valve we’ve got some optimism based on how we exited the year. So, even though it’s going to be pushed down some it won't be quite as impactful as it is in the other product lines.

Okay. That clears that up. Thanks very much.

Thank you. The next question is from Mike Weinstein of JP Morgan. Please go ahead.

Thanks for taking the question. Let me just follow-up Kristen, so just to make sure we all understand it correctly. So, the revenue guidance were down by $70 million, but the operating margin guidance went up by 100 to 200 basis points and 30 basis points of that was organic margin expansion versus the original commentary at the analyst meeting, the rest of it with FX. Is that right? Michael A. Mussallem: So, Mike I think you’re directionally correct, although I’m not sure that I heard all the numbers you said accurately. Yes, so we do get lift on the margin because whereas sales -- the foreign exchange changes lowers the sales line we’re able to actually maintain and increase our bottom line as combination of the hedging program we have and the improved performance in transcatheter heart valves. And so, that’s where the lift comes from. Was there more detail that you are looking for there?

Well, I think what Scott had said Mike on the -- at the analyst meeting was that, the original expectation was a 100 basis points of margin improvement -- gross margin improvement 2015 versus ’14, and that two thirds of that would come organically and the balance would come from FX and it sounds like the -- today its at a 100 basis points of organic margin expansion and then the balance of that another 100 to 200 basis points from FX. Scott B. Ullem: Mike, its Scott, I think that’s about right. I think you’ve got it. Again just the bottom line on the guidance increase for EPS really it’s not so much being benefited by the hedges which offset the sales. It’s really more driven by THV and makeshift improvement from THV continuing to grow nicely.

Okay. Because if I took your comments literally Scott, at the low end of that margin upside that you commented it will be neutral but at the high end it would be more like $0.15 plus additive at the FX hedges. Scott B. Ullem: Mike, say that one more time.

So if we take your operating margin, your gross margin and as a result operating margin guidance, that incremental 100 to 200 basis points if its to track out the organic piece of it and the revenue loss which you get to is you get to a wash at the low end of the margin upside, and at the high ends, if you get 200 basis points of incremental gross margin then it adds like $0.15 to the original guidance. Scott B. Ullem: Okay. That sounds like your math is accurate.

Okay. And I just have one, so just to help us as we’re picking ’16, you want to give us any insight into how the hedges play out so we can model our gross margins right beyond just this year? Scott B. Ullem: Well, in 2016 it depends on where we go during 2015 of course because we’re putting the hedges on it a year in advance, and so little early tell at this point.

Okay, I’ll follow-up. Thanks, Scott. Scott B. Ullem: Thanks, Mike.

Thank you. The next question is from Bob Hopkins of Bank of America. Please go ahead. Robert A. Hopkins: Hi, thanks. I’ll say some follow-ups on that for afterwards, just a while -- just to move on. But I wanted to just follow-up on two quick things, and thanks for taking the question. First on Europe, Mike can you just comment, do you believe that growth in Europe actually accelerated in the fourth quarter relative to what you saw earlier in the year? And maybe if you could just also give in addition to patient-by-patient color maybe some country-by-country color in terms of what you saw in the fourth quarter? Michael A. Mussallem: Yes. So, when you say growth, you mean like year-over-year growth that it accelerate in the fourth versus the third. I think it’s probably similar, but it was continued. We saw a lot of that growth in the third quarter and it certainly continued in the fourth. What was the remainder of your question, Bob? Robert A. Hopkins: Just in terms of any specific country-by-country color that could be helpful in understanding where, what … Michael A. Mussallem: Yes, this was really broad based. We’ve spoken in the past about how large Germany is, but this -- and so certainly Germany was a contributor, but we saw this across the large countries and small countries, it was very broad based this quarter. Robert A. Hopkins: And then as a follow-up, two quick things. You mentioned the number of centers that you added in the quarter being about in line is what you expected. Can you give us some updated thoughts now as you’re a little bit further along in the development of the U.S. market as to what the ultimate goal might be in terms of total number of centers, obviously there’s some CMS limitations there, but just some updated thoughts on how many centers you think could be partners of yours? And then for Scott in terms of priorities for cash if those changed at all since the Analyst Day from a buyback perspective or M&A perspective? Michael A. Mussallem: Yes. Thanks, Bob. Yes, so said we ended the year around 350 centers. We expect to add some additional centers in 2015 as they qualify, but we don’t think that’s a really big number. In fact when we think about the growth that’s going to come in 2015, we think the bulk of the expansion is going to be from procedures that are done in the existing centers, not so much driven by new centers. Scott B. Ullem: And Bob, it’s Scott. To your second question about cash. No, our priorities did not change at all. Our first call on cash continues to be investments in structural heart disease and critical care monitoring both internal investments and external, and I don’t expect there are going to be big investments. I think CardioKinetics is a good example of the types of investments we’re going to make. And then with the substantial cash flow that remains we will likely be directing that towards share repurchase. Robert A. Hopkins: Good. Thank you.

Thank you. The next question is from David Lewis of Morgan Stanley. Please go ahead.

This is actually James in for David. Thanks for taking the question. I just wonder if we get back to Europe for a moment and to what extent, Mike you think growth is being driven there by moving down the risk spectrum versus simply finding out that the higher extreme risk market is simply bigger than we thought. I mean, do you think that’s changed at all across the past several quarters as we’ve gotten more data in lower risk populations? Michael A. Mussallem: I hope you didn’t read my earlier comments that way. We really didn’t try and indicate that was moving down the risk spectrum. I think there’s been a sort of a greater understanding of risk and what patients are at risk and that the fact that some of the earlier criteria that’s based on scoring systems may not fully account for the risk that these patients encounter. And so, I think it’s just a more informed discussion. I still think we’re dealing with a high risk group.

Okay, that’s helpful. And then, just to follow-up perhaps one last time on currency. I think a question earlier was getting at the idea of what happens when these hedges roll off, and obviously we’re going to be hedging throughout 2015 for 2016, but assuming that currency were just to stay the same, what would be the impact into ’16 of having those hedges roll away. Scott B. Ullem: Sure. Well, it’s tough to look too far ahead because in addition to currencies we’ve got mix shifts and different geographies where growth mix is different. So, maybe what I can do to help you get there is to just look historically at what’s happened. And so, in 2014 for the full year we had a gross margin of 73.7%; that had some FX benefit in it. And then when we gave guidance for 2015 of 75% margin, we got some mix improvement plus some additional FX protection. And I think that’s about as much of a trend as I can offer to you, if currency rates stay the same in 2015, then we’ll loose some of the benefit -- we’ll loose the benefit of the hedge contracts, but again you’ve got other things that are going to happen to our businesses as our mix shifts and we grow in different geographies.

Okay. Thanks.

Thank you. And our final question comes from Joanne Wuensch of BMO Capital. Please go ahead.

Thank you very much for taking my question. What I’m sort of asking about is SG&A at this stage. I mean, it went down -- actually it went up year-over-year as a percentage of revenue, rose nicely in terms of dollar amount. Do we think of that coming down over the coming years, and then the question is what are you spending that on? Is that a lot of sales force investment? Scott B. Ullem: Joanne, its Scott. Yes, it’s a combination of things including greater investment in growing up the commercial platform to support our THV business. It includes some remediation investments that we’re making in our Utah facility. And then a big piece of it in 2014 relates to our performance based incentive compensation structure, and we expect in 2015 that that will normalize, and its all baked into our revised guidance that we’re providing today.

Okay, thank you. And then as a second question, if we didn’t see share repurchase in the quarter and there is no anything that hit the tape in terms of acquisitions, can we conclude that you’re quite active in the area of M&A? Scott B. Ullem: Well, we’re active in the area of M&A, but its all small investments. It could be intellectual property investments, it could be joint venture, minority investments and so, we have been accumulating cash and we’ve got that cash available for all kinds of purposes, but I expect that we’ll spend more of that on share repurchase than we will on M&A.

Okay. That’s very helpful. Thank you. End of Q&A Michael A. Mussallem: Okay. Well, thanks for your continued interest in Edwards. Scott, David and I welcome any additional questions by telephone, and with that back to you, David.

Thank you for joining us on today's call. Reconciliations between GAAP and non-GAAP numbers mentioned during this call, which include underlying growth rates, sales results, excluding currency impacts and amounts adjusted for special items are included in today's press release and can also be found in the Investor Relations section of our website at edwards.com. If you missed any portion in today's call, a telephonic replay will be available for 72 hours. To access this, please dial (877) 660-6853 or (201) 612-7415, and use the conference number 13598642. Additionally, an audio replay will be available on the Investor Relations section of our website. Thank you.

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