Financial Outlook. Edwards Delivers Outstanding Financial Performance. Edwards Lifesciences 2017 Investor Conference 12/7/17

Transcription

1 Financial Outlook Scott B. Ullem Chief Financial Officer Edwards Delivers Outstanding Financial Performance EXCEPTIONAL REVENUE GROWTH STRONG PROFITABILITY LONG-TERM SHAREHOLDER RETURNS ROBUST CASH FLOW AND DISCIPLINED CAPITAL DEPLOYMENT 12/7/17 2 1

2 Edwards is Poised for Strong Organic Revenue Growth EXCEPTIONAL REVENUE GROWTH STRONG PROFITABILITY ROBUST CASH FLOW AND DISCIPLINED CAPITAL DEPLOYMENT Growth rate meaningfully higher than Med Tech average Durable leadership positions in new and growing therapies Successful R&D investments in therapies that benefit patients and fuel organic growth LONG-TERM SHAREHOLDER RETURNS 12/7/ Adjusted Sales Forecasted to Exceed Original Guidance ($ in millions; underlying growth rates) Total Edwards THVT SHVT Critical Care Underlying Growth Mid point 10-14% 15-20% 1-3% 3-4% 5-7% 20-25% $3,400 $3,400 $3,200 $3, % $2,000 $2,000 $1,700 $1,700 $790 $810 $750 $780 $600 $600 $560 $560 INV OCT INV OCT INV OCT INV OCT 2016 Investor Conference 2017 October Guidance October Guidance Unchanged Shading represents guidance ranges 12/7/17 4 2

3 2017 Financial Guidance Summary ($ in millions, except earnings per share data) Sales FX Impact on Sales Gross Profit Margin Adjusted EPS Adjusted Free Cash Flow $3,400 $3,400 $3,200 $3,000 $0 76% 76% 74% 74% $3.45 $3.30 $3.85 $3.65 $650 $575 Exceed top end $675 $625 ~$(80) 2016 Investor Conference 2017 October Guidance October Guidance Unchanged Shading represents guidance ranges 12/7/17 5 Expect Strong Organic Sales Growth in 2018 and Beyond ($ in billions; underlying growth rates) Sales growth fueled by successful R&D investments Strong Growth across all regions 17% 19% 9% - 10% TMTT Portfolio expected to complement TAVR growth in future years $2.5 $3.0 $3.2 - $3.4 $3.5 - $3.9 FX impact is expected to be ~$20 million favorable in 2018 at current rates Excludes special items 12/7/17 6 3

4 2018 Adjusted Sales Guidance Product Group ($ in millions; underlying growth rates) Total Edwards THVT SHVT Critical Care Underlying Growth 9-10% Mid point 20-25% 11-15% 3-4% 2-4% 6-8% 5-7% $3,400 $3,200 $3,900 $3,500 $2,000 $1,700 $2,400 $2,100 $810 $850 $780 $810 $600 $650 $560 $610 OCT AOPS OCT October Guidance AOPS OCT Guidance at AOPS2 Current FX rates OCT AOPS2 Shading represents guidance ranges 12/7/17 7 Transcatheter Heart Valve Therapy to Pursue Large Underpenetrated Patient Population (Sales $ in billions; underlying growth rates) Primary growth drivers are indication expansion, increasing awareness and technology Plan for continued procedure growth, but growth rate declines as base grows 2018 plan includes ~$15 million of non-tavr Sales 38% $1.2 38% $1.6 Mid point 20% - 25% $1.7 - $2.0 11% - 15% $2.1 - $2.4 Plan for remaining ~$5 million of 2017 Germany Stocking Sales to be consumed in /7/17 8 4

5 Surgical Heart Valve Therapy Innovation Enabling Growth Despite TAVR Headwind ($ in millions; underlying growth rates) New technologies driving sales as unit volume is tempered by TAVR 2% (2)% 3% - 4% 2% - 4% SHVT s strategy focuses on Advancing Core Aortic Leadership, Transforming Mitral Surgery, and Expanding in Strategic Markets $785 $775 $780 - $810 $810 - $850 Stronger growth expected from regions where TAVR is less penetrated Excludes special items Mitral Supply and TAVR Cannibalization 12/7/17 9 Critical Care Building the Future with New Technology ($ in millions; underlying growth rates) HemoSphere capital platform strengthens Edwards core disposables portfolio Edwards is pioneering predictive analytics 3% $528 5% $560 5% - 7% $560 - $600 6% - 8% $610 - $650 ClearSight continues to expand penetration into the Enhanced Surgical Recovery global opportunity Excludes special items 12/7/

6 Edwards Delivers Strong Profits While Investing in the Future EXCEPTIONAL REVENUE GROWTH STRONG PROFITABILITY ROBUST CASH FLOW AND DISCIPLINED CAPITAL DEPLOYMENT Maintaining mid-70% gross profit margin while investing in capacity Disciplined SG&A expense management Aggressive investments in high potential growth platforms LONG-TERM SHAREHOLDER RETURNS 12/7/17 11 Edwards Portfolio Generates Attractive Gross Profit Margins Gross profit margins reflect innovative products 2017 gross profit margin improved >1pp due to product mix 75% 73% 74% - 76% 74% - 76% Continue to invest in expanding capacity in 2018 Gross Profit GP Margin 12/7/

7 2018 Gross Profit Margin Outlook Tailwinds & Headwinds Net Effect Sales Mix Corporate Gross Profit Margin reflects increasing mix of transcatheter products New product margins improve as volumes increase + Execute Lean initiatives Optimize production footprint and supplier management Simplify Global Distribution + Expanding Capacity Invest to support growth of premium transcatheter products Supply Chain Enhancements Other Factors Net Impact Increase in materials and labor Modest price compression driven by volume discounts New product margins begin below the corporate average, but improve as volumes increase Near-term Gross Profit Margins lifted by product mix but tempered by capacity investments Planned long-term Gross Profit Margin expansion = 12/7/17 13 Research & Development Fuels Future Growth TAVR investment focused on new technologies with significant evidence to expand indications and access 2018 will be a pivotal year of clinical experience of transcatheter mitral and tricuspid therapies 15% 15% 16% - 17% 16% - 17% Targeted investment to grow core businesses Approximately 1/3 of R&D expense is allocated to clinical evidence generation R&D Percentage of Sales 12/7/

8 Focused Strategy Allows Disciplined SG&A Spending While Providing High Level of Clinical Support Disciplined expense controls and sales growth have resulted in significant P&L leverage Assumes no Medical Device Excise Tax FX did not materially affect SG&A ratio in % 31% 28% - 29% 28% - 29% Future investments will be required to support commercialization of new structural heart products SG&A Percentage of Sales 12/7/17 15 Is Expected to Be Less Predictable Due to Excess Tax Benefit Accounting 2017 ETB Impact The impact from ETB depends on: Number of exercises Exercise price Stock Price Historically, more options have been exercised in Q2 ($ in millions) $67 $56 $64 $35 $60 $59 $53 $53 A $5 change in stock price would result in an estimated $0.01-$0.03 change in 2018 ETB impact to EPS 26% 22% 24% 13% 26% 22% 24% Q1 Q2 Q3 Q4E 21% Tax Expense without ETB Tax Expense with ETB Excludes special items 12/7/

9 Operating Performance Drives Expected Growth in Adjusted EPS $0.40- $0.42 $ $0.03 $ $0.04 $ $4.30 $ $3.85 Includes an estimated $0.18 Excess Tax Benefit, down from ~$0.25 in Guidance Operating Performance FX Impact Net Tax/ Shares Impact 2018 Guidance Excludes special items 12/7/ Guidance Summary (Excludes special items; $ and shares in millions except Adjusted EPS) Measure FY 2018 Sales $3,500 - $3,900 Underlying growth 9% - 10% FX Impact on Sales ~$20 favorable Gross Profit Margin 74% - 76% SG&A % of Sales 28% - 29% R&D % of Sales 16% - 17% Measure FY 2018 Operating Margin 28% - 32% Net Interest expense ~$10 Tax rate 19% - 21% (3-4pp ETB benefit) Adjusted EPS $ $4.30 Free cash flow $700 - $775 Shares Outstanding Year over year quarterly sales growth rate expected to ramp during 2018 Assumes current exchange rates 12/7/

10 2018 Financial Communications THV + TMTT = THVT 2018 THVT Regional Reporting Non-GAAP Gross Profit Margin Operating Margin Excess Tax Benefit (ETB) THVT guidance and results will include both THV and TMTT TMTT portion will be identified for transparency TMTT contributes <1% to THVT 2018E underlying growth rate For competitive reasons, beginning Q reported results will include US and OUS growth commentary rather than exact sales dollars Beginning in 2018, we will present a non-gaap gross profit margin rate which excludes Amortization of Intellectual Property, consistent with our non-gaap EPS Beginning in 2018, we will present a non-gaap operating margin to offer greater transparency on business operations We will continue to quantify the impact of ETB on our guidance estimates and actual results As ETB is difficult to forecast, actual ETB results may vary significantly 12/7/17 19 Plan for Continued Modest Margin Expansion Over Time Sales Growth 2018 Longer- Term Substantially higher organic growth than industry average Gross Margin = R&D % of Sales = SG&A % of Sales = Operating Margin = > Modest expansion over time Commentary Our long-term strategic plan projects organic underlying sales growth at a substantially higher rate than industry average Organic innovation may produce variable quarterly growth rates Near-term Gross Profit Margin lifted by product mix but tempered by capacity investments; mix and efficiencies expected to lift longer-term margin Significant investments in clinical trials to expand indications and develop new technologies; future sales growth likely to exceed R&D growth Disciplined focus on leveraging our scale and controlling growth in SG&A, partially offset by additional investments to support new product introductions % Outstanding Shares Net reduction over time Less predictability due to stock-option accounting change and potential policy changes 12/7/

11 Edwards Capital Allocation Strategy Fuels Organic Revenue Growth and Creates Shareholder Value EXCEPTIONAL REVENUE GROWTH STRONG PROFITABILITY Successful share repurchase strategy Cash flow sufficient to fund strategic acquisitions Balance sheet flexibility LONG-TERM SHAREHOLDER RETURNS ROBUST CASH FLOW AND DISCIPLINED CAPITAL DEPLOYMENT 12/7/17 21 Robust Free Cash Flow (Operating Cash Flow minus Capital Expenditures; excludes special items) Continued growth results in significant cash flows that fund future opportunities ($ in millions) 2017 Capital Expenditures expected to be ~$200 million; budgeted to increase in 2018 ($ in millions) $850 $750 $650 $550 $450 $350 $447 $528 Exceed top end $625 - $675 $700 - $775 Free cash flow generation: ~30% US & ~70% OUS $25 million contribution in 2017 to Edwards Foundation from litigation settlement $250 $150 12/7/

12 Capital Allocation Strategy Fuels Future Growth and Shareholder Value Fund strategic external investments: Selective acquisitions, likely smaller in size Minority investments and options Intellectual property Disciplined capital expenditures to support growth Share repurchase is the preferred method for returning capital to investors Management is committed to disciplined use of cash ($ in millions) $1,000 $750 $500 $250 $- Stock Repurchase E Since 2011, average share repurchase price was ~$54 12/7/17 23 Executed Accelerated Share Repurchase and Expanded Share Repurchase Authorization by $1 Billion Completed ASR and additional repurchases in Q4 totaling $250 million Executed $150 million Accelerated Share Repurchase program and retired 1.1 million shares on November 29th; balance of shares to be retired by year end ~$750 million repurchases completed year to date, including ~$100 million from 10b5-1 and open market repurchases in Q4 $1.3 billion remaining of repurchase authorization Share Repurchase Strategy Offset dilution from employee stock awards Execute opportunistic repurchases to reduce net shares outstanding Commitment to returning capital to shareholders $1.7 billion in share repurchases YTD Expect ongoing share repurchases in 2018 and beyond 12/7/

13 Harpoon and Neovasc Updates Completion of Harpoon Acquisition Paid $100 million in cash upon closing on December 1st Absorbing the R&D and SG&A expense, which is expected to total ~$20 million in 2018 Neovasc Judgement Received $113 million in cash in November Cash redeployed for Harpoon acquisition, share repurchase and Foundation funding Future potential milestone payments for sales and regulatory targets over the next 10 years Represented damages and interest for judgement relating to theft of trade secrets Likelihood of contingent milestone payments will be re-evaluated periodically, with changes reflected in Statement of Operations 12/7/17 25 Edwards Has Delivered Exceptional Shareholder Value EXCEPTIONAL REVENUE GROWTH STRONG PROFITABILITY Consistently strong Total Shareholder Returns Pay for performance plan aligns management incentives with investors Tenured management team and consistent strategy LONG-TERM SHAREHOLDER RETURNS ROBUST CASH FLOW AND DISCIPLINED CAPITAL DEPLOYMENT 12/7/

14 Edwards Focused Strategy Has Produced Exceptional Returns Sales ($ in billions) $3.0 High End $ Focused investments yielded outstanding organic sales and EPS growth Exercised discipline to remain within our specialty: Transformational therapies High patient impact Sustained leadership $0.8 $0.7 $0.7 $0.9 $0.9 $1.0 $1.0 $1.1 Market Cap <$1B $1.2 $1.3 $1.4 $1.7 $1.9 $2.0 $2.3 $2.5 Market Cap $24B R&D 16-17% R&D 6% R&D = R&D as a % of sales E 12/7/17 27 Dedicated to Creating Long-Term Value Exceptional Revenue Growth Growth rate meaningfully higher than Med Tech average Durable leadership positions in new and growing therapies Successful R&D investments in therapies that benefit patients and fuel organic growth Robust Cash Flow and Disciplined Capital Deployment Successful share repurchase strategy Cash flow sufficient to fund strategic acquisitions Balance sheet flexibility Strong Profitability Maintaining mid-70% gross profit margin while investing in capacity Disciplined SG&A expense management Long-Term Shareholder Returns Consistently strong Total Shareholder Returns Pay for performance plan aligns management incentives with investors Aggressive investments in high potential growth platforms Tenured management team and consistent strategy 12/7/

15 Edwards Is Attractively Positioned in High Growth Markets Industry Dynamics Factors Large Investment Required Non-Commodity Large TAM Rapid Growth Edwards Opportunity Edwards Advantages Focused Investment Continuous Innovation Attractive Margins Extraordinary Clinical Data Efficient Capital Deployment TAM = Total addressable market 12/7/