Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

The following discussion and analysis contains forward-looking statements within the meaning of the federal securities laws and should be read in conjunction with the disclosures we make concerning risks and other factors that may affect our business and operating results. See “Note Regarding Forward-Looking Statements” preceding Part I, Item 1 in this Quarterly Report on Form 10-Q.

We are the leading global structural heart disease innovation company, driven by a passion to improve patient lives. Through breakthrough technologies, world-class evidence, and partnerships with clinicians and healthcare stakeholders, our employees are inspired by our patient-focused culture to deliver life-changing innovations to those who need them most. We conduct operations worldwide and are managed in the following geographical regions: United States, Europe, Japan, and Rest of World. Our products are categorized into the following groups: Transcatheter Aortic Valve Replacement ("TAVR"), Transcatheter Mitral and Tricuspid Therapies ("TMTT"), and Surgical Structural Heart ("Surgical").

On September 3, 2024, we sold our Critical Care product group ("Critical Care"). In addition, as a next step in our disposal plan to exit businesses that are not focused on implantable medical innovations for structural heart disease, we committed to a plan to sell a non-core product group, with the sale expected to occur in 2025. We concluded that Critical Care met the criteria to be classified as held-for-sale in June 2024 and that the non-core product group met the criteria to be classified as held-for-sale in September 2024. We determined that, when considered together, the conditions for discontinued operations presentation had been met with respect to Critical Care and the non-core product group (collectively, the "discontinued product groups"). As such, the historical financial condition and results of the discontinued product groups have been reflected as discontinued operations in our consolidated condensed financial statements. Prior period amounts have been adjusted to reflect the discontinued operations presentation. Our discussion and analysis of our results of operations is reflective of our continuing operations. See Note 4 to the Consolidated Condensed Financial Statements for further information.

Financial Highlights

Our net sales for the first three months of 2025 were $1.4 billion, representing an increase of $82.8 million compared to the first three months of 2024, driven primarily by sales of our TMTT and TAVR products.

Our gross profit increased in the three months ended March 31, 2025, driven by our sales growth. Gross profit as a percentage of sales increased primarily due to foreign currency rate fluctuations. The increase in our diluted earnings per share in the three months ended March 31, 2025, was driven by our aforementioned operational performance.

Healthcare Environment, Opportunities, and Challenges

The medical technology industry is highly competitive and continues to evolve. Our success is measured both by the development of innovative products and the value we bring to our stakeholders. We are committed to developing new technologies and innovations, and we are committed to defending our intellectual property in support of those developments. Our vision for growth is to treat patients with both valvular and non-valvular structural heart disease, such as heart failure, which is a natural progression of the disease for many patients suffering from aortic stenosis and mitral and tricuspid regurgitation.

We are dedicated to generating robust clinical, economic, and quality-of-life evidence increasingly expected by patients, clinicians, and payors in the current healthcare environment, with the goal of encouraging the adoption of innovative new medical therapies that demonstrate superior outcomes.

New Accounting Standards

Information on new accounting standards is included in Note 1 to the Consolidated Condensed Financial Statements.

Results of Operations

Net Sales by Region

(dollars in millions)

																					Three Months Ended March 31,
																					Percent Change
																					2025						2024						Change
United States																											$	838.9					$	782.1					$	56.8					7.3		%
Europe																											341.8						326.0						15.8						4.9		%
Japan																											81.8						86.0						(4.2)						(4.9)		%
Rest of World																											150.2						135.8						14.4						10.6		%
Outside of the United States																											573.8						547.8						26.0						4.8		%
Total net sales																											$	1,412.7					$	1,329.9					$	82.8					6.2		%

Net sales outside of the United States include the impact of foreign currency exchange rate fluctuations, as further detailed in the discussion below. The impact of foreign currency exchange rate fluctuations on net sales is not necessarily indicative of the impact on net income due to the corresponding effect of foreign currency exchange rate fluctuations on international manufacturing and operating costs, and our hedging activities.

Net Sales by Product Group

(dollars in millions)

																					Three Months Ended March 31,
																					Percent Change
																					2025						2024						Change
Transcatheter Aortic Valve Replacement																											$	1,046.6					$	1,007.9					$	38.7					3.8		%
Transcatheter Mitral and Tricuspid Therapies																											115.2						72.9						42.3						58.1		%
Surgical Structural Heart																											250.9						249.1						1.8						0.7		%
Total net sales																											$	1,412.7					$	1,329.9					$	82.8					6.2		%

Transcatheter Aortic Valve Replacement Sales

Net sales of TAVR products increased for the three months ended March 31, 2025, driven by:

• higher sales of the Edwards SAPIEN platform in 2025, primarily due to higher sales of the Edwards SAPIEN 3 Ultra RESILIA valve in the United States and Europe;

partially offset by:

• foreign currency exchange rate fluctuations, which decreased net sales outside of the United States by $15.1 million for the three months ended March 31, 2025, primarily due to the weakening of the Euro against the United States dollar.

In April 2025, we received United States Food and Drug Administration ("FDA") approval for the SAPIEN 3 platform for severe aortic stenosis patients without symptoms.

Transcatheter Mitral and Tricuspid Therapies Sales

Net sales of TMTT products increased for the three months ended March 31, 2025, primarily due to higher sales of our PASCAL transcatheter edge-to-edge repair system and our continued launch of the EVOQUE tricuspid valve replacement system in the United States and Europe.

In April 2025, we received CE Mark for the Edwards SAPIEN M3 mitral valve replacement system for the transcatheter treatment of patients with symptomatic (moderate-to-severe or severe) mitral regurgitation who are deemed unsuitable for surgery or transcatheter edge-to-edge therapy.

Surgical Structural Heart Sales

Net sales of Surgical products increased for the three months ended March 31, 2025, primarily due to higher sales of the INSPIRIS RESILIA aortic valve in the United States and Europe, the KONECT RESILIA tissue valved conduit in the United States, and the MITRIS RESILIA valve in the United States, Europe, and China.

Gross Profit

Our gross profit increased in the three months ended March 31, 2025, driven by our sales growth discussed above. Gross profit as a percentage of net sales increased for the three months ended March 31, 2025, driven by a 0.4 percentage point impact from foreign currency rate fluctuations, including the settlement of foreign currency hedging contracts.

Selling, General, and Administrative ("SG&A") Expenses

SG&A expenses increased for the three months ended March 31, 2025, primarily due to (a) higher field-based personnel-related costs in support of our growth strategy initiatives, primarily in the United States and (b) professional services costs to support a transition services agreement. Foreign currency exchange rate fluctuations decreased expenses by $6.7 million for the three months ended March 31, 2025, primarily due to the strengthening of United States dollar against the Euro and multiple other currencies.

Research and Development ("R&D") Expenses

R&D expenses decreased for the three months ended March 31, 2025, primarily due to decreased investments in our aortic transcatheter valve innovations, partially offset by increased investments in implantable heart failure management innovations after our recent business combinations.

Certain Litigation Expenses

We incurred certain litigation expenses related to intellectual property litigation and tax litigation of $10.9 million and $8.9 million during the three months ended March 31, 2025 and 2024, respectively.

Other Operating Income

Other operating income, net of $19.1 million in three months ended March 31, 2025, included income from a transition services agreement of $17.9 million (see Note 4 to the Consolidated Condensed Financial Statements).

Provision for Income Taxes

The provision for income taxes consists of provisions for federal, state, and foreign income taxes. We operate in an international environment with significant operations in various locations outside the United States which have statutory tax rates typically lower than the United States tax rate. Accordingly, the consolidated income tax rate is a composite rate reflecting the earnings in the various locations and the applicable rates.

Our effective income tax rate attributable to continuing operations was 16.2% and 12.5% for the three months ended March 31, 2025 and 2024, respectively. The increase in the effective rate between the three months ended March 31, 2025 and 2024, was primarily due to an increase in global minimum tax ("Pillar Two," as noted below) and a decrease in the tax benefit from employee share-based compensation. In addition, the effective rates for the three months ended March 31, 2025 and 2024, were lower than the federal statutory rate of 21% primarily due to (1) foreign earnings taxed at lower rates, (2) United States federal and California research and development credits, and (3) the tax benefit from employee share-based compensation. The effective rates include a tax benefit from employee share-based compensation attributable to continuing operations of $1.3 million and $5.8 million for the three months ended March 31, 2025 and 2024, respectively.

Many countries are implementing some or all of the Organisation for Economic Co-operation and Development’s Base Erosion and Profit Shifting Pillar Two ("Pillar Two") rules that impose a global minimum tax of 15% on reported profits. Although Pillar Two provides a framework for applying the minimum tax, countries may enact Pillar Two slightly differently than the model rules and on different timelines and may adjust domestic tax incentives in response to Pillar Two. In addition, in January 2025, the United States issued an executive order announcing opposition to aspects of these rules. As countries continue to enact and refine the Pillar Two rules, we will evaluate the potential effects of Pillar Two on our effective tax rate. In 2025, we expect the Pillar Two provisions to result in additional tax expense of approximately $60 million.

In the normal course of business, the Internal Revenue Service ("IRS") and other taxing authorities are in different stages of examining various years of our tax filings. During these audits, we may receive proposed audit adjustments that could be material. Therefore, there is a possibility that an adverse outcome in these audits could have a material effect on our financial condition and results of operations. We strive to resolve open matters with each tax authority at the examination level and could reach an agreement with a tax authority at any time. While we have accrued for matters we believe are more likely than not to require settlement, the final outcome with a tax authority may result in a tax liability that is materially different from that reflected in the consolidated financial statements. Furthermore, we may later decide to challenge any assessments, if made, and may exercise our right to appeal. The uncertain tax positions are reviewed quarterly and adjusted as events occur that affect potential liabilities for additional taxes, such as lapsing of applicable statutes of limitations, proposed assessments by tax authorities, negotiations between tax authorities, identification of new issues, and issuance of new legislation, regulations, or case law. We believe that adequate amounts of tax and related penalty and interest have been provided for any adjustments that may result from our uncertain tax positions.

In the first quarter of 2022, we executed an Advance Pricing Agreement (“APA”) between Japan and Switzerland covering distribution transactions for tax years 2020 through 2024, and in 2023, we executed an APA between Japan and the United States covering tax years 2020 through 2024. We also executed an APA in the fourth quarter of 2024 between Japan and Singapore covering tax years 2022 through 2026, with roll-back terms to cover the distribution of TAVR products beginning in 2020 and the distribution of Surgical products beginning in 2018. Also in the fourth quarter of 2024, we filed with the Japanese tax authorities an APA renewal application between Japan and the United States covering tax years 2025 through 2029. We filed the APA renewal application with the United States tax authorities in the first quarter of 2025.

The audits of our United States federal income tax returns through 2014 have been closed. The IRS audit field work for the 2015 through 2017 tax years was completed during the second quarter of 2021, except for transfer pricing and related matters. The IRS is currently examining the 2018 through 2020 tax years. At March 31, 2025, all material state, local, and foreign income tax matters have been concluded for years through 2015.

During 2021, we received a Notice of Proposed Adjustment (“NOPA”) from the IRS for the 2015 through 2017 tax years relating to transfer pricing involving Surgical/TAVR intercompany royalty transactions between our United States and Switzerland subsidiaries. The NOPA proposed a substantial increase to our United States taxable income, which could result in additional tax expense for the 2015 through 2017 period of approximately $240 million and reflects a departure from a transfer pricing method we had previously agreed upon with the IRS. We disagreed with the NOPA and pursued an administrative appeal with the IRS Independent Office of Appeals ("Appeals"). The Appeals process culminated in the third quarter of 2023, when we and Appeals concluded that a satisfactory resolution of the matter at the administrative level was not possible.

During the fourth quarter of 2023, Appeals issued a notice of deficiency ("NOD") increasing our 2015 through 2017 United States federal income tax in amounts resulting from the income adjustments previously reflected in the NOPA. The additional tax sought in excess of our filing is $269.3 million before consideration of interest and a repatriation tax

offset.

We plan to vigorously contest the additional tax claimed by the IRS through the judicial process. Final resolution of this matter is not likely within the next 12 months. We believe the amounts previously accrued related to this uncertain tax position are appropriate for a number of reasons, including the interpretation and application of relevant tax laws and accounting standards to our facts and, accordingly, have not accrued any additional amount based on the NOD and other proceedings to date. Nonetheless, the outcome of the judicial process cannot be predicted with certainty, and it is possible that the outcome of that process could have a material impact on our consolidated financial statements. As noted below, similar material tax disputes may arise for the 2018 through 2024 tax years. We made deposits with the IRS of $75 million in November 2022, and $305.1 million in March 2024, to prevent the further accrual of interest on that portion of any additional tax and interest we may ultimately be found to owe while we prepare to contest through the judicial process the IRS's entitlement to any of the additional tax claimed by the IRS. The IRS converted those deposits to advance payments, and, on December 20, 2024, we filed administrative claims for refunds of those payments with the IRS for the 2015 through 2017 tax years. We expect that the IRS will either deny or fail to act on those refund claims, thereby enabling us to sue for refunds in the appropriate judicial forum.

Surgical/TAVR intercompany royalty transactions covering tax years 2018 through 2024 remain subject to IRS examination, and those transactions and related tax positions remain uncertain as of March 31, 2025. We have considered this information, as well as information regarding the NOD and other proceedings described above, in our evaluation of our uncertain tax positions. The impact of these unresolved transfer pricing matters, net of any correlative tax adjustments, may be significant to our consolidated financial statements. Based on the information currently available and numerous possible outcomes, we cannot reasonably estimate what, if any, changes in our existing uncertain tax positions may occur in the next 12 months and, therefore, have continued to record the uncertain tax positions as a long-term liability.

During the first quarter of 2024, we received a notice of assessment from the Israel Tax Authority (the "ITA") wherein the ITA claimed that we owe approximately $110.0 million of tax excluding interest and penalties in connection with a claimed 2017 transfer of intellectual property. We maintain that we did not transfer intellectual property outside of Israel and intend to vigorously defend that position through administrative proceedings including with a formal appeal of the assessment that was filed during the third quarter of 2024. If necessary, we expect to defend that position through judicial proceedings. During the fourth quarter of 2024, we received a notice of assessment from the ITA claiming that we owe additional tax of approximately $16.0 million excluding interest and penalties for the 2018 through 2022 tax years based entirely on the collateral impacts of the 2017 assessment. We filed a formal appeal in the first quarter of 2025 and, if necessary, expect to defend our position through judicial proceedings. There can be no assurance that this matter will be resolved in our favor and an adverse outcome could have a material effect on our consolidated financial statements.

Liquidity and Capital Resources

Our sources of cash liquidity include cash and cash equivalents, short-term investments, cash from operations, and amounts available under credit facilities. We believe that these sources are sufficient to fund the current and long-term requirements of working capital, capital expenditures, and other financial commitments. However, we periodically consider various financing alternatives and may, from time to time, seek to take advantage of favorable interest rate environments or other market conditions.

As of March 31, 2025, cash and cash equivalents, and short-term investments held in the United States and outside of the United States were $3.4 billion and $538.7 million, respectively.

We have a Five-year Credit Agreement (the "Credit Agreement") which provides for a $750.0 million multi-currency unsecured revolving credit facility and matures on July 15, 2027. We may increase the amount available under the Credit Agreement by up to an additional $250.0 million in the aggregate and extend the maturity date for an additional year, subject to agreement of the lenders. As of March 31, 2025, no amounts were outstanding under the Credit Agreement.

In June 2018, we issued $600.0 million of 4.3% fixed-rate unsecured senior notes (the "2018 Notes") due June 15, 2028. We may redeem the 2018 Notes, in whole or in part, at any time and from time to time at specified redemption prices. As of March 31, 2025, we have not elected to redeem any of the 2018 Notes. As of March 31, 2025, the carrying value of the 2018 Notes was $597.8 million.

From time to time, we repurchase shares of our common stock under share repurchase programs authorized by the Board of Directors. We consider several factors in determining when to execute share repurchases, including, among other things, expected dilution from stock plans, cash capacity, and the market price of our common stock. During the three months ended March 31, 2025, under the Board authorized repurchase program, we repurchased a total of 3.4 million shares at an aggregate cost of $306.9 million, including pursuant to a $250 million accelerated share repurchase agreement (see Note 10 to the Consolidated Condensed Financial Statements). As of March 31, 2025, we had remaining authority to purchase $1.1 billion of our common stock under the share repurchase program.

In July 2024, we entered into agreements and plans of mergers to acquire multiple medical device companies for a total aggregate cash purchase price of $1.5 billion, subject to certain adjustments. Three of these transactions closed in 2024 and upon closing we paid $1.1 billion. These three agreements include up to an additional $225.0 million of potential payments upon achievement of certain regulatory, performance, and sales milestones. The remaining agreement is expected to close in 2025 for an aggregate cash purchase price of $500.0 million, subject to certain adjustments, plus up to an additional $445.0 million upon achievement of certain regulatory and sales milestones.

We have purchased options to acquire and have agreed to provide promissory notes to various entities. These arrangements could result in additional cash outlays in the future should we decide to exercise the options or should the entities

draw on the promissory notes.

At March 31, 2025, there had been no material changes in our cash requirements from known contractual and other obligations, including commitments for capital expenditures, as disclosed in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, 2024.

Consolidated Cash Flows - For the three months ended March 31, 2025 and 2024:

Net cash flows provided by operating activities of $280.4 million for the three months ended March 31, 2025, increased $333.9 million over the same period last year, primarily due to tax payments in the three months ended March 31, 2024 of $349.2 million, which included a $305.1 million tax deposit we made to mitigate interest on potential tax liabilities we are contesting through the judicial process (see Note 14 to the Consolidated Condensed Financial Statements).

Net cash provided by investing activities of $85.3 million for the three months ended March 31, 2025, consisted primarily of net proceeds from investments of $198.4 million, partially offset by capital expenditures of $56.0 million and a payment for a net working capital adjustment of $36.3 million related to the sale of Critical Care.

Net cash provided by investing activities of $63.1 million for the three months ended March 31, 2024, consisted primarily of net proceeds from investments of $161.4 million, partially offset by capital expenditures of $65.3 million.

Net cash used in financing activities of $258.0 million for the three months ended March 31, 2025, consisted primarily of purchases of treasury stock of $308.6 million, partially offset by proceeds from stock plans of $49.9 million.

Net cash provided by financing activities of $61.7 million for the three months ended March 31, 2024, consisted primarily of proceeds from stock plans of $62.1 million.

Critical Accounting Policies and Estimates

The consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated condensed financial statements and sales and expenses during the periods reported. Actual results could differ from those estimates. Information with respect to our critical accounting policies and estimates which we believe could have the most significant effect on our reported results and require subjective or complex judgments by management is contained in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, 2024. There have been no significant changes from the information discussed therein.