10-QPeriod: Q1 FY2014

Edwards Lifesciences Corp Quarterly Report for Q1 Ended Mar 31, 2014

Filed May 2, 2014For Securities:EW

Summary

Edwards Lifesciences Corporation reported revenues of $522.4 million for the first quarter ended March 31, 2014, a 5.2% increase compared to $496.7 million in the prior year period. Despite revenue growth, net income significantly decreased by 58.1% to $60.3 million, down from $143.9 million in Q1 2013. This decline was primarily attributed to a substantial $78.1 million "special gain" (litigation award) in Q1 2013, which did not recur in the current quarter, and a $7.5 million special charge recorded in Q1 2014 for a settlement related to an intellectual property agreement. The company also experienced a lower gross profit margin due to product return reserves, increased manufacturing costs, and currency fluctuations. The company's sales growth was largely driven by its Transcatheter Heart Valves segment, particularly in Europe, benefiting from procedure growth and new product launches. However, SG&A expenses and R&D investments increased as the company continues to invest in innovation and defend its intellectual property. Despite the lower net income, the company generated strong operating cash flow and maintained a solid financial position, with cash and cash equivalents of $295.7 million at the end of the quarter.

Financial Highlights

46 data points
Beta

Revenue

$522.40M

72.1% Gross Margin

Net Income

$60.30M

11.5% Net Margin

EPS (Diluted)

$0.09

Total Assets

$2.65B

Cash & Equivalents

$295.70M

Free Cash Flow

$124.60M

Financial Statements
Beta
Revenue$522.40M
Cost of Revenue$145.90M
Gross Profit$376.50M
R&D Expenses$85.80M
SG&A Expenses$197.20M
Net Income$60.30M
EPS (Basic)$0.09
EPS (Diluted)$0.09
Shares Outstanding (Basic)640.20M
Shares Outstanding (Diluted)651.00M

Key Highlights

  • 1Net sales increased by 5.2% to $522.4 million in Q1 2014, driven by the Transcatheter Heart Valves segment, especially in Europe.
  • 2Net income decreased significantly by 58.1% to $60.3 million, impacted by the absence of a large litigation award in Q1 2013 and a new special charge in Q1 2014.
  • 3Gross profit margin declined by 3.5 percentage points to 72.1%, attributed to product return reserves, higher manufacturing costs, and currency impacts.
  • 4Selling, General & Administrative (SG&A) expenses rose by 8.1% to $197.2 million, primarily due to increased sales and marketing support and higher incentive compensation accruals.
  • 5Research and Development (R&D) expenses increased by 7.5% to $85.8 million, reflecting ongoing investments in clinical studies and new product development.
  • 6The company recorded a $7.5 million special charge in March 2014 to settle intellectual property agreement obligations.
  • 7Operating cash flow remained strong, totaling $138.9 million for the quarter, an increase from $101.1 million in the prior year period.

Frequently Asked Questions

The substantial decrease in net income from $143.9 million in Q1 2013 to $60.3 million in Q1 2014 was primarily due to the absence of a significant one-time gain in the prior year. In Q1 2013, the company received $83.6 million (net of tax, $52.3 million) from a litigation award related to patent infringement, which boosted net income. The current quarter also included a $7.5 million special charge for an intellectual property settlement.

The decline in gross profit margin from 75.6% to 72.1% is attributed to several factors including reserves for anticipated product returns in the US upon the introduction of next-generation Transcatheter Heart Valves, higher manufacturing costs, and foreign currency exchange rate fluctuations. Management is focused on managing these costs and optimizing its supply chain.

The Transcatheter Heart Valves segment showed strong growth, with sales increasing by 11.5% to $189.2 million. This growth was driven by procedure expansion, market share gains, and new product launches like the Edwards SAPIEN 3 in Europe and the ongoing launch of SAPIEN XT in Japan. The company is also advancing clinical trials for new products like the SAPIEN 3 in intermediate-risk patients in the US.

Edwards Lifesciences ended the quarter with $295.7 million in cash and cash equivalents. The company generated robust operating cash flow of $138.9 million in Q1 2014, an increase from the prior year. They have $130.0 million drawn on their $750.0 million credit facility and also issued $600.0 million in senior notes in October 2013. The company believes it has sufficient liquidity to fund its operations and commitments for the next twelve months.