10-QPeriod: Q3 FY2014

Edwards Lifesciences Corp Quarterly Report for Q3 Ended Sep 30, 2014

Filed October 31, 2014For Securities:EW

Summary

Edwards Lifesciences Corporation (EW) reported a strong third quarter and first nine months of 2014, driven by significant growth in Net Sales, particularly in Transcatheter Heart Valves. Net sales for the quarter rose 22.6% year-over-year to $607.4 million, and for the nine-month period increased 12.9% to $1.7 billion. This growth was propelled by the successful launches and expanded use of their next-generation transcatheter heart valves, notably the Edwards SAPIEN XT and SAPIEN 3, across the US and Europe. A significant event impacting the financial results was the settlement of patent litigation with Medtronic, which resulted in a $750.0 million upfront payment to Edwards Lifesciences in the second quarter. This substantially boosted net income, which more than doubled for the nine-month period to $701.9 million. Despite the strong sales performance, the company saw a decrease in gross profit margin due to foreign currency fluctuations and higher manufacturing costs. However, overall financial health appears robust, with ample liquidity from operations.

Financial Highlights

48 data points
Beta

Revenue

$607.40M

72.3% Gross Margin

Net Income

$94.60M

15.6% Net Margin

EPS (Diluted)

$0.15

Total Assets

$3.35B

Cash & Equivalents

$404.10M

Free Cash Flow

-$5.90M

Financial Statements
Beta
Revenue$607.40M
Cost of Revenue$168.10M
Gross Profit$439.30M
R&D Expenses$87.60M
SG&A Expenses$222.20M
Net Income$94.60M
EPS (Basic)$0.15
EPS (Diluted)$0.15
Shares Outstanding (Basic)638.40M
Shares Outstanding (Diluted)650.40M

Key Highlights

  • 1Net sales increased by 22.6% to $607.4 million in Q3 2014 and by 12.9% to $1.7 billion in the first nine months of 2014, driven by strong performance in Transcatheter Heart Valves.
  • 2Net income significantly increased to $94.6 million for Q3 2014 and $701.9 million for the first nine months of 2014, benefiting from a $750 million litigation settlement payment from Medtronic.
  • 3The launch of new transcatheter heart valves, including the Edwards SAPIEN XT in the US and the Edwards SAPIEN 3 in Europe, was a key driver of sales growth.
  • 4Gross profit margin decreased by 1.8 percentage points in Q3 and 2.6 percentage points for the nine-month period, primarily due to foreign currency exchange rate fluctuations and higher manufacturing costs.
  • 5Operating expenses, specifically Selling, General & Administrative (SG&A) and Research & Development (R&D), increased to support product launches and ongoing development.
  • 6The company ended the quarter with a strong liquidity position, reflected in $404.1 million in cash and cash equivalents and substantial cash flow from operations.
  • 7Edwards Lifesciences repurchased $300.0 million of its common stock in the first nine months of 2014 under its authorized repurchase programs.

Frequently Asked Questions

The primary driver of revenue growth was the strong performance of Transcatheter Heart Valves, fueled by the launches and increased adoption of the Edwards SAPIEN XT in the United States and the Edwards SAPIEN 3 in Europe.

The litigation settlement with Medtronic resulted in a significant $750.0 million upfront payment received in the second quarter of 2014. This payment substantially boosted net income for both the third quarter and the first nine months of the year.

The decrease in gross profit margin was primarily attributed to the impact of foreign currency exchange rate fluctuations and increased manufacturing costs, particularly related to operations in Utah. Additionally, the nine-month period saw an impact from sales return reserves tied to new product launches and associated inventory write-offs.

Edwards Lifesciences maintains a strong liquidity position. As of September 30, 2014, the company had $404.1 million in cash and cash equivalents and generated significant cash flow from operations, indicating sufficient resources to fund its ongoing needs.