10-QPeriod: Q2 FY2015

Edwards Lifesciences Corp Quarterly Report for Q2 Ended Jun 30, 2015

Filed July 29, 2015For Securities:EW

Summary

Edwards Lifesciences Corporation's second-quarter 2015 report (ending June 30, 2015) highlights a period of significant growth in Transcatheter Heart Valve Therapy (THV), driven by new product launches in the US and Europe. This segment's strong performance bolstered overall net sales, which increased by 7.3% year-over-year for the quarter. However, the company experienced a notable decline in net income, largely due to the absence of a substantial one-time litigation settlement gain received in the prior year's comparable period. Despite the year-over-year dip in net income, the underlying operational performance shows positive trends. Gross profit margin improved, benefiting from a favorable product mix and foreign currency impacts. While Surgical Heart Valve Therapy and Critical Care segments saw slight declines, the THV segment's robust expansion, including the US launch of SAPIEN XT and European launch of SAPIEN 3, indicates strong market traction and future growth potential. The company also demonstrated continued commitment to innovation, with significant investment in research and development.

Financial Highlights

46 data points
Beta

Revenue

$616.80M

74.3% Gross Margin

Net Income

$112.70M

18.3% Net Margin

EPS (Diluted)

$0.17

Total Assets

$3.61B

Cash & Equivalents

$597.60M

Free Cash Flow

$151.70M

Financial Statements
Beta
Revenue$616.80M
Cost of Revenue$158.60M
Gross Profit$458.20M
R&D Expenses$97.50M
SG&A Expenses$213.90M
Net Income$112.70M
EPS (Basic)$0.17
EPS (Diluted)$0.17
Shares Outstanding (Basic)645.90M
Shares Outstanding (Diluted)659.70M

Key Highlights

  • 1Net sales grew by 7.3% to $616.8 million in Q2 2015, driven by a 28.1% increase in Transcatheter Heart Valve Therapy (THV) sales.
  • 2THV growth was fueled by the recent US launch of Edwards SAPIEN XT and the European launch of Edwards SAPIEN 3, along with royalty income from Medtronic.
  • 3Net income significantly decreased by 79.4% to $112.7 million in Q2 2015, primarily due to the absence of a $750 million litigation settlement payment received in Q2 2014.
  • 4Gross profit margin improved by 0.6 percentage points to 74.3%, aided by a favorable product mix (driven by THV) and foreign currency impacts.
  • 5Despite overall sales growth, Surgical Heart Valve Therapy and Critical Care segments experienced slight revenue declines of 4.6% and 7.1% respectively, partly due to foreign currency headwinds.
  • 6Research and Development (R&D) expenses increased by 9.5% to $97.5 million, reflecting ongoing investment in new product development, particularly in THV and Surgical Heart Valve Therapy.
  • 7The company repurchased $175 million of its common stock in the first six months of 2015 and had $777.5 million remaining under its authorized repurchase programs as of June 30, 2015.

Frequently Asked Questions

The substantial decrease in net income was primarily due to a large one-time gain of $750.0 million from a litigation settlement with Medtronic that was recognized in the second quarter of 2014. This exceptional item did not recur in the current quarter.

The THV segment is performing very strongly, with sales increasing by 28.1% in the quarter. Key drivers include the recent launches of the Edwards SAPIEN XT valve in the United States and the Edwards SAPIEN 3 valve in Europe, as well as royalty earnings from a license agreement with Medtronic.

Foreign currency exchange rates had a mixed impact. They negatively affected international net sales, decreasing them by $19.0 million in the quarter due to a weakening Euro and Japanese Yen against the US Dollar. However, foreign currency movements also positively impacted gross profit margins and reduced SG&A expenses by $17.3 million for the quarter.

The company believes its current sources of cash, including cash and cash equivalents, short-term investments, and credit facilities, are sufficient to meet its working capital and capital expenditure needs for the next twelve months. They also recently entered into an agreement to acquire CardiAQ Valve Technologies, Inc. for $350 million, which they plan to fund with available cash.