10-QPeriod: Q2 FY2016

Edwards Lifesciences Corp Quarterly Report for Q2 Ended Jun 30, 2016

Filed July 29, 2016For Securities:EW

Summary

Edwards Lifesciences Corporation (EW) reported strong top-line growth in the second quarter and first half of 2016, driven primarily by its Transcatheter Heart Valve Therapy (THVT) segment, particularly the SAPIEN 3 valve. Net sales increased by 23.1% year-over-year for the quarter and 20.7% for the first half, with the United States showing a robust 32.6% growth in both periods. While revenue performance was strong, gross profit margin saw a decline due to foreign currency exchange rate fluctuations and other factors, though partially offset by a favorable product mix. The company also incurred a significant $34.5 million in-process research and development (IPR&D) charge related to acquired technologies for its transcatheter heart valve programs. Despite this, net income saw a healthy increase, reflecting the strong sales performance. The company continues to invest heavily in R&D, with a focus on new mitral and aortic THVT product development. Significant ongoing litigation with Boston Scientific remains a key point to monitor, although management believes it will not materially impact the company's financial position or liquidity.

Financial Highlights

49 data points
Beta

Revenue

$759.30M

73.3% Gross Margin

Net Income

$126.60M

16.7% Net Margin

EPS (Diluted)

$0.19

Total Assets

$4.05B

Cash & Equivalents

$369.90M

Free Cash Flow

$153.20M

Financial Statements
Beta
Revenue$759.30M
Cost of Revenue$202.50M
Gross Profit$556.80M
R&D Expenses$112.50M
SG&A Expenses$228.80M
Interest Expense$2.40M
Net Income$126.60M
EPS (Basic)$0.20
EPS (Diluted)$0.19
Shares Outstanding (Basic)636.60M
Shares Outstanding (Diluted)651.90M

Key Highlights

  • 1Net sales increased by 23.1% to $759.3 million in Q2 2016 and by 20.7% to $1,456.6 million in the first six months of 2016, driven by strong performance in Transcatheter Heart Valve Therapy (THVT).
  • 2The THVT segment saw a 48.7% increase in Q2 net sales and a 43.0% increase in the first six months, largely attributed to the successful launch and adoption of the Edwards SAPIEN 3 valve in the US and Europe.
  • 3The United States market showed particularly strong growth, with net sales up 32.6% in both the quarter and the first half of 2016.
  • 4Gross profit margin decreased as a percentage of net sales in the first half of 2016, primarily due to foreign currency exchange rate fluctuations, though partially offset by an improved product mix from THVT.
  • 5The company recorded a $34.5 million charge for in-process research and development (IPR&D) related to acquired technologies for its transcatheter heart valve programs in May 2016.
  • 6Net income increased to $126.6 million in Q2 2016 and $269.6 million in the first six months, demonstrating improved profitability despite R&D investments and IPR&D charges.
  • 7Significant intellectual property litigation with Boston Scientific is ongoing, with trials scheduled in early 2017 for multiple cases in Germany, France, and the US.

Frequently Asked Questions

The primary driver of revenue growth was the strong performance of the Transcatheter Heart Valve Therapy (THVT) segment, particularly the Edwards SAPIEN 3 valve. The launch and adoption of this product in the United States in July 2015 and in Europe in January 2014 significantly boosted sales, especially in the US market which saw a 32.6% increase in net sales for both the quarter and the first half of the year.

The $34.5 million charge for in-process research and development (IPR&D) was recorded in May 2016 for acquired technologies related to the company's transcatheter heart valve programs. This charge negatively impacted operating income and net income for the period, although the overall net income still showed an increase due to strong sales growth.

Yes, Edwards Lifesciences is involved in several ongoing intellectual property litigation cases with Boston Scientific, concerning heart valve technologies. Lawsuits have been filed in Germany, France, and the United States. While the company intends to defend itself vigorously and management believes these matters will not have a material adverse effect on the company's financial position, results of operations, or liquidity, the ultimate outcome is uncertain and could potentially lead to charges in excess of established reserves.

Edwards Lifesciences has an active stock repurchase program. In February 2016, they entered into accelerated share repurchase (ASR) agreements totaling $325 million. During the six months ended June 30, 2016, the company repurchased a total of 4.4 million shares at an aggregate cost of $400.1 million. As of June 30, 2016, approximately $277.5 million of remaining authorization was available under its repurchase programs.