10-QPeriod: Q1 FY2017

Edwards Lifesciences Corp Quarterly Report for Q1 Ended Mar 31, 2017

Filed April 28, 2017For Securities:EW

Summary

Edwards Lifesciences Corporation (EW) reported strong financial performance for the first quarter of 2017, demonstrating significant revenue growth driven by its Transcatheter Heart Valve Therapy (THVT) segment. Net sales increased by 26.7% year-over-year, reaching $883.5 million, with THVT sales alone surging by 46.6%. This growth was propelled by the successful adoption of the Edwards SAPIEN 3 valve in both the U.S. and international markets, with notable inventory stocking in Germany ahead of potential litigation impacts. The company also saw a substantial increase in net income, up 61% to $230.2 million, and improved gross profit margins due to a favorable product mix. Despite increased investments in R&D and SG&A to support growth initiatives, the company maintained a healthy operating performance. The acquisition of Valtech Cardio Ltd. was completed in January 2017, adding to the company's portfolio and contributing to goodwill and intangible assets. Investors should note the ongoing litigation with Boston Scientific, which could pose future risks, although the company appears well-positioned to manage current operations and is actively pursuing strategic growth.

Financial Highlights

51 data points
Beta

Revenue

$883.50M

75.6% Gross Margin

Net Income

$230.20M

26.1% Net Margin

EPS (Diluted)

$0.35

Total Assets

$4.78B

Cash & Equivalents

$819.30M

Free Cash Flow

$112.40M

Financial Statements
Beta
Revenue$883.50M
Cost of Revenue$215.60M
Gross Profit$667.90M
R&D Expenses$128.70M
SG&A Expenses$229.60M
Operating Income$298.30M
Interest Expense$2.40M
Net Income$230.20M
EPS (Basic)$0.36
EPS (Diluted)$0.35
Shares Outstanding (Basic)633.60M
Shares Outstanding (Diluted)649.20M

Key Highlights

  • 1Net sales increased by 26.7% to $883.5 million for the first quarter of 2017, compared to $697.3 million in the prior year period.
  • 2Transcatheter Heart Valve Therapy (THVT) sales experienced a significant surge of 46.6%, reaching $539.2 million, driven by the Edwards SAPIEN 3 valve's strong adoption.
  • 3Net income grew by 61.0% to $230.2 million, or $1.06 per diluted share, compared to $143.0 million, or $0.66 per diluted share, in the prior year.
  • 4Gross profit margin improved due to a more favorable product mix, largely influenced by the strong performance of THVT products.
  • 5The acquisition of Valtech Cardio Ltd. was completed in January 2017, with preliminary purchase price allocation showing significant goodwill and developed technology recognized.
  • 6Research and Development expenses increased, reflecting continued investment in aortic and mitral THVT product development, including strategic acquisitions of mitral valve repair technologies.
  • 7The company repurchased approximately 4.6 million shares of common stock for $436.0 million during the quarter, demonstrating a commitment to returning capital to shareholders.

Frequently Asked Questions

The primary driver for the 26.7% increase in net sales to $883.5 million was the robust performance of the Transcatheter Heart Valve Therapy (THVT) segment, which saw a 46.6% increase in sales. This growth was particularly strong for the Edwards SAPIEN 3 valve in both the United States and international markets. Additionally, increased sales in Germany were partly due to customers stocking up inventory in anticipation of potential supply disruptions from ongoing litigation.

The acquisition of Valtech Cardio Ltd. closed on January 23, 2017. Its financial results have been included in the consolidated statements since the acquisition date. The preliminary purchase price allocation resulted in the recognition of $315.0 million in goodwill and $109.2 million in developed technology. Contingent milestone payments of $162.9 million were also recognized as a long-term liability. The acquisition contributed to an increase in cash used in investing activities.

Edwards Lifesciences is actively involved in multiple patent infringement lawsuits with Boston Scientific concerning their respective heart valve technologies (SAPIEN 3 and Lotus valves). While some German and UK courts have ruled in favor of Boston Scientific on certain patents, Edwards Lifesciences is appealing these decisions and has filed its own challenges to Boston Scientific's patents. The company intends to defend itself vigorously. The financial statements note that the ultimate outcome of these matters could have a material adverse impact on the company's financial position, results of operations, or liquidity.

The company reported cash and cash equivalents of $819.3 million and short-term investments of $98.9 million as of March 31, 2017. They believe their sources of liquidity are sufficient for the next twelve months. Cash held internationally was $685.1 million, with a significant portion considered indefinitely reinvested. The company also has a $750 million credit facility, with $250 million borrowed as of the reporting date. Additionally, the company repurchased $436.0 million of its stock during the quarter, indicating a strong cash flow position.