10-QPeriod: Q2 FY2017

Edwards Lifesciences Corp Quarterly Report for Q2 Ended Jun 30, 2017

Filed July 28, 2017For Securities:EW

Summary

Edwards Lifesciences Corporation (EW) reported a strong second quarter and first half of 2017, demonstrating significant year-over-year growth in net sales and net income. Net sales increased by 10.9% to $841.8 million for the quarter and 18.4% to $1,725.3 million for the first half, primarily driven by robust performance in the Transcatheter Heart Valve Therapy (THVT) segment, particularly the Edwards SAPIEN 3 valve in the U.S., Japan, and Europe. The company also saw improvements in Surgical Heart Valve Therapy and Critical Care. The company's profitability also saw a substantial boost, with net income rising to $186.1 million for the quarter and $416.3 million for the first half. This growth was supported by an improved gross profit margin, largely due to a favorable product mix, and a lower effective income tax rate. Management highlighted increased R&D investments focused on THVT product development and strategic acquisitions to bolster its portfolio. Despite a significant impairment charge related to an investment, the overall financial health appears strong, with continued focus on innovation and market expansion.

Financial Highlights

51 data points
Beta

Revenue

$841.80M

74.9% Gross Margin

Net Income

$186.10M

22.1% Net Margin

EPS (Diluted)

$0.29

Total Assets

$5.14B

Cash & Equivalents

$508.20M

Free Cash Flow

$139.70M

Financial Statements
Beta
Revenue$841.80M
Cost of Revenue$211.10M
Gross Profit$630.70M
R&D Expenses$134.40M
SG&A Expenses$243.80M
Operating Income$241.00M
Interest Expense$1.40M
Net Income$186.10M
EPS (Basic)$0.29
EPS (Diluted)$0.29
Shares Outstanding (Basic)631.50M
Shares Outstanding (Diluted)647.10M

Key Highlights

  • 1Net sales grew by 10.9% to $841.8 million in Q2 2017 and by 18.4% to $1,725.3 million in H1 2017, driven by strong THVT sales.
  • 2Transcatheter Heart Valve Therapy (THVT) sales increased by 16.5% in Q2 and 30.6% in H1, with the Edwards SAPIEN 3 valve showing significant adoption globally.
  • 3Net income increased significantly to $186.1 million in Q2 and $416.3 million in H1 2017, aided by improved gross margins and a lower effective tax rate.
  • 4The company recorded a $31.2 million impairment charge in Q2 2017 related to an investment and associated long-term asset.
  • 5Research and Development expenses increased, reflecting continued investment in THVT product development, including mitral, aortic, and tricuspid therapies.
  • 6The acquisition of Valtech Cardio Ltd. closed in January 2017, with preliminary purchase price allocation showing significant goodwill and intangible assets.
  • 7The company repurchased $501.0 million of its common stock in the first half of 2017 under its share repurchase program.

Frequently Asked Questions

Sales growth was primarily driven by the Transcatheter Heart Valve Therapy (THVT) segment, with notable increases in sales of the Edwards SAPIEN 3 valve in the United States, Japan, and Europe. The company also saw growth in Surgical Heart Valve Therapy and Critical Care product lines.

The acquisition of Valtech Cardio Ltd. closed in January 2017. While its results are included in the consolidated financial statements from that date, the company noted that Valtech's results were not material enough to require pro forma presentation. The acquisition led to significant goodwill and intangible assets recorded on the balance sheet, and includes potential milestone payments.

The company is actively involved in patent infringement litigation with Boston Scientific in Germany, France, the UK, and the US, related to both its SAPIEN 3 and Lotus heart valves. While some rulings have gone against Edwards Lifesciences, the company is appealing these decisions and actively defending its position. The ongoing litigation could potentially lead to injunctions and monetary damages, which are considered material contingencies.

The effective income tax rate decreased significantly in the first half of 2017 compared to the prior year. This reduction was primarily due to the adoption of a new accounting standard for employee share-based compensation, which resulted in a tax benefit, and fluctuations in the relative contribution of foreign operations to worldwide pre-tax income.