10-QPeriod: Q3 FY2017

Edwards Lifesciences Corp Quarterly Report for Q3 Ended Sep 30, 2017

Filed October 27, 2017For Securities:EW

Summary

Edwards Lifesciences Corporation (EW) reported strong performance for the nine months ended September 30, 2017, demonstrating robust sales growth and improved profitability. Net sales increased by 16.0% year-over-year to $2.55 billion, driven significantly by the Transcatheter Heart Valve Therapy (THVT) segment, particularly the Edwards SAPIEN 3 valve. This growth was evident across both U.S. and international markets, with the U.S. showing an 18.4% increase and international markets up 13.1%. Profitability metrics also showed positive trends, with gross profit increasing due to an improved product mix favoring higher-margin THVT products. Net income rose significantly, although it was partially offset by an impairment charge in the second quarter related to a long-term investment. The company also successfully managed its operating expenses, with SG&A and R&D expenses growing at a slower pace than net sales, contributing to improved operating leverage. Investors can look to the continued strong adoption of THVT products and strategic investments in R&D as key drivers of future growth.

Financial Highlights

52 data points
Beta

Revenue

$821.50M

74.0% Gross Margin

Net Income

$170.10M

20.7% Net Margin

EPS (Diluted)

$0.26

Total Assets

$5.49B

Cash & Equivalents

$630.30M

Free Cash Flow

$268.50M

Financial Statements
Beta
Revenue$821.50M
Cost of Revenue$213.30M
Gross Profit$608.20M
R&D Expenses$142.90M
SG&A Expenses$244.60M
Operating Income$214.00M
Interest Expense$100K
Net Income$170.10M
EPS (Basic)$0.27
EPS (Diluted)$0.26
Shares Outstanding (Basic)633.90M
Shares Outstanding (Diluted)648.60M

Key Highlights

  • 1Net sales increased by 16.0% to $2.55 billion for the nine months ended September 30, 2017, compared to the same period in 2016.
  • 2Transcatheter Heart Valve Therapy (THVT) sales were a primary growth driver, up 26.0% to $1.51 billion for the nine months.
  • 3U.S. sales grew 18.4% to $1.41 billion, while international sales increased 13.1% to $1.13 billion for the nine months.
  • 4Gross profit margin improved due to a more favorable product mix, driven by THVT products.
  • 5Net income for the nine months increased to $586.4 million from $411.0 million in the prior year.
  • 6The company recorded a $31.2 million impairment charge on a long-term investment in the second quarter of 2017.
  • 7Operating cash flow increased to $636.8 million for the nine months, up from $503.3 million in the prior year.

Frequently Asked Questions

The primary driver of sales growth is the Transcatheter Heart Valve Therapy (THVT) segment, specifically the continued strong adoption and sales of the Edwards SAPIEN 3 transcatheter heart valve in both the United States and international markets. The launch of the SAPIEN 3 in Japan and increased sales in Europe, including inventory build-up in Germany due to litigation concerns, also contributed significantly.

The acquisition of Valtech Cardio Ltd. closed in January 2017. The transaction contributed to an increase in goodwill on the balance sheet and was accounted for as a business combination. While the acquisition contributed to the overall financial results, the company stated that pro forma results were not presented as Valtech's results were not material in relation to the consolidated financial statements. The acquisition also involved contingent milestone payments, which represent a significant liability on the balance sheet.

Yes, Edwards Lifesciences is involved in several ongoing patent infringement lawsuits with Boston Scientific concerning their transcatheter heart valve products. While the company is defending itself vigorously, adverse outcomes in these legal battles could potentially lead to injunctive relief, significant monetary damages, or materially impact financial position, results of operations, or liquidity. The company has recorded legal reserves for some matters, but cannot estimate the range of loss for all contingencies.

The company's cash and cash equivalents decreased from $930.1 million at the beginning of the year to $630.3 million at the end of the quarter. Operating activities generated $636.8 million in cash for the nine months, which was used to fund investing activities, including acquisitions and investments, and financing activities, such as share repurchases and debt payments. Despite the decrease in cash, management believes liquidity sources are sufficient for current requirements over the next twelve months.