10-QPeriod: Q1 FY2018

Edwards Lifesciences Corp Quarterly Report for Q1 Ended Mar 31, 2018

Filed April 27, 2018For Securities:EW

Summary

Edwards Lifesciences Corporation reported net sales of $894.8 million for the first quarter of 2018, a slight increase of 1.3% compared to $883.5 million in the prior year period. This growth was primarily driven by the Critical Care products, including the HemoSphere platform, and Transcatheter Heart Valve Therapy (THVT) products like the Edwards SAPIEN 3 valve, particularly in the United States and Japan. However, the company experienced a decrease in Surgical Heart Valve Therapy (SHVT) sales due to a sales return reserve related to the conversion to a consignment inventory model. Net income for the quarter was $206.6 million, down from $230.2 million in the prior year, impacted by factors including lower gross profit margin, increased operating expenses (SG&A and R&D), and adjustments related to the Tax Cuts and Jobs Act. Despite a challenging quarter on profitability, the company demonstrated solid cash flow from operations and maintained a strong cash position. Management reiterated confidence in their ability to fund operations and capital expenditures. Investors should monitor the ongoing intellectual property litigation and the company's strategic investments in R&D for future growth prospects.

Financial Highlights

53 data points
Beta

Revenue

$894.80M

73.9% Gross Margin

Net Income

$206.60M

23.1% Net Margin

EPS (Diluted)

$0.32

Total Assets

$5.83B

Cash & Equivalents

$1.23B

Free Cash Flow

$108.10M

Financial Statements
Beta
Revenue$894.80M
Cost of Revenue$233.60M
Gross Profit$661.20M
R&D Expenses$143.20M
SG&A Expenses$256.00M
Operating Income$252.50M
Net Income$206.60M
EPS (Basic)$0.33
EPS (Diluted)$0.32
Shares Outstanding (Basic)630.60M
Shares Outstanding (Diluted)645.30M

Key Highlights

  • 1Net sales increased slightly by 1.3% to $894.8 million, driven by Critical Care and Transcatheter Heart Valve Therapy (THVT).
  • 2THVT sales grew 2.3% to $551.6 million, supported by strong adoption of the SAPIEN 3 valve in key markets.
  • 3Surgical Heart Valve Therapy (SHVT) sales declined 10.0% to $179.5 million, impacted by a sales return reserve for a consignment inventory model conversion.
  • 4Critical Care sales increased by 13.0% to $163.7 million, boosted by the HemoSphere platform and core hemodynamic products.
  • 5Net income decreased by 10.3% to $206.6 million, influenced by lower gross profit margins and increased operating expenses.
  • 6The company reported $151.3 million in net cash provided by operating activities, an increase from the prior year's $128.3 million.
  • 7Significant ongoing legal proceedings related to patent infringements with Boston Scientific require close monitoring.

Frequently Asked Questions

Net sales increased by 1.3% to $894.8 million. This growth was primarily driven by higher sales of Critical Care products, notably the HemoSphere advanced monitoring platform, and Transcatheter Heart Valve Therapy (THVT) products like the Edwards SAPIEN 3 valve, particularly in the United States and Japan. These increases were partially offset by a decline in Surgical Heart Valve Therapy (SHVT) sales, which were negatively impacted by a sales return reserve established due to the conversion to a consignment inventory model for surgical valves.

Net income for the first quarter of 2018 was $206.6 million, down from $230.2 million in the same period of 2017. This decrease was attributed to several factors, including a lower gross profit margin, increased selling, general, and administrative (SG&A) expenses, higher research and development (R&D) spending, and adjustments related to the Tax Cuts and Jobs Act enacted in late 2017.

Edwards Lifesciences generated $151.3 million in cash from operating activities, an increase from $128.3 million in the prior year. The company maintains a strong liquidity position with $1.227 billion in cash and cash equivalents as of March 31, 2018. Management believes these sources are sufficient to fund its working capital, capital expenditures, and other financial commitments.

The company is involved in ongoing intellectual property litigation with Boston Scientific related to patent infringements for both its SAPIEN 3 and Lotus heart valve systems in various jurisdictions including Germany, France, the UK, and the US. While the company intends to defend itself vigorously, the ultimate outcome of these matters is uncertain and could have a material adverse impact on financial results.