Edwards Lifesciences Corporation Reports Third Quarter Results
IRVINE, Calif., Oct. 23, 2014 /PRNewswire/ -- Edwards Lifesciences Corporation (NYSE: EW), the global leader in the science of heart valves and hemodynamic monitoring, today reported net income for the quarter ended September 30, 2014 of $94.6 million, or $0.87 per diluted share, and non-GAAP net income of $87.0 million, or $0.80 per diluted share. Net income for the same period a year earlier was $76.8 million, or $0.68 per diluted share, and non-GAAP net income was $79.5 million, or $0.70 per diluted share.
Net sales for the quarter ended September 30, 2014 increased 22.6 percent to $607.4 million compared to the same period last year. Underlying1 sales grew 18.9 percent. U.S. and international segment sales for the third quarter were $296.3 million and $311.1 million, respectively.
"We are pleased with the results in all product groups and regions this quarter, highlighted by transcatheter heart valves that exceeded our expectations and drove very strong sales performance," said Michael A. Mussallem, chairman and CEO. "The strong year-to-date results reinforce our conviction in our focused innovation strategy and its impact on unmet patient needs."
Sales Results
For the third quarter, the company reported sales of transcatheter heart valves (THV) of
$267.2 million, a 55.3 percent growth rate over the third quarter last year. On an underlying basis, THV sales grew 43.8 percent. These results were driven by strong growth in all regions, with the U.S. accounting for approximately half of total THV sales.
In the U.S., THV sales were $143.3 million for the quarter, including $10.4 million from royalties. Included in this quarter's results were lower clinical sales compared to the second quarter and an approximate $16 million negative impact from net stocking. Underlying U.S. THV sales were $125.9 million, which excludes the benefit of a net $17.4 million sales return reserve reversal. This represented an underlying growth rate of 46.2 percent compared to the $86.1 million reported last year.
"In Europe and the U.S., transcatheter valve procedure growth was strong this quarter and exceeded our expectations," said Mussallem. "Our new product launches have strengthened our leadership position, and we are pleased that greater numbers of patients are benefiting from transcatheter heart valve therapy. The launches of SAPIEN 3 in Europe and SAPIEN XT in the U.S. are largely complete, and feedback from clinicians on these new valves continues to be very positive. We believe current market growth rates are not sustainable and expect competitive activity will increase."
Surgical Heart Valve Therapy product group sales for the quarter were $203.4 million. Sales increased 6.0 percent over the third quarter last year, or 6.2 percent on an underlying basis. Solid unit growth was seen across all regions, and product mix drove a slightly higher overall average selling price.
Critical Care product group sales were $136.8 million for the quarter, representing an increase of 3.9 percent versus last year, or 4.5 percent on an underlying basis. Growth was driven by a double digit increase in Enhanced Surgical Recovery (ESR) product sales across most regions. Additionally, the company is redirecting the resources from its Glucose monitoring program to its ESR initiative.
Additional Operating Results
For the quarter, the company's gross profit margin was 72.3 percent, compared to 74.1 percent in the same period last year. This reduction was driven primarily by a 160 basis point negative impact of foreign exchange, as well as higher costs associated with operations in Utah. This reduction was partially offset by a more profitable product mix.
Selling, general and administrative expenses were $222.2 million for the quarter compared to $177.8 million in the prior year. The largest components of the increase were driven by transcatheter valve sales performance, including larger accruals for sales commissions and incentive compensation.
Research and development investments for the quarter were $87.6 million compared to $84.1 million in the prior year period. This increase was primarily the result of additional investments in aortic and mitral valve programs.
Free cash flow for the quarter was a negative $5.9 million, which included a $158.5 million tax payment related to the prior quarter's Medtronic litigation settlement. Free cash flow is defined as cash flow from operating activities of $12.2 million, less capital spending of $18.1 million. Excluding the tax impacts of the second quarter's special items, free cash flow was $139.0 million.
Cash, cash equivalents and short-term investments totaled $1.52 billion at September 30, 2014. Total debt was $596.4 million.
Adjustments to GAAP Results
During the quarter, the company's non-GAAP results reflected an $18.4 million reduction to sales and a $7.6 million reduction to net income, primarily driven by the THV Sales Return Reserve reversal and the write-down of assets related to its Glucose monitoring program. See the attached schedule for additional details.
Nine-Month Results
For the nine months ended September 30, 2014, the company recorded net income of $701.9 million, or $6.49 per diluted share, compared to $314.0 million, or $2.74 per diluted share, for the same period in 2013. Net income growth for the nine months was 123.5 percent and diluted earnings per share increased 136.9 percent over last year, or 6.1 percent excluding special items in both periods.
Net sales for the first nine months of 2014 increased 12.9 percent to $1.7 billion. Sales growth was 12.4 percent on an underlying basis.
U.S. and international segment sales for the first nine months of 2014 were $760.7 million and $944.2 million, respectively.
During the first nine months of 2014, the company repurchased approximately 4.4 million shares of common stock for $300.7 million, substantially all of which was completed in the first quarter.
Outlook
The company now expects full year 2014 total sales to exceed the high end of its previous $2.05 billion to $2.25 billion range. The company also raised its guidance for full year 2014 diluted earnings per share, excluding special items, to a range of $3.33 to $3.39. For the fourth quarter of 2014, the company projects total sales to be between $575 million and $615 million, and diluted earnings per share, excluding special items, to be between $0.89 and $0.95.
"Although competition is intensifying, we believe our new products position us well to drive solid organic sales growth and help clinicians address critical unmet patient needs," said Mussallem. "We are encouraged that new therapies supported by compelling evidence are being adopted even in this challenging healthcare climate."
About Edwards Lifesciences
Edwards Lifesciences is the global leader in the science of heart valves and hemodynamic monitoring. Driven by a passion to help patients, the company partners with clinicians to develop innovative technologies in the areas of structural heart disease and critical care monitoring, enabling them to save and enhance lives. Additional company information can be found at www.edwards.com.
Conference Call and Webcast Information
Edwards Lifesciences will be hosting a conference call today at 2:00 p.m. PT to discuss its third quarter results. To participate in the conference call, dial (877) 407-8037 or (201) 689-8037. For
72 hours following the call, an audio replay can be accessed by dialing (877) 660-6853 or (201) 612-7415 and using conference number 13592286. The call will also be available via live or archived webcast on the "Investor Relations" section of the Edwards web site at ir.edwards.com or www.edwards.com. A live stream and archived replay can also be accessed via mobile devices by downloading Edwards' IR App for iPhone and iPad or Android.
This news release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements can sometimes be identified by the use of words such as "may," "will," "should," "anticipate," "believe," "plan," "project," "estimate," "expect," "intend," "guidance," "outlook," "optimistic," "aspire," "confident" or other forms of these words or similar expressions and include, but are not limited to, statements made by Mr. Mussallem, information in the Outlook section, the company's financial goals, and expectations for new product launches and procedural adoption rates. Forward-looking statements are based on estimates and assumptions made by management of the company and are believed to be reasonable, though they are inherently uncertain and difficult to predict. Our forward-looking statements speak only as of the date on which they are made and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of the statement. If the company does update or correct one or more of these statements, investors and others should not conclude that the company will make additional updates or corrections.
Forward-looking statements involve risks and uncertainties that could cause actual results or experience to differ materially from that expressed or implied by the forward-looking statements. Factors that could cause actual results or experience to differ materially from that expressed or implied by the forward-looking statements include uncertainties associated with the timing and effectiveness of new product launches; unexpected changes in adoption rates and economic drivers for TAVR; competitive dynamics; the timing and extent of regulatory approvals and reimbursement levels for our products; the company's success in developing new products, creating opportunities for its products and avoiding manufacturing and quality issues; the impact of currency exchange rates; the timing or results of pending or future clinical trials; actions by the U.S. Food and Drug Administration and other regulatory agencies; unexpected litigation results or expenses; and other risks detailed in the company's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2013, which are available at edwards.com.
To supplement the consolidated financial results prepared in accordance with Generally Accepted Accounting Principles ("GAAP"), the company uses non-GAAP historical financial measures. The company uses the term "underlying" when referring to non-GAAP sales information, which excludes foreign exchange fluctuations, as well as adjustments for discontinued and acquired products and sales reserves associated with THV product upgrades, and "excluding special items" to also exclude gains and losses from special items such as significant investments, litigation, and business development transactions, and for 2012 to include the tax benefit for the U.S. R&D tax credit, which was required to be recorded in 2013. Those results that exclude the impact of foreign exchange and reflect "constant currency" are also non-GAAP financial measures. Guidance for sales and sales growth rates is provided on an "underlying" basis, and projections for diluted earnings per share are also provided on the same non-GAAP (or "excluding special items") basis due to the inherent difficulty in forecasting such items. Management does not consider the excluded items or adjustments as part of day-to-day business or reflective of the core operational activities of the company as they result from transactions outside the ordinary course of business. Management uses non-GAAP financial measures internally for strategic decision making, forecasting future results and evaluating current performance. By disclosing non-GAAP financial measures, management intends to provide investors with a more meaningful, consistent comparison of the company's core operating results and trends for the periods presented. These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP and reflect an additional way of viewing aspects of the company's operations that, when viewed with its GAAP results, provide a more complete understanding of factors and trends affecting the company's business. These non-GAAP measures should be considered as a supplement to, and not as a substitute for, or superior to, the corresponding measures calculated in accordance with generally accepted accounting principles. Non-GAAP financial measures are not prepared in accordance with GAAP; therefore, the information is not necessarily comparable to other companies. A reconciliation of non-GAAP historical financial measures to the most comparable GAAP measure is provided in the tables below. The company is not able to provide a reconciliation of projected net income and projected earnings per share guidance, excluding special items, to expected reported results due to the unknown effect, timing and potential significance of special charges or gains, and management's inability to forecast charges associated with future transactions and initiatives.
Edwards, Edwards Lifesciences, the stylized E logo, SAPIEN, SAPIEN XT, and SAPIEN 3 are trademarks of Edwards Lifesciences Corporation.
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