Edwards Lifesciences Corporation (NYSE:EW - News), a world leader in products and technologies to treat advanced cardiovascular disease, today reported net income for the quarter ended June 30, 2009 of $47.5 million, or $0.81 per diluted share, compared to net income of $39.7 million, or $0.67 per diluted share, for the same period in 2008. Excluding special items detailed in the reconciliation table below, second quarter 2009 net income was $46.4 million, or $0.79 per diluted share, compared to net income of $39.0 million, or $0.66 per diluted share, for the same period last year. Second quarter diluted earnings per share increased 20.9 percent over last year. Excluding special items, diluted earnings per share grew 19.7 percent.
Second quarter net sales increased 2.4 percent to $335.5 million. Underlying(1) sales growth was 9.8 percent, which primarily excludes an $18.4 million negative impact from foreign exchange and the divestiture of the LifeStent product line.
“Share gains across all regions drove double digit heart valve therapy growth, resulting in strong second quarter results,” said Michael A. Mussallem, Edwards Lifesciences’ chairman and CEO.
“With the continued adoption of our transcatheter heart valves, we remain confident that we will reach more than $100 million in sales outside of the U.S. this year. Additionally, we continue to make progress towards bringing this exciting technology to U.S. patients as we approach completion of our PARTNER trial enrollment.”
Sales Results
For the second quarter, the company reported Heart Valve Therapy sales of $182.1 million. Underlying growth of 16.7 percent over the prior year excluded the impact of $10.2 million from foreign exchange and $4.1 million related to the re-launch of previously retrieved mitral valve repair products.
“Our Heart Valve Therapy sales growth was driven primarily by our Edwards SAPIEN transcatheter valve, which grew to $26.5 million in the quarter. Based on our current performance and foreign exchange rates, we are increasing the midpoint of our prior Heart Valve Therapy sales guidance for 2009 by $25 million to $690 to $710 million,” said Mussallem.
Critical Care sales were $113.0 million for the quarter. Underlying growth of 2.3 percent over prior year excluded a $6.2 million reduction from foreign exchange. Sales of new products achieved strong growth for the quarter, while constraints on hospital capital spending had a continued impact on overall sales growth.
“We expect new product introductions to drive higher Critical Care growth rates in the second half of the year. However, in light of the divestiture of our hemofiltration business, and continued weakness in hardware sales, we are lowering our prior Critical Care sales guidance for 2009 by $20 million to $435 to $455 million,” said Mussallem.
Cardiac Surgery Systems sales for the quarter were $24.1 million. Excluding foreign exchange, underlying growth was 8.5 percent over prior year due primarily to strong sales of minimally invasive surgery products.
Vascular sales were $16.3 million, a decline from $24.9 million in the same quarter last year due primarily to the divestiture of the LifeStent product line.
Domestic and international sales for the second quarter were $143.5 million and $192.0 million, respectively.
Additional Operating Results
For the quarter, Edwards’ gross profit margin was 69.6 percent compared to 65.5 percent in the same period last year. This improvement was due primarily to product mix and the favorable impact of foreign exchange hedge agreements.
Selling, general and administrative expenses were $128.5 million for the quarter, or 38.3 percent of sales, compared to $126.5 million in the prior year. The increase, driven primarily by higher transcatheter heart valve sales and marketing expenses in Europe, was partially offset by foreign exchange.
Research and development expenses (R&D) for the quarter were $42.6 million, or 12.7 percent of sales. As a result of additional spending on the company’s transcatheter heart valve and FloTrac programs, R&D investments increased 20.3 percent compared to the prior year.
During the quarter, Edwards recorded a $1.5 million special charge related to the pending hemofiltration product line divestiture.
Free cash flow for the quarter was $66.1 million, calculated as cash from operating activities of $63.9 million, minus capital expenditures of $17.1 million, plus $19.3 million in tax payments related to the sale of the LifeStent product line.
Total debt at June 30, 2009 was $113.9 million. Cash and cash equivalents were $183.1 million at the end of the quarter, resulting in net cash of $69.2 million.
During the quarter, the company repurchased 445,000 shares of common stock for $27.7 million.
Six-Month Results
For the six months ended June 30, 2009, the company recorded net income of $108.0 million, or $1.85 per diluted share, compared to $57.9 million, or $0.98 per diluted share for 2008. Excluding special items detailed in the reconciliation table below, net income for the first six months in 2009 was $87.4 million, or $1.49 per diluted share, compared to $72.2 million, or $1.22 per diluted share the same period last year. For the six months ended June 30, 2009, diluted earnings per share increased 88.8 percent over last year. Excluding special items, diluted earnings per share grew 22.1 percent.
Net sales for the first six months of 2009 increased 3.9 percent to $649.0 million. Underlying sales growth was 10.6 percent, which primarily excludes a $28.4 million negative impact from foreign exchange.
Domestic and international sales for the six months were $278.4 million and $370.6 million, respectively.
During the first six months, the company repurchased 907,500 shares of common stock for $54.5 million.
2009 Outlook
“Overall, we have had a very successful first six months, and are expecting a strong second half of the year. Our underlying sales growth estimate of 10 to 12 percent for 2009 remains unchanged and we expect to meet or exceed all of our previously stated financial goals,” said Mussallem.
“Excluding special items, we estimate that third quarter 2009 diluted earnings per share will be between $0.66 and $0.70. For full year 2009, we are raising our diluted earnings per share estimate to between $3.00 and $3.06, and we now expect to be at the upper end of our goal to grow diluted earnings per share by 15 to 19 percent.”
About Edwards Lifesciences
Edwards Lifesciences is the global leader in the science of heart valves and hemodynamic monitoring, with more than five decades of experience in partnering with clinicians to develop life-saving innovations. Headquartered in Irvine, Calif., Edwards treats advanced cardiovascular disease with its market-leading heart valve therapies, and critical care and vascular technologies, which are sold in approximately 100 countries. The company’s global brands include Carpentier-Edwards, Cosgrove-Edwards, Edwards SAPIEN, FloTrac, Fogarty, PERIMOUNT Magna and Swan-Ganz. Additional company information can be found at http://www.edwards.com.
Conference Call and Webcast Information
Edwards Lifesciences will be hosting a conference call today at 5:00 p.m. ET to discuss its second 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 account number 2995 and conference number 326352. The call will also be available via live or archived webcast on the “Investor Relations” section of the Edwards web site at www.edwards.com or www.edwards.com/InvestorRelations.
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,” or other similar expressions and include, but are not limited to, the company’s financial goals or expectations for sales, gross profit margin improvement, net income, earnings per share and free cash flow; regulatory approval of new products in, and competitive dynamics associated with, the company’s heart valve therapy product line; the continued adoption and sales of the FloTrac system; the timing and progress of clinical studies relating to the company’s transcatheter valve technologies and the market opportunity for these products; and the impact of foreign exchange and special items on the company’s results. 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.
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 the opportunities for the company’s transcatheter valve programs and the ability of the company to continue to lead in the development of this field; the company’s success in creating new market opportunities for its products and the timing of new product launches; 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; 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, 2008.
To supplement the consolidated financial results prepared in accordance with Generally Accepted Accounting Principles (“GAAP”), the company uses non-GAAP financial measures that exclude certain items, such as special charges and gains, results of discontinued and acquired product lines, and fluctuations in exchange rates. Management does not consider the excluded items 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. Certain guidance is provided on a non-GAAP (or “underlying”) basis that excludes special items and foreign exchange fluctuations due to the inherent difficulty in forecasting such items. 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. Non-GAAP financial measures are not prepared in accordance with GAAP; therefore, the information is not necessarily comparable to other companies and should be considered as a supplement to, not a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP.
Edwards and Magna Ease are trademarks of Edwards Lifesciences Corporation. Edwards Lifesciences, the stylized E logo, Carpentier-Edwards, Cosgrove-Edwards, Edwards SAPIEN, FloTrac, Fogarty, Magna, PERIMOUNT Magna and Swan-Ganz are trademarks of Edwards Lifesciences Corporation and are registered in the United States Patent and Trademark Office.
