Edwards Lifesciences Reports First Quarter Results

Edwards Lifesciences Reports First Quarter Results 
U.S. THV Launch Drove Strong EPS Growth; Collected Initial $84
Million From THV Patent Litigation; 2013 Guidance Lowered 
IRVINE, CA -- (Marketwired) -- 04/23/13 --  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 March 31, 2013, of $144.9 million compared to net
income for the same period last year of $65.1 million. Earnings per
diluted share for the same periods increased 125.5 percent to $1.24
per diluted share from $0.55. 
During the quarter, the company recorded a special pre-tax gain of
$83.6 million, which was an initial payment from Medtronic related to
ongoing U.S. Andersen patent litigation. As a reminder, this quarter
the company recorded an $8.4 million income tax benefit due to the
retroactive reinstatement of the 2012 Federal R&D tax credit. Both
the litigation gain and the tax credit are excluded from non-GAAP
results. Excluding these items, non-GAAP diluted earnings per share
grew 35.8 percent from prior year to $0.72. 
First quarter net sales increased 8.2 percent to $496.7 million
compared to the same period last year. Sales growth excluding the
impact of foreign exchange was 10.0 percent. 
"The ongoing adoption in the U.S. drove global transcatheter valve
growth of 40 percent," said Michael A. Mussallem, chairman and CEO.
"Our THV clinical results continue to be very positive and we are
making good progress on our pipeline of new products that we believe
will enable us to strengthen our leadership position. Yet, as global
sales this quarter across product lines were below our expectations,
we are lowering our 2013 guidance primarily to reflect a slower start
to the year and an updated foreign exchange impact."  
Sales Results
 For the first quarter of 2013, the company reported
Surgical Heart Valve Therapy product group sales of $198.1 million.
Sales declined 2.7 percent from the first quarter last year, or 0.8
percent excluding the impact of foreign exchange. The company
continues to expect its underlying(1) sales growth rate to improve
throughout 2013, but now projects the full year result to be between
2 and 5 percent. 
Sales of transcatheter heart valves (THV) were $169.7 mil
lion for the
quarter, a 39.7 percent growth rate over the first quarter last year
driven by the ongoing U.S. launch of the SAPIEN valve. Total U.S.
sales were $83.0 million including net stocking orders of $6.0
million and clinical sales of $6.7 million. Outside the U.S., THV
sales grew 7.6 percent.  
"We now expect our 2013 global THV sales to grow 25 to 30 percent on
an underlying basis. This would result in expected sales of $670
million to $750 million, which includes $350 million to $400 million
of sales in the U.S.," Mussallem said. "Our estimate of the size of
the U.S. transcatheter valve opportunity for the longer term remains
unchanged."  
Critical Care product group sales were $128.9 million for the
quarter, representing a decrease from the first quarter last year of
3.9 percent, or 0.2 percent excluding the impact of foreign exchange.
Lower sales this quarter were primarily a result of our decision to
reduce distributor inventories in China. The company now expects the
full year underlying sales growth rate to be between 2 and 4 percent. 
Domestic and international sales for the first quarter were $227.9
million and $268.8 million, respectively.  
Additional Operating Results
 For the quarter, Edwards' gross profit
margin was 75.4 percent, compared to 72.3 percent in the same period
last year. This improvement was driven by a more profitable product
mix, as THV sales continued to grow, and a favorable impact from
foreign exchange.  
Selling, general and administrative expenses were $185.2 million for
the quarter, or 37.3 percent of sales, compared to $177.2 million, or
38.6 percent of sales, in the same period last year. The increase in
expenses was driven primarily by the U.S. Medical Device Excise Tax
and U.S. transcatheter valve expenses. 
Research and development for the quarter grew 16.3 percent to $79.8
million, or 16.1 percent of sales. This increase was primarily the
result of additional investments in a number of active heart valve
clinical studies. 
Free cash flow for the quarter was $64.3 million, defined as cash
flow from operating activities of $87.3 million, less capital
spending of $23.0 million. Excluding the impact of the Medtronic
receipt, free cash flow was $7.0 million. 
Cash, cash equivalents and short term investments were $557.9 million
at the end of the quarter. Total debt at March 31, 2013, was $192.7
million.  
During the quarter, the company repurchased approximately 1.3 million
shares of common stock for $107.7 million. At March 31, 2013, $140.0
million was available for share repurchase under the company's
existing share repurchase authorization. 
Outlook
 "We remain
committed to our high level of investment in our pipeline of new
products for the clinicians we serve and the patients they treat, and
now project R&D to be 16 percent of sales in 2013," said Mussallem.
"We believe this enables us to aggressively develop our innovative
product lines, driving long term growth and extending our leadership
position in structural heart therapies and critical care
technologies. 
"We now expect full year sales of $2.0 billion to $2.1 billion and
earnings per diluted share, excluding special items, of $3.00 to
$3.10. For the second quarter 2013, we project total sales of $500
million to $530 million and diluted earnings per share, excluding
special items, between $0.75 and $0.79."  
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 that enable 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 5:00 p.m. ET to discuss its first
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 411660. The call will also be available
via live or archived webcast on the "Investor Relatio
ns" section of
the Edwards web site at www.edwards.com or ir.edwards.com. An
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 and the Company's financial goals or expectations.
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 extent of regulatory
approvals, expanded indications and reimbursement levels for new
products, particularly our transcatheter heart valves (THV); the
ability of the company to lead in the THV field; the company's
success in developing new products and expanding its markets,
creating new market opportunities for its products and avoiding
manufacturing and quality issues; the impact of competitive products
and currency exchange rates; the timing or results of pending or
future clinical trials and pre-clinical milestones; the rate of
growth in the U.S. THV marketplace, actions by the U.S. Food and Drug
Administration and other regulatory agencies; economic developments
in key markets, such as Europe; unexpected litigation results or
expense; 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, 2012, 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 discontinued and acquired products and
foreign exchange fluctuations, and "excluding special items" or
"adjusted for 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 is required to be recorded
in 2013. Those results that exclude the impact of foreign exchange
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, net income and growth, and free cash
flow are also provided on the same non-GAAP (or "excluding special
items") basis due to the inherent difficulty in forecasting such
items. 2013 guidance also excludes the benefit of the 2012 R&D tax
credit. 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 compar
ison 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 growth, free
cash flow, 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, and SAPIEN are
trademarks of Edwards Lifesciences Corporation. 
(1) "Underl
ying" amounts are non-GAAP items and in this press release
exclude exchange fluctuations. See the reconciliation tables below. 


 
                                                                            
EDWARDS LIFESCIENCES CORPORATION                                            
Unaudited Consolidated Statements of Operations                             
                                                                            
                                                       Three Months Ended   
                                                           March 31,        
                                                   -------------------------
(in millions, except per share data)                   2013         2012    
                                                   ------------ ------------
                                                                            
Net sales                                          $     496.7  $     459.2 
Cost of goods sold                                       122.2        127.3 
                                                   ------------ ------------
                                                                            
Gross profit                                             374.5        331.9 
                                                                            
Selling, general and administrative expenses             185.2        177.2 
Research and development expenses                         79.8         68.6 
Special gain                                             (83.6)           - 
Interest income, net                                      (0.2)           - 
Other expense, net                                         1.2          0.5 
                                                   ------------ ------------
                                                                            
Income before provision for income taxes                 192.1         85.6 
                                                                            
Provision for income taxes                                47.2         20.5 
                                                   ------------ ------------
                                                                            
Net income                                         $     144.9  $      65.1 
                                                   ============ ============
                                                                            
Earnings per share:                                                         
  Basic                                            $      1.27  $      0.57 
  Diluted                                          $      1.24  $      0.55 
                                                                            
Weighted-average common shares outstanding:                                 
  Basic                                                  113.9        114.0 
  Diluted                                                116.5        118.0 
                                                                            
----------------------------------------------------------------------------
Operating Statistics                                                        
As a percentage of net sales:                                               
  Gross profit                                            75.4%        72.3%
  Selling, general and administrative expenses            37.3%        38.6%
  Research and development expenses                       16.1%        14.9%
  Income before provision for income taxes                38.7%        18.6%
  Net income                                              29.2%        14.2%
                                                                            
Effective tax rate                                        24.6%        23.9%
----------------------------------------------------------------------------
                                                                            
Note: Numbers may not calculate due to rounding.                            
                                                                            
                                                                            
                                                                            
EDWARDS LIFESCIENCES CORPORATION                                            
Unaudited Balance Sheets                                                    
(in millions)                                                               
                                                                            
                                                   March 31,    December 31,
                                                      2013          2012    
                                                 ------------- -------------
ASSETS                                                                      
                                                                            
Current assets                                                              
Cash and cash equivalents                        $      401.5  $      310.9 
Short-term investments                                  156.4         210.5 
Accounts and other receivables, net                     329.7         347.5 
Inventories, net                                        288.5         281.0 
Deferred income taxes                                    34.9          43.4 
Prepaid expenses                                         43.2          41.6 
Other current assets                                    106.5          57.0 
                                                 ------------- -------------
  Total current assets                                1,360.7       1,291.9 
                                                                            
Long-term accounts receivable, net                       10.8           9.9 
Property, plant and equipment, net                      385.4         373.3 
Goodwill                                                380.2         384.7 
Other intangible assets, net                             65.5          67.0 
Investments in unconsolidated affiliates                 22.5          21.1 
Deferred income taxes                                    45.9          47.3 
Other assets                                             25.6          26.3 
                                                 ------------- -------------
                                                                            
  Total assets                                   $    2,296.6  $    2,221.5 
                                                 ============= =============
                                                                            
LIABILITIES AND STOCKHOLDERS' EQUITY                                        
                                                                            
Current liabilities                                                         
Accounts payable and accrued liabilities         $      300.4  $      347.4 
                                                 ------------- -------------
                                                                            
Long-term debt                                          192.7         189.3 
                                                 ------------- -------------
Other long-term liabilities                             211.5         205.5 
                                                 ------------- -------------
                                                                            
Stockholders' equity                                                        
Common stock                                            124.7         124.2 
Additional paid-in capital                              587.2         489.0 
Retained earnings                                     1,798.8       1,653.9 
Accumulated other comprehensive loss                    (52.0)        (37.9)
Treasury stock, at cost                                (866.7)       (749.9)
                                                 ------------- -------------
  Total stockholders' equity                          1,592.0       1,479.3 
                                                 ------------- -------------
                                                                            
 Total liabilities and stockholders' equity      $    2,296.6  $    2,221.5 
                                                 ============= =============

 
EDWARDS LIFESCIENCES CORPORATION
 Non-GAAP Financial Information 
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 discontinued and newly acquired products
and foreign exchange fluctuations, and "excluding special items" or
"adjusted for special items" to also exclude gains and losses from
special items such as significant investments, litigation, and
business development transactions.  Guidance for sales and sales
growth rates is provided on an "underlying basis," and projections
for diluted earnings per share, gross profit margin, selling, general
and administrative expenses ("SG&A"), R&D, effective tax rate, net
income and growth 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 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 the Company's 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
GAAP.  
Non-GAAP financial measures are not prepared in accordance with GAAP;
therefore, the information is not necessarily comparable to other
companies. The Company is not able to provide a reconciliation of
projected earnings per share, gross profit margin, SG&A, R&D,
effective tax rate, net income and growth guidance, excluding special
charges, 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. 
The items described below are adjustments to the GAAP financial
results in the reconciliations that follow: 
Special Gain - The Company recorded a special gain in the first
quarter of 2013 related to the following:  


 
1) Litigation award:  $83.6 million gain in the first quarter of 2013       
   related to the April 2010 jury award from Medtronic of damages for       
   infringement of the U.S. Andersen transcatheter heart valve patent.      

 
Given the magnitude and unusual nature of this special gain relative
to the operating results for the periods presented, this item has
been excluded from non-GAAP net income and earnings per share. 
Provision For Income Taxes - During the first quarter of 2013, the
Company recorded an $8.4 million income tax benefit relating to the
federal research and development tax credit that was extended in 2013
retroactive to the beginning of 2012. During the first quarter of
2012, the Company recorded a $2.3 million tax benefit due to the
remeasurement of its uncertain tax positions.  Given the magnitude
and unusual nature of the tax events relative to the periods
presented, non-GAAP net income and earnings per share has been
adjus
ted for these tax events. 
Foreign Exchange - Fluctuation in exchange rates impacts the
comparative results and sales growth rates of the Company's
underlying business. Management believes that excluding the impact of
foreign exchange rate fluctuations from its sales growth provides
investors a more meaningful comparison to historical financial
results. The impact of foreign exchange rate fluctuations has been
detailed in the "Unaudited Reconciliation of Sales by Product Group
and Region." 


 
                                                                            
                                                                            
EDWARDS LIFESCIENCES CORPORATION                                            
Unaudited Reconciliation of GAAP to Non-GAAP Financial Information          
                                                                            
GAAP TO NON-GAAP NET INCOME TABLE                                           
                                                       Three Months Ended   
                                                           March 31,        
                                                   -------------------------
(in millions, except per share data)                   2013         2012    
                                                   ------------ ------------
                                                                            
GAAP Net Income                                    $     144.9  $      65.1 
                                                                            
Reconciling items: (A)                                                      
                                                                            
  Special gain                                                              
  1) Litigation award                                    (83.6)           - 
                                                   ------------ ------------
     Total                                               (83.6)           - 
                                                   ------------ ------------
                                                                            
Provision for income taxes                                                  
     Tax effect on non-GAAP adjustment (B)                31.3            - 
     Federal research and development tax                                   
      credit(A)                                           (8.4)           - 
     Remeasurement of uncertain tax position                                
      reserves(A)                                            -         (2.3)
                                                   ------------ ------------
     Total                                                22.9         (2.3)
                                                                            
                                                   ------------ ------------
Non-GAAP Net Income                                $      84.2 
 $      62.8 
                                                   ============ ============
                                                                            
                                                                            
GAAP TO NON-GAAP DILUTED EARNINGS PER SHARE TABLE                           
                                                                            
GAAP Diluted Earnings Per Share                    $      1.24  $      0.55 
                                                                            
Reconciling items: (A)Copyright                                                 
  
                                                                            
Special gain                                                                
  1) Litigation award                                    (0.45)           - 
                                                   ------------ ------------
     Total                                               (0.45)           - 
                                                   ------------ ------------
                                                                            
Provision for income taxes                                                  
     Federal research and development tax                                   
      credit(A)                                          (0.07)           - 
     Remeasurement of u
ncertain tax position                                
      reserves(A)                                            -        (0.02)
                                                   ------------ ------------
     Total                                               (0.07)       (0.02)
                                                                            
                                                   ------------ ------------
Non-GAAP Diluted Earnings Per Share                $      0.72  $      0.53 
                                                   ============ ============
                                                                            
Note: Numbers may not calculate due to rounding.                            
(A) See description of "Special Gain" and "Provision For Income Taxes" on   
    the Non-GAAP Financial Information page.                                
(B) The tax effect on non-GAAP adjustments is calculated using the relevant 
    tax jurisdictions' statutory tax rates.                                 
(C) All amounts are tax effected, calculated using the relevant tax         
    jurisdictions' statutory tax rates.                                     
                                                                            
                                                                            
                                                                   
         
EDWARDS LIFESCIENCES CORPORATION                                            
Unaudited Reconciliation of GAAP to Non-GAAP Tax Rate                       
                                                                            
GAAP TO NON-GAAP TAX RATE TABLE                                             
                                                          Three Months Ended
                                                            March 31, 2013  
                                                          ------------------
                                                                            
GAAP Tax Rate                                                    24.6%      
                                                                            
Reconciling items: (A)                                                      
                                                                            
  Special gain                                                              
    Litigation award                                           (3.9) pts    
                                                                            
  Provision for income taxes                                                
    Federal research and development tax credit                 1.7 pts     
                                                                            
                                                          ------------------
Non-GAAP Tax Rate                                                22.4%      
                                                          ==================
                                                                            
(A) See description of "Special Gain" and "Provision For Income Taxes" on   
    the Non-GAAP Financial Information page.                                
                                                                            
                                                                            
                                                                            
EDWARDS LIFESCIENCES CORPORATION                                            
Unaudited Reconciliation of Sales by Product Group and Region               
($ in millions)                                                              
                                                                            
                                                       --------------       
                                                        2012 Adjusted       
------------------------------------------------------ ---------------------
                                                                 1Q         
                                                                2012  Under-
                                                 GAAP          Under- lying 
Sales by Product Group     1Q     1Q            Growth    FX   lying  Growth
 (QTD)                    2013   2012   Change  Rate*   Impact  Sales Rate *
------------------------------------------------------ ---------------------
Surgical Heart Valve                                                       %
 Therapy                 $198.1 $203.6 $ (5.5)  (2.7%) $ (3.8) $199.8  (0.8)
Transcatheter Heart                                                         
 Valves                   169.7  121.5   48.2   39.7%     0.6   122.1  39.0%
Critical Care                                                              %
                          128.9  134.1   (5.2)  (3.9%)   (4.9)  129.2  (0.2)
------------------------------------------------------ ---------------------
Total Sales              $496.7 $459.2 $ 37.5    8.2%  $ (8.1) $451.1  10.0%
------------------------------------------------------ ---------------------
                                                                            
                                                                            
------------------------------------------------------                      
                                                 GAAP                       
                           1Q     1Q            Growth                      
Sales by Region (QTD)     2013   2012   Change  Rate*                       
------------------------------------------------------                      
United States            $227.9 $186.6 $ 41.3   22.1%                       
------------------------------------------------------                      
  Europe                  154.5  148.8    5.7    3.8%                       
  Japan                    60.0   70.8  (10.8) (15.3%)                      
  Rest of World            54.3   53.0    1.3    2.5%                       
------------------------------------------------------                      
International             268.8  272.6   (3.8)  (1.4%)                      
------------------------------------------------------                      
Total                    $496.7 $459.2 $ 37.5    8.2%                       
------------------------------------------------------                      
                                                                            
* Numbers may not calculate due to rounding.                                

  
Media Contact:
Sarah Huoh
949-250-5070 
Investor Contact:
David K. Erickson
949-250-6826 
 
 
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