Edwards Lifesciences Corporation — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Financial statements are unaudited. Edwards develops and sells medical technologies for structural heart disease and critical care, including TAVR, transcatheter mitral and tricuspid therapies, surgical structural heart products, and critical care products.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $1,319.0 million | $1,310.2 million | $4,034.1 million | $3,902.8 million |
| Gross profit | $1,065.2 million | $998.5 million | $3,211.6 million | $2,963.4 million |
| Gross margin | 80.8% | 76.2% | 79.6% | 75.9% |
| Operating income | $402.4 million | $390.3 million | $1,300.7 million | $1,315.9 million |
| Net income | $343.5 million | $340.1 million | $1,123.5 million | $1,167.8 million |
| Diluted EPS | $0.55 | $0.54 | $1.79 | $1.85 |
| Cash from operations | — | — | $935.4 million | $1,358.5 million |
Q3 sales increased 0.7% year over year; nine-month sales rose 3.4%. Reported sales growth was affected by foreign-exchange headwinds. Nine-month operating income declined despite higher sales, reflecting increased corporate expenses and a $66.8 million special charge; the 2021 period also benefited from a larger contingent-consideration gain. Management attributed the higher gross margin mainly to foreign-currency hedging effects.
Sales mix and business trends
- Q3 TAVR sales were $862.3 million, up 0.5%; nine-month sales were $2,650.5 million, up 3.9%.
- Q3 transcatheter mitral and tricuspid therapies sales were $29.7 million, up 34.2%; nine-month sales were $84.6 million, up 39.5%, primarily reflecting adoption of PASCAL in Europe.
- Q3 surgical structural heart sales were $219.7 million, up 1.1%; critical care sales were $207.3 million, down 2.6%.
- For the nine months, U.S. sales grew 5.1%, while Japan sales declined 7.1%. Q3 sales outside the U.S. fell 4.4%, with currency and Japan hospital-capacity pressures among the factors cited.
Liquidity, debt and capital allocation
- At September 30, 2022, cash and cash equivalents were $1,247.8 million and short-term investments were $490.9 million. Cash, cash equivalents and short-term investments totaled $1,738.7 million.
- Long-term debt was $596.2 million, primarily the carrying value of $600 million of 4.3% senior notes due 2028. A new $750 million revolving credit facility matures in 2027; no amount was drawn, and the company reported covenant compliance.
- Nine-month operating cash flow was $935.4 million, down $423.1 million year over year. Management cited higher bonus payments, inventory builds and tax payments.
- Capital expenditures were $175.7 million. Financing cash outflow was $746.1 million, principally reflecting $861.1 million of treasury-stock purchases. The company repurchased 8.3 million shares for $844.9 million under its authorized program during the nine months and had $1,781.6 million of remaining authorization.
Material changes, outlook and risks
- In September, Edwards discontinued its HARPOON surgical mitral repair program and recorded a $68.4 million charge, primarily for impairment and exit costs. It also recorded an $11.7 million contingent-consideration gain related to the exit.
- Management cited U.S. hospital staffing shortages, COVID-related pressure on hospital capacity in Japan, foreign-exchange headwinds, inflation, rising interest rates and uncertain economic conditions. It described ongoing efforts to manage inventory, logistics and component supply.
- The filing provides no quantified financial guidance in the supplied text. It describes ongoing clinical programs, including EARLY TAVR, PROGRESS, ALLIANCE, ENCIRCLE, MISCEND, TRISCEND II and CLASP IITR, and reports U.S. and European approvals for PASCAL Precision during 2022.
- The IRS proposed an adjustment for 2015–2017 transfer-pricing matters that could result in approximately $200 million of additional tax expense. Edwards disputes the proposal; it was referred to the IRS Independent Office of Appeals. No payment is due unless and until proceedings conclude, and the company recorded no additional accrual based on the proposal.
- Edwards is investigating potential Foreign Corrupt Practices Act issues in Japan and other markets with outside counsel and has notified the SEC and DOJ. It cannot predict the outcome or financial impact.
- A patent-infringement lawsuit concerning SAPIEN 3 Ultra is pending; the company reported no accrual because it could not estimate exposure. The filing also describes an EPA show-cause letter concerning alleged hazardous-waste management violations at its Irvine facility; management currently believes potential monetary sanctions are immaterial.
Important facts for investors to verify
- Whether procedure volumes and hospital staffing improve, particularly in the U.S. and Japan, and how that affects sales.
- How much reported growth and gross-margin improvement depends on currency movements and hedging.
- Execution, adoption and clinical or regulatory progress for TAVR, PASCAL and other pipeline programs following the HARPOON exit.
- Potential developments in the IRS transfer-pricing dispute and FCPA investigation, including any effect on tax expense, cash flows or disclosures.
- Whether operating cash flow recovers as inventory, tax payments and compensation outflows change, alongside continued share repurchases and investment commitments.