Edwards Lifesciences Corporation — Q1 2022 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2022, compared with Q1 2021. Edwards develops and sells therapies and monitoring products for structural heart disease and critical care.
Financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $1,341.2 million | $1,216.6 million | +10.2% |
| Gross profit / margin | $1,041.9 million / 77.7% | $923.2 million / 75.9% | Margin +1.8 percentage points |
| Operating income / margin | $438.8 million / 32.7% | $383.5 million / 31.5% | +14.4% |
| Net income | $373.6 million | $338.2 million | +10.5% |
| Diluted EPS | $0.59 | $0.54 | +9.3% |
| Operating cash flow | $293.3 million | $300.5 million | -$7.2 million |
| Capital expenditures | $72.7 million | $106.0 million | -$33.3 million |
Operating cash flow less capital expenditures was $220.6 million, versus $194.5 million in Q1 2021. Cash and cash equivalents were $1,030.9 million and short-term investments were $465.0 million at quarter-end. Long-term debt carrying value was $595.9 million; the $750 million revolving credit facility had no borrowings outstanding. Current assets were $3,241.3 million versus current liabilities of $949.9 million.
Business trends and material changes
- TAVR sales rose 11.3% to $881.3 million, primarily on higher SAPIEN platform sales, including SAPIEN 3 Ultra. TMTT sales increased 65.7% to $27.0 million, primarily from PASCAL adoption in Europe.
- Surgical Structural Heart sales increased 3.7% to $220.8 million; Critical Care sales rose 8.4% to $212.1 million. U.S. sales grew 11.1%; sales outside the U.S. increased 9.2% as reported.
- Foreign exchange reduced TAVR sales outside the U.S. by $16.3 million; management cited currency as a headwind in Surgical and Critical Care as well. Gross margin benefited from currency movements, which management said increased margin by 2.4 percentage points.
- SG&A and R&D expenses increased to $370.3 million and $228.6 million, respectively, reflecting commercial and field personnel costs, clinical activity, and investment in transcatheter innovation. R&D was 17.0% of sales.
Outlook, risks, and unusual items
- The filing provides no numerical full-year guidance in the supplied text. Management said January 2022 Omicron-related hospital capacity constraints particularly affected U.S. procedure volumes. The company continued monitoring pandemic, workforce, supply, logistics, and customer impacts; the duration and financial effects remain uncertain.
- Management said liquidity sources were sufficient for working capital, capital expenditures, and other commitments. The credit agreement matures April 28, 2023; the company reported covenant compliance.
- The IRS proposed an adjustment for 2015–2017 transfer-pricing matters that could result in approximately $180 million of additional tax expense. Edwards contests the proposal, has not accrued an additional amount based on it, and cannot estimate the outcome or timing; unresolved Surgical/TAVR royalty matters may also be significant.
- The company is investigating possible FCPA compliance issues in Japan and other markets in cooperation with the SEC and DOJ; outcome and financial impact are not predictable. A patent infringement suit concerning SAPIEN 3 Ultra has no accrual because exposure could not be estimated.
- Edwards repurchased 3.6 million shares for approximately $405.2 million during the quarter; $721.2 million of repurchase authority remained. Existing litigation settlement accruals included $181.3 million for the Abbott settlement.
- Unrealized losses on available-for-sale investments were attributed largely to interest-rate changes and considered temporary by the company. The effective tax rate increased to 14.3% from 13.1%, primarily reflecting U.S. foreign tax credit regulations.
Key facts for investors to verify
- Whether procedure volumes recovered after the Omicron-related disruption and whether growth in TAVR and TMTT persisted.
- Future effects of foreign exchange on reported sales, costs, and margins.
- Developments in the IRS transfer-pricing dispute, potential tax exposure, and related uncertain tax positions.
- Updates on the FCPA investigation and SAPIEN 3 Ultra patent litigation.
- Cash generation, investment portfolio valuation, debt and credit-facility maturity, and the pace of share repurchases.