Edwards Lifesciences announces third quarter 2009 results

Edwards Lifesciences Corporation (NYSE: EW), a world leader in products and technologies to treat advanced cardiovascular disease, today reported net income for the quarter ended September 30, 2009 of $73.5 million, or $1.25 per diluted share, compared to net income of $32.9 million, or $0.56 per diluted share, for the same period in 2008. Excluding special items detailed in the reconciliation table below, third quarter 2009 net income was $41.8 million, or $0.71 per diluted share. Third quarter diluted earnings per share increased 123.2 percent over last year. Excluding special items, diluted earnings per share grew 26.8 percent.

Third quarter net sales increased 7.3 percent to $325.7 million. Underlying sales growth was 13.1 percent, which excludes a $3.4 million negative impact from foreign exchange and an $11.9 million reduction from divested products.

"We are pleased to report strong third quarter sales and earnings growth, led by Heart Valve Therapy," said Michael A. Mussallem, Edwards Lifesciences' chairman and CEO. "In addition, Critical Care sales growth stepped up during the quarter."

"This quarter's results were also highlighted by strong international transcatheter valve sales growth and the recent approval of 2010 reimbursement in Germany. We also continued to make steady progress on U.S. approval and next generation systems."

Sales Results

For the third quarter, the company reported Heart Valve Therapy sales of $174.1 million. Excluding the impact of $2.1 million from foreign exchange, underlying growth of 19.2 percent over prior year was driven by new products.

"In the U.S., surgical heart valve sales increased to double-digit growth, driven by our new Magna valves. Additionally, transcatheter heart valve sales doubled in the quarter to $26.4 million and we now expect 2009 sales of approximately $110 million," said Mussallem.

Critical Care sales were $114.2 million for the quarter. Underlying growth of 8.4 percent over prior year excludes a $0.5 million reduction from foreign exchange, as well as the impact of the divested hemofiltration product line.

"Underlying growth increased substantially from a first half rate of 2.0 percent, driven by strong sales from our FloTrac and pressure monitoring products," said Mussallem.

Cardiac Surgery Systems sales for the quarter were $22.3 million. Excluding foreign exchange, underlying growth was 6.2 percent over prior year due to strong international sales, partially offset by a voluntary product recall.

Vascular sales were $15.1 million, a decline from $23.5 million in the same quarter last year due primarily to the divestiture of the LifeStent product line.

Domestic and international sales for the third quarter were $137.0 million and $188.7 million, respectively.

Additional Operating Results

For the quarter, Edwards' gross profit margin was 69.8 percent compared to 65.4 percent in the same period last year. This improvement was due primarily to product mix and, to a lesser extent, the favorable impact of foreign exchange.

Selling, general and administrative expenses were $126.1 million for the quarter, or 38.7 percent of sales, compared to $119.3 million in the prior year. The increase was driven by higher sales and marketing expenses, primarily for the Edwards SAPIEN transcatheter heart valve program in Europe, partially offset by foreign exchange.

Research and development expenses (R&D) for the quarter were $44.7 million, or 13.7 percent of sales. As a result of additional spending on transcatheter heart valve technology and glucose monitoring, R&D investments increased 27.4 percent compared to prior year.

During the quarter, Edwards recorded a number of special items that resulted in a net $38.2 million pre-tax gain. The main components were a $43.6 million gain associated with the sale of the company's hemofiltration product line, a $15.0 million gain from the achievement of the final LifeStent milestone, and a $15.0 million charge for a charitable contribution to The Edwards Lifesciences Fund. All of the components of the net special gain are detailed in the reconciliation table below.

Free cash flow for the quarter was $74.4 million, calculated as cash from operating activities of $71.5 million, minus capital expenditures of $12.1 million, plus $15.0 million related to the charitable fund contribution.

Total debt at September 30, 2009 was $102.3 million. Cash and cash equivalents were $287.6 million at the end of the quarter, resulting in net cash of $185.3 million.

During the quarter, the company repurchased 385,000 shares of common stock for $25.1 million.

Nine-Month Results

For the nine months ended September 30, 2009, the company recorded net income of $181.5 million, or $3.10 per diluted share, compared to $90.8 million, or $1.54 per diluted share for 2008. Excluding special items detailed in the reconciliation table below, net income for the first nine months in 2009 was $129.2 million, or $2.20 per diluted share, compared to $105.1 million, or $1.78 per diluted share, for the same period last year. For the nine months ended September 30, 2009, diluted earnings per share increased 101.3 percent over last year. Excluding special items, diluted earnings per share grew 23.6 percent.

Net sales for the first nine months of 2009 increased 5.0 percent to $974.7 million. Underlying sales growth was 11.4 percent, which excludes a $31.8 million negative impact from foreign exchange and $20.2 million reduction from discontinued products.

Domestic and international sales for the nine months were $415.4 million and $559.3 million, respectively.

During the first nine months, the company repurchased 1.3 million shares of common stock for $79.6 million.

2009 Outlook

"Based on strong year-to-date results, we are increasing our full year sales guidance to between $1.305 and $1.325 billion for 2009 and we continue to expect to meet or exceed all of our previously stated financial goals," said Mussallem.

"Excluding special items, we estimate that fourth quarter 2009 diluted earnings per share will be between $0.82 and $0.86. For full year 2009, excluding special items, we are increasing the mid-point of our guidance for diluted earnings per share and our new range is $3.02 to $3.06, representing an annual growth rate of 18 to 20 percent."