Edwards(EW) - 2024 Q3 - Quarterly Report

Part I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Unaudited Q3 2024 financial statements reflect financial position, operations, and cash flows, impacted by Critical Care business sale and strategic acquisitions Consolidated Condensed Balance Sheets As of September 30, 2024, total assets increased to $13.0 billion, driven by a rise in cash to $3.7 billion from the Critical Care business sale Consolidated Condensed Balance Sheet Highlights (in millions) | Account | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $3,676.4 | $1,132.3 | | Total current assets | $6,727.7 | $4,035.7 | | Goodwill | $1,605.3 | $1,145.1 | | Total assets | $12,971.2 | $9,363.2 | | Liabilities & Equity | | | | Total current liabilities | $1,944.1 | $1,195.4 | | Total liabilities | $3,359.8 | $2,643.8 | | Retained earnings | $12,781.4 | $8,992.4 | | Total stockholders' equity | $9,611.4 | $6,719.4 | Consolidated Condensed Statements of Operations Q3 2024 net sales from continuing operations grew to $1.35 billion, with net income exceptionally high at $3.07 billion due to $2.71 billion from discontinued operations Q3 2024 vs Q3 2023 Performance (in millions, except EPS) | Metric | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Net sales | $1,354.4 | $1,243.4 | | Gross profit | $1,091.5 | $992.8 | | Operating income, net | $350.6 | $365.9 | | Net income from continuing operations | $362.1 | $334.9 | | Income from discontinued operations, net of tax | $2,707.3 | $48.8 | | Net income attributable to Edwards | $3,070.8 | $384.9 | | Diluted EPS | $5.13 | $0.63 | Nine Months 2024 vs 2023 Performance (in millions, except EPS) | Metric | Nine Months 2024 | Nine Months 2023 | | :--- | :--- | :--- | | Net sales | $4,053.7 | $3,743.6 | | Gross profit | $3,228.4 | $3,016.2 | | Operating income, net | $1,066.1 | $962.1 | | Net income from continuing operations | $1,051.0 | $886.9 | | Income from discontinued operations, net of tax | $2,734.4 | $142.8 | | Net income attributable to Edwards | $3,789.0 | $1,032.5 | | Diluted EPS | $6.29 | $1.69 | Consolidated Condensed Statements of Cash Flows Nine months ended September 30, 2024, net cash from operating activities was $669.8 million, with investing activities providing $2.89 billion from a business sale, and financing activities using $1.01 billion Cash Flow Summary - Nine Months Ended Sep 30 (in millions) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $669.8 | $759.2 | | Net cash provided by investing activities | $2,889.6 | $159.7 | | Net cash used in financing activities | ($1,011.6) | ($297.8) | | Net increase in cash | $2,535.4 | $641.3 | - The primary driver of investing cash flow was the $3.93 billion received from the sale of a business, while financing activities were dominated by $1.06 billion in treasury stock purchases[15] Notes to Consolidated Condensed Financial Statements Notes detail significant accounting policies and events, including the $4.2 billion Critical Care business sale, strategic acquisitions, ongoing litigation, a major tax dispute, and strong segment performance - The historical results of the Critical Care product group have been reclassified to discontinued operations for all periods presented following its sale on September 3, 2024[23] - On September 3, 2024, the Critical Care business was sold for $4.2 billion, resulting in a pre-tax gain of $3.3 billion, which is included in Income from Discontinued Operations[45] - The company acquired Endotronix, Inc. on August 19, 2024, for a total purchase price of $800.0 million, and JC Medical, Inc. on July 22, 2024, for $116.3 million plus potential milestone payments[67][70][73] - The company is contesting a Notice of Deficiency from the IRS for the 2015-2017 tax years seeking an additional $269.3 million in tax related to transfer pricing. The company has made deposits totaling $380 million to mitigate interest but has not accrued additional amounts, believing its position is appropriate[129][130] - In October 2024, subsequent to the quarter's end, the company acquired Innovalve Bio Medical Limited for an aggregate cash purchase price of $300.0 million[140] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strategic shift to structural heart disease following $4.2 billion Critical Care business sale, with YTD net sales up 8.3% to $4.1 billion, bolstered liquidity, and ongoing tax disputes - The sale of the Critical Care business for $4.2 billion enables a sharpened focus on TAVR, TMTT, Surgical, and new investments in interventional heart failure technologies[144] YTD 2024 vs YTD 2023 Net Sales by Product Group (in millions) | Product Group | YTD 2024 | YTD 2023 | % Change | | :--- | :--- | :--- | :--- | | Transcatheter Aortic Valve Replacement | $3,069.8 | $2,900.4 | 5.8% | | Transcatheter Mitral and Tricuspid Therapies | $247.0 | $141.6 | 74.4% | | Surgical Structural Heart | $736.9 | $701.6 | 5.0% | | Total net sales | $4,053.7 | $3,743.6 | 8.3% | - Liquidity is strong, with $4.1 billion in cash and cash equivalents held in the U.S. as of September 30, 2024. The company repurchased 15.0 million shares for $1.2 billion YTD and has $1.4 billion remaining under its repurchase authorization[182][184] Quantitative and Qualitative Disclosures About Market Risk No material changes to primary market risks, including interest rate, foreign currency, and credit risk, but highlights investment risk from $944.7 million in debt securities and $144.6 million in equity instruments - There have been no material changes to the company's exposure to interest rate risk, foreign currency risk, or credit risk since the year-end 2023 report[193] - The company is exposed to investment risk from its portfolio, which includes $944.7 million in debt securities and $144.6 million in equity investments as of September 30, 2024[194] Controls and Procedures Management concluded disclosure controls and procedures were effective as of September 30, 2024, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of September 30, 2024, the company's disclosure controls and procedures are effective at a reasonable assurance level[195] - No changes occurred in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[196] Part II. OTHER INFORMATION Legal Proceedings Company involved in several legal matters, including a new securities class action lawsuit, ongoing patent infringement claims, and a European Commission investigation into business practices - A new putative securities class action complaint was filed against the company and certain executives on October 14, 2024, alleging violations of securities laws[112] - The company is being investigated by the European Commission regarding certain business practices, including its anti-copycat policy and patent practices[111] - In September 2024, the SEC informed the company it is not recommending an enforcement action related to a previously disclosed internal investigation into potential FCPA violations[109] Risk Factors No material changes to risk factors previously disclosed in its 2023 Annual Report on Form 10-K and its Q2 2024 Quarterly Report on Form 10-Q - No material changes to the company's risk factors have occurred since the last quarterly filing[199] Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2024, company repurchased approximately 13.3 million shares for about $900 million, augmented by a $1.5 billion authorization and a $500 million ASR Issuer Purchases of Equity Securities (Q3 2024) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jul 2024 | 444,999 | $62.91 | | Aug 2024 | 6,741,892 | $66.81 | | Sep 2024 | 6,108,421 | $68.99 | | Total | 13,295,312 | $67.68 | - In August 2024, the Board of Directors approved an additional $1.5 billion for the stock repurchase program. In the same month, the company entered into a $500.0 million accelerated share repurchase (ASR) agreement[200] Other Information During Q3 2024, CFO Scott B. Ullem adopted a Rule 10b5-1 trading plan for 56,250 shares, while CEO Bernard J. Zovighian terminated his 10b5-1 plan - On August 19, 2024, CFO Scott B. Ullem adopted a Rule 10b5-1 trading plan for the potential sale of 56,250 shares[201] - On September 23, 2024, CEO Bernard J. Zovighian terminated his Rule 10b5-1 trading plan[202] Exhibits Exhibits filed with Form 10-Q include corporate documents, CEO and CFO certifications, and XBRL data files for interactive data submission - Exhibits filed include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[204]