Edwards(EW) - 2025 Q2 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements (Unaudited) Unaudited financial statements for June 30, 2025, report total assets of $13.49 billion, net sales of $2.94 billion, and net income of $691.2 million, reflecting discontinued operations Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $3,272.8 | $3,045.2 | | Total current assets | $6,577.2 | $6,285.4 | | Total assets | $13,488.7 | $13,055.3 | | Liabilities & Equity | | | | Total current liabilities | $1,404.7 | $1,505.2 | | Total liabilities | $2,882.2 | $2,992.4 | | Total stockholders' equity | $10,606.5 | $10,062.9 | Consolidated Statement of Operations Highlights (in millions, except EPS) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net sales | $2,944.9 | $2,699.3 | | Gross profit | $2,298.9 | $2,136.9 | | Operating income, net | $806.0 | $715.5 | | Net income attributable to Edwards | $691.2 | $718.2 | | Diluted EPS from continuing operations | $1.20 | $1.15 | Consolidated Statement of Cash Flows Highlights (in millions) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $570.6 | $318.0 | | Net cash (used in) provided by investing activities | $(86.8) | $187.9 | | Net cash used in financing activities | $(205.3) | $(34.9) | | Net increase in cash | $231.2 | $510.1 | - The historical results of the Critical Care product group, which was sold on September 3, 2024, and another non-core product group planned for sale, are now reported as discontinued operations, with all related notes primarily referring to continuing operations[30] Note 4. Discontinued Operations The company sold its Critical Care product group to BD, reclassifying it and another planned sale as discontinued operations, resulting in a net loss of $11.6 million for the six months ended June 30, 2025 - The company entered into a definitive agreement on June 3, 2024, to sell its Critical Care product group to BD, with the sale completed on September 3, 2024, and another non-core product group is also planned for sale in 2025[42] - In connection with the sale, Edwards entered into a Transition Services Agreement (TSA) to provide support services to BD for up to 36 months, recording an initial unfavorable contract liability of $115.1 million[45] Income from Discontinued Operations (in millions) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net sales | $33.3 | $531.2 | | Operating (loss) income, net | $(10.6) | $28.3 | | Net (loss) income | $(11.6) | $27.1 | Note 6. Investments in Variable Interest Entities The company is involved with several VIEs, recognizing a $47.1 million impairment loss in June 2025 from not exercising an acquisition option, and continues to fund entities like JenaValve - In June 2025, the company decided not to exercise its option to acquire a medical device company, recognizing a $47.1 million loss on impairment[63] - The company has an agreement to acquire JenaValve Technology, Inc. and has advanced $52.5 million under a promissory note as of June 30, 2025[62] Note 10. Accelerated Share Repurchase The company initiated a $250 million ASR in February 2025, repurchasing 3.5 million shares at an average price of $71.06 per share upon final settlement in July 2025 February 2025 ASR Agreement Summary (in millions, except per share data) | Amount Paid | Initial Shares Received | Final Settlement Date | Total Shares Received | Average Price per Share | | :--- | :--- | :--- | :--- | :--- | | $250.0 | 2.6 | July 2025 | 3.5 | $71.06 | Note 11. Commitments and Contingencies The company faces several significant legal and regulatory matters, including patent infringement, a European Commission investigation, and a securities class action, with unpredictable outcomes - Aortic Innovations LLC filed a patent infringement lawsuit regarding the SAPIEN 3 Ultra product[91] - The European Commission is investigating the company's 'anti-copycat' policy and patent practices[92] - A putative securities class action was filed in October 2024 alleging false or misleading statements regarding business prospects, followed by related shareholder derivative actions[94][95] Note 14. Income Taxes The effective tax rate increased to 16.1% from 8.8% due to Pillar Two global minimum tax and lower share-based compensation benefits, with the company contesting a $269.3 million IRS deficiency notice - The effective tax rate for the six months ended June 30, 2025, increased to 16.1% from 8.8% in the same period of 2024[104] - The company expects the Pillar Two global minimum tax provisions to result in an additional tax expense of approximately $50 million in 2025[106] - The IRS issued a notice of deficiency for the 2015-2017 tax years, seeking an additional $269.3 million in tax related to transfer pricing, which the company plans to contest through the judicial process[112][113] Note 15. Segment Information Total net sales reached $2.94 billion, with TAVR as the largest contributor at $2.18 billion, TMTT showing the highest growth, and the United States being the largest market at $1.73 billion Net Sales by Geographic Segment (in millions) | Region | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | United States | $1,728.6 | $1,588.5 | | Europe | $720.0 | $658.2 | | Japan | $177.1 | $172.5 | | Rest of World | $319.2 | $280.1 | | Total | $2,944.9 | $2,699.3 | Net Sales by Product Group (in millions) | Product Group | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Transcatheter Aortic Valve Replacement | $2,177.5 | $2,046.5 | | Transcatheter Mitral and Tricuspid Therapies | $249.7 | $155.9 | | Surgical Structural Heart | $517.7 | $496.9 | | Total | $2,944.9 | $2,699.3 | Note 16. Subsequent Event The FTC moved to block the proposed JenaValve acquisition on August 6, 2025, citing anticompetitive concerns, though the company intends to continue pursuing the acquisition - The U.S. Federal Trade Commission moved to block the proposed acquisition of JenaValve on August 6, 2025, due to anticompetitive concerns[127] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported 9.1% net sales growth to $2.9 billion, driven by TAVR and TMTT, with operating cash flow increasing to $570.6 million, amidst tax and regulatory challenges Results of Operations Net sales grew 9.1% to $2.9 billion, driven by TAVR and TMTT, with TMTT sales up 60.1% to $249.7 million, while gross margin slightly decreased due to manufacturing expansion costs Net Sales Growth by Product Group (Six Months Ended June 30, 2025 vs 2024) | Product Group | 2025 Sales (M) | 2024 Sales (M) | Change (M) | % Change | | :--- | :--- | :--- | :--- | :--- | | TAVR | $2,177.5 | $2,046.5 | $131.0 | 6.4% | | TMTT | $249.7 | $155.9 | $93.8 | 60.1% | | Surgical Structural Heart | $517.7 | $496.9 | $20.8 | 4.2% | | Total | $2,944.9 | $2,699.3 | $245.6 | 9.1% | - TAVR sales growth was driven by the Edwards SAPIEN 3 Ultra RESILIA valve in the U.S. and Europe, and the company also received FDA approval for the SAPIEN 3 platform for severe aortic stenosis patients without symptoms in April 2025[144][145] - TMTT sales growth was primarily due to higher sales of the PASCAL system and the launch of the EVOQUE tricuspid valve replacement system, and the company received CE Mark for the SAPIEN M3 mitral valve system in April 2025[148][149] Liquidity and Capital Resources As of June 30, 2025, the company held approximately $4.0 billion in cash and investments, with net cash from operations increasing to $570.6 million, and repurchased 3.4 million shares for $306.9 million - Cash, cash equivalents, and short-term investments totaled approximately $4.0 billion as of June 30, 2025[180] - Net cash provided by operating activities increased by $252.6 million to $570.6 million for the first six months of 2025 compared to the same period in 2024[188] - During the first six months of 2025, the company repurchased 3.4 million shares for $306.9 million, and as of June 30, 2025, $1.1 billion remained authorized for future repurchases[183] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk exposures, including interest rate, foreign currency, and credit risk, but highlights investment risk from $881.4 million in debt and $206.5 million in equity instruments - There have been no material changes to the company's primary market risks (interest rate, foreign currency, credit) since the 2024 year-end report[194] - The company is exposed to investment risk from its portfolio, which includes $881.4 million in debt securities and $206.5 million in equity instruments as of June 30, 2025[195] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures are effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of June 30, 2025, the company's disclosure controls and procedures are effective[196] - There were no changes in internal control over financial reporting during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, internal controls[198] Part II. Other Information Item 1. Legal Proceedings This section incorporates by reference the description of legal proceedings detailed in Note 11 of the financial statements - Information regarding legal proceedings is detailed in Part I, Item 1, Note 11 to the Consolidated Condensed Financial Statements[200] Item 1A. Risk Factors No material changes to the company's risk factors have occurred since the filing of the 2024 Annual Report on Form 10-K - No material changes to the company's Risk Factors have occurred since the filing of the 2024 Annual Report on Form 10-K[201] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not purchase common stock under its regular repurchase program, but a $250 million ASR initiated in February 2025 concluded in July 2025, with 0.9 million shares delivered - As of June 30, 2025, the company had $1.1 billion remaining under its stock repurchase program authorized in August 2024[202] - The $250.0 million ASR agreement from February 2025 concluded on July 25, 2025, with the company receiving an additional 0.9 million shares at settlement[203]