Edwards(US:EW)2024-04-29 20:06Part I. FINANCIAL INFORMATION Financial Statements (Unaudited) Edwards Lifesciences reported increased total assets and net sales for Q1 2024, with net income rising, though operating cash flow significantly decreased due to a large tax deposit Consolidated Condensed Balance Sheets Total assets increased to $9.74 billion as of March 31, 2024, while total liabilities slightly decreased, leading to higher stockholders' equity Key Balance Sheet Items (in millions) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total current assets | $4,170.5 | $4,035.7 | | Total assets | $9,736.3 | $9,363.2 | | Total current liabilities | $1,110.8 | $1,195.4 | | Total liabilities | $2,549.9 | $2,643.8 | | Total stockholders' equity | $7,186.4 | $6,719.4 | Consolidated Condensed Statements of Operations Net sales increased by 9.5% to $1.60 billion in Q1 2024, with gross profit growing, but operating income remained flat due to separation costs Q1 2024 vs Q1 2023 Statement of Operations (in millions, except EPS) | Metric | Q1 2024 | Q1 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Net sales | $1,598.2 | $1,459.6 | +9.5% | | Gross profit | $1,212.6 | $1,130.1 | +7.3% | | Operating income, net | $387.5 | $388.4 | -0.2% | | Net income attributable to Edwards | $351.9 | $340.5 | +3.3% | | Diluted EPS | $0.58 | $0.56 | +3.6% | - Operating income was impacted by $41.3 million in separation costs related to the planned spin-off of the Critical Care product group, which were not present in the prior year period15 Consolidated Condensed Statements of Cash Flows Net cash used in operating activities was $53.5 million in Q1 2024, a significant decrease from prior year, mainly due to higher income tax payments Q1 2024 vs Q1 2023 Cash Flows (in millions) | Cash Flow Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(53.5) | $314.1 | | Net cash provided by investing activities | $63.1 | $0.5 | | Net cash provided by (used in) financing activities | $61.7 | $(206.6) | - Cash paid for income taxes increased substantially to $349.2 million in Q1 2024 from $21.7 million in Q1 2023, significantly impacting operating cash flow2140 Notes to Consolidated Condensed Financial Statements Notes detail $41.3 million in spin-off costs, ongoing legal proceedings including an FCPA investigation, and significant income tax disputes with the IRS and Israel Tax Authority - The company incurred $41.3 million in separation costs during Q1 2024 related to the planned spin-off of its Critical Care product group, expected to be completed near the end of 202443 - The company is involved in several legal and regulatory matters, including an internal investigation related to the FCPA, a patent infringement lawsuit from Aortic Innovations LLC, and an investigation by the European Commission into certain business practices818283 - 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, making a $305 million deposit in March 2024 to mitigate interest accrual979899 - In Q1 2024, the company received a tax assessment from the Israel Tax Authority for approximately $110 million related to a claimed 2017 transfer of intellectual property, which the company is vigorously defending101 Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported a 9.5% increase in Q1 2024 net sales to $1.6 billion, driven by TAVR, while gross margin declined due to FX and separation costs, with ongoing tax disputes noted Overview Q1 2024 net sales reached $1.6 billion, up 9.5%, driven by TAVR, with the Critical Care product group spin-off planned for late 2024 - The company is the global leader in medical innovations for structural heart disease and critical care monitoring109 - On December 7, 2023, the company announced its intention to complete a tax-free spin-off of its Critical Care product group near the end of 2024109 Results of Operations Net sales grew 9.5% to $1.6 billion, with TMTT and Critical Care leading product growth, while gross margin declined due to FX and increased operating expenses Net Sales by Region (in millions) | Region | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | United States | $940.7 | $849.1 | 10.8% | | Europe | $367.8 | $331.1 | 11.1% | | Japan | $110.8 | $114.1 | (2.8)% | | Rest of World | $178.9 | $165.3 | 8.2% | | Total | $1,598.2 | $1,459.6 | 9.5% | Net Sales by Product Group (in millions) | Product Group | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Transcatheter Aortic Valve Replacement (TAVR) | $1,007.9 | $947.9 | 6.3% | | Transcatheter Mitral and Tricuspid Therapies (TMTT) | $72.9 | $41.6 | 75.2% | | Surgical Structural Heart | $266.1 | $248.2 | 7.2% | | Critical Care | $251.3 | $221.9 | 13.3% | | Total | $1,598.2 | $1,459.6 | 9.5% | - The decrease in gross profit margin was primarily driven by a 1.6 percentage point negative impact from foreign currency rate fluctuations131 - The company incurred separation costs of $41.3 million during Q1 2024 related to the planned spin-off of the Critical Care product group138 Liquidity and Capital Resources The company maintains strong liquidity with $1.7 billion in cash and investments, but Q1 2024 operating cash flow was negative due to a large tax deposit - As of March 31, 2024, cash, cash equivalents, and short-term investments totaled $1.7 billion, split between $851.4 million in the U.S. and $846.2 million outside the U.S.154 - The company has a $750.0 million multi-currency unsecured revolving credit facility maturing in July 2027, with no amounts outstanding as of March 31, 2024155 - Net cash flow from operations decreased by $367.6 million year-over-year, primarily due to a $305.1 million tax deposit made in 2024 to mitigate interest on potential tax liabilities being contested with the IRS162 Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk exposures were reported, though the company faces investment risk from its $805.8 million debt and $122.8 million equity portfolios - There have been no material changes to the company's exposure to interest rate risk, foreign currency risk, credit risk, and concentrations of risk since the year ended December 31, 2023167 - The company is exposed to investment risk from its portfolio of $805.8 million in debt securities and $122.8 million in equity instruments as of March 31, 2024168 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of March 31, 2024, the company's disclosure controls and procedures are effective at a reasonable assurance level169 - No material changes to the company's internal control over financial reporting occurred during the quarter ended March 31, 2024170 Part II. OTHER INFORMATION Legal Proceedings The company incorporates by reference its legal proceedings from Note 11, including an FCPA investigation, patent litigation, and an EU Commission inquiry - For a description of legal proceedings, the report refers to Note 11 in Part I, Item 1 of the financial statements173 Risk Factors No material changes to the company's risk factors have occurred since the filing of the 2023 Annual Report on Form 10-K - No material changes to the company's risk factors have occurred since the filing of the Annual Report on Form 10-K for the year ended December 31, 2023174 Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase common stock in Q1 2024, with $1.0485 billion remaining available under the authorized repurchase program - The company did not purchase any of its common stock during the first quarter of 2024175 - As of March 31, 2024, the company had remaining authority to purchase $1,048.5 million of its common stock175 Other Information Several executive officers and directors, including the Chairman, CFO, and CEO, entered into Rule 10b5-1 trading plans in Q1 2024 - In February 2024, Chairman Michael A. Mussallem, CFO Scott B. Ullem, and CEO Bernard J. Zovighian each entered into a Rule 10b5-1 trading plan for future sales of company stock176177178