Edwards Lifesciences Corporation (NYSE: EW), the global leader in the science of heart valves and hemodynamic monitoring, today reported net income for the quarter ended December 31, 2014 of $109.2 million, or $1.00 per diluted share, and non-GAAP net income of $116.5 million, or $1.06 per diluted share. Net income for the same period a year earlier was $75.1 million, or $0.68 per diluted share, and non-GAAP net income was $105.0 million, or $0.95 per diluted share.
Net sales for the quarter ended December 31, 2014 increased 15 percent to $618.0 million compared to the same period last year. Underlying sales grew 16 percent to $614.2 million. U.S. and international segment sales for the fourth quarter were $286.6 million and $331.4 million, respectively.
"In 2014, we were pleased to introduce several innovative products that helped us maintain our strong global leadership position. We are particularly gratified to see the meaningful impact that our dedicated employees have in helping so many patients around the world," said Michael A. Mussallem, chairman and CEO. "For the quarter, we experienced robust growth across all regions, which was again led by transcatheter heart valves sales that exceeded our expectations, most notably in Europe."
Sales Results
For the fourth quarter, the company reported Transcatheter Heart Valve Therapy sales (THV) of $267.5 million, a 46 percent growth rate over the fourth quarter last year. On an underlying basis, THV sales grew 38 percent. These results were driven by strong sales of the company's innovative SAPIEN 3 valve in Europe and SAPIEN XT valve in the U.S. Globally, average selling prices remained stable.
In the U.S., THV sales for the quarter, including royalties, were $129.5 million. On an underlying basis sales grew 36 percent to $126.4 million.
"Outside the U.S., THV sales grew 41 percent on an underlying basis during the quarter, once again driven by strong procedure growth across most countries in Europe," said Mussallem. "While we expect this procedure growth rate to slow and competition to build, we continue to believe there are large numbers of untreated patients who can benefit from transcatheter aortic valve replacement therapy."
Surgical Heart Valve Therapy product group sales for the quarter were $206.1 million. Reported sales were comparable to the fourth quarter last year, and on an underlying basis increased 3.2 percent. Heart valve unit gains across most geographies drove the majority of this quarter's growth, partially offset by the expected reduction of Cardiac Surgery Systems product sales.
Critical Care product group sales were $144.4 million for the quarter, which were comparable to the fourth quarter last year, and on an underlying basis grew 4.3 percent. Growth was solid in the U.S., and sales outside the U.S. were aided by a favorable comparison as inventory levels stabilized in China. Enhanced Surgical Recovery product sales, including FloTrac and ClearSight, grew double-digits.
Additional Operating Results
For the quarter, the company's gross profit margin was 74.0 percent, compared to 73.2 percent in the same period last year. This increase was driven primarily by a more profitable product mix and a positive impact from foreign exchange.
Selling, general and administrative expenses were $223.1 million for the quarter compared to $186.6 million in the prior year. The largest drivers of the increase were related to the company's global expansion of transcatheter heart valves, and a larger accrual for incentive compensation.
Research and development investments for the quarter were $84.0 million compared to $78.6 million in the prior year period. This increase was primarily the result of continued investments in the company's aortic and mitral valve programs, partially offset by lower spending on clinical trials this quarter.
Cash flow from operating activities for the fourth quarter was $93.2 million. After capital spending of $34.5 million and excluding the tax impacts of previously reported special items, free cash flow was $107.5 million.
Cash, cash equivalents and short-term investments totaled $1.4 billion at December 31, 2014. Total debt was $598.1 million.
Twelve-Month Results
For the twelve months ended December 31, 2014, the company recorded net income of $811.1 million, or $7.48 per diluted share. Excluding special items, net income was $379.6 million, or $3.50 per diluted share, representing 8.4 percent growth over the prior year.
Net sales for the twelve months of 2014 increased 13.6 percent to $2.3 billion. Sales growth was 13.3 percent on an underlying basis.
U.S. and international segment sales for the twelve months of 2014 were $1.0 billion and $1.3 billion, respectively.
Cash flow from operating activities for the year was approximately $1.0 billion. After capital spending of $82.9 million and excluding the impacts of special items, free cash flow was $444.5 million.
During 2014, the company repurchased approximately 4.4 million shares of common stock for $300.9 million.
Outlook
Based on current foreign exchange rates, the company expects an approximate $160 million negative impact to full year 2015 reported sales compared to the prior year. The corresponding profit impact is mitigated by the company's foreign exchange hedging program. As a result, Edwards expects full year reported sales to be at the lower end of its previously provided $2.3 to $2.5 billion range. Given the momentum in transcatheter heart valve sales, the company is raising its full year 2015 diluted EPS guidance to $4.00 to $4.30, excluding special items.
For the first quarter of 2015, at current foreign exchange rates the company projects total sales to be between $570 million and $610 million, and diluted earnings per share, excluding special items, to be between $1.02 and $1.10.
"Our foundation of leadership and our commitment to transform patient care with innovative therapies remain the source of our strength," said Mussallem. "Edwards is poised for solid growth in 2015, and our exciting product pipeline positions us well for continued longer-term success and greater shareholder value."
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