Earnings of $0.23 Per Diluted Share (Excluding Charge) Driven by Higher Gross Margin
Weaker Euro Expected to Trim Results for Fourth Quarter and 2001
Irvine, Calif., October 31, 2000 – Edwards Lifesciences Corporation (NYSE: EW) today reported strong earnings growth on slightly lower sales for the third quarter ended September 30, 2000 compared to year ago results. Net income for the quarter, excluding non-recurring items, was $13.8 million, or $0.23 per diluted share, up 130 percent compared to pro forma net income of $6.0 million, or $0.10 per diluted share for the same quarter a year earlier. These results exclude a previously announced $11.7 million pretax charge related primarily to severance costs associated with the recently completed sale of the company’s Bentley cardiopulmonary product line.
Cash earnings for the quarter (net income excluding non-recurring charge, plus goodwill amortization) were $19.5 million, or $0.32 per diluted share, compared to pro forma cash earnings of $14.5 million, or $0.25 per diluted share in the prior year period. Earnings before interest, taxes, depreciation and amortization (EBITDA) excluding non-recurring items were $41.9 million for the quarter.
Commenting on the quarter, Michael A. Mussallem, Edwards’ chairman and CEO said, “We are pleased to report third quarter results that are in line with expectations, represent much stronger year-over-year comparisons than those reported in the first half of the year, and are sequentially higher than our first two quarters. Although the challenging foreign exchange environment negatively impacted our revenues, thisquarter’s results are highlighted by an improved gross margin, strong overhead costcontrol and strong cash flow, which enabled us to reduce our debt. Other notable events this quarter include the receipt of U.S. regulatory approval and September launch of our exciting new Carpentier-Edwards mitral PERIMOUNT pericardial tissue heart valve, and the completion of the Bentley cardiopulmonary transaction.”
Regarding the recently completed sale of the Bentley cardiopulmonary product line, Mussallem added, “A substantial amount of our energy has been devoted to completing this transaction as rapidly and efficiently as possible and I’m proud of how well the transition has progressed. Now that we have addressed this underperforming asset, our future consolidated financial results will more clearly reflect the performance of our higher margin cardiac surgery, vascular and critical care product lines.”
Edwards’ third quarter net sales were $185.8 million, down 4.6 percent from $194.7 million in the same period last year. Excluding the impact of unfavorable foreign exchange and the recently divested Novacor and Bentley product lines, net sales declined 1.4 percent. For the quarter, domestic and international sales were $114.9 million and $70.9 million, respectively. “We are focusing our energies on developing strategies to generate additional sources of revenue growth,” said Mussallem. “I believe Edwards Lifesciences will be able to bring to the market advancements in the fight against cardiovascular disease, and that we are better poised for future growth and success than ever before.”
Product Line Results
Driven primarily by continued double-digit sales growth of pericardial tissue valves and repair products, Cardiac Surgery sales for the quarter were $73.2 million, a 1.1 percent increase over the pro forma $72.4 million recorded last year. Excluding the effect of foreign exchange and recent divestitures, Cardiac Surgery sales increased 4.2 percent. The growth in this product line was partially offset by sales declines in porcine tissue valves and distributed cardiac assist products.
“Our recently approved mitral pericardial tissue heart valve is off to a great start in the U.S. and is performing in line with our expectations,” Mussallem said. “So far, this new product has been well received by clinicians and we remain confident that this valve’s success will help our cardiac surgery product line return to low double-digit sales growth, while it drives the continuing market shift from mechanical heart valves to tissue valves.”
Critical Care sales were $49.2 million for the quarter, a 0.2 percent increase from the pro forma $49.1 million recorded last year. The effect of foreign exchange on Critical Care sales was negligible in the quarter. Results in this product line continue to be generated by strong sales of advanced hemodynamic catheters, and the newer access and hemofiltration product categories, offset by the expected decline in base hemodynamic catheters. Perfusion Products and Services sales for the quarter were $50.7 million, a 9.9 percent decrease from the pro forma $56.2 million recorded last year. Excluding the effect of foreign exchange and recent divestitures, sales in this product line declined 3.5 percent, and continue to be negatively impacted by the growth in “beating heart” coronary artery bypass surgeries.
Vascular sales for the quarter were $12.8 million, an 8.7 percent decrease compared to the pro forma $14.1 million recorded last year. Excluding the effect of foreign exchange, sales in this product line declined 7.3 percent, caused primarily by lower unit sales in surgery-based products resulting from the continued growth of less invasive therapies. The company is continuing to investigate the suspected cause of the wireform fractures in its Lifepath AAA Endovascular Graft System, the discovery of which led to the previously announced voluntary suspension of European sales and U.S. clinical trials. The company has identified fractures in 29 of the grafts implanted in patients. To date, no graft failures or other adverse clinical impacts have been related to the wireform issue. Management remains optimistic that the cause of the fractures can be resolved in the near future so that sales and clinical trials of this important life saving device can be resumed.
Additional Operating Results
The gross profit margin for the quarter was 48.2 percent, up substantially compared to both the pro forma 44.7 percent figure for the same period in 1999, and the 44.1 percent figure reported in the second quarter of 2000. As expected, the gross profit margin was higher due to the elimination of the lower margin Novacor and Bentley product lines, sales of the new mitral pericardial tissue heart valve, and non-recurring items.
Selling, general and administrative costs as a percentage of sales were 25.1 percent for the quarter compared to the pro forma 27.1 percent in the prior year period. This quarter’s improvement resulted from lower spending in now-divested product lines, lower corporate infrastructure spending compared to pro forma levels in the prior year and a positive impact from foreign exchange.
Research and development expenses were $12.9 million or 6.9 percent of sales in the third quarter, an increase from the $12.4 million spent in the prior year quarter.
“Our commitment is to increase R&D spending by 10 percent this year and through nine months we are meeting our goal,” Mussallem said. “We plan to continue making investments to fuel our transformation to a faster-growing company.” During the quarter, the company repaid $29.9 million of debt, which reduced total debt to $498.8 million.
Nine-Month Results
Excluding non-recurring items, Edwards’ pro forma net income for the nine months ended September 30, 2000 was $34.9 million, or $0.59 per diluted share, compared to pro forma net income of $31.9 million, or $0.55 per diluted share for the same period a year ago. EBITDA for the first nine months of 2000 was $128.4 million.
Cash earnings (net income excluding non-recurring items, plus goodwill amortization) for the first nine months this year were $57.8 million, or $0.97 per diluted share, compared to pro forma cash earnings of $57.7 million, or $0.99 per diluted share in the prior year period.
Sales for the first nine months totaled $587.5 million, down 2.4 percent from $602.0 million reported for the same period last year. Domestic sales for the nine months declined 4.0 percent to $364.6 million while international sales grew 0.3 percent to $223.0 million. Excluding the effect of foreign exchange and recent divestitures, sales were 0.3 percent higher than the same period a year ago.
Outlook for Fourth Quarter and 2001
Commenting on the future, Mussallem said, “Even with our modest growth expectations for sales, we will continue to drive robust bottom line growth by improving gross margins, leveraging our global infrastructure and reducing interest expense as we pay down debt with our strong cash flows.”
While still anticipating strong growth in its cardiac surgery product line, the company expects total net sales for the fourth quarter to be only slightly higher than sales reported for the third quarter. “The fourth quarter will be the first full quarter that excludes our recent divestitures and will be negatively impacted by a weaker Euro. Additionally, market trends in our base Vascular and Perfusion businesses continue to pose a challenge. Combined, these factors have caused us to trim our near term expectations,” said Mussallem.
Even with these factors, the company anticipates another strong comparison for fourth quarter net income, which is expected to contribute to a full year 2000 net income growth rate of approximately 20 percent. Assuming stability of foreign currencies at current levels, the company expects to grow net income approximately 20 percent for 2001 while maintaining its commitment to increase investments to stimulate greater revenue growth.
About Edwards Lifesciences
Edwards Lifesciences designs, develops and markets a comprehensive line of products and services to treat late-stage cardiovascular disease.
Headquartered in Irvine, Calif., Edwards serves the cardiac surgery, critical care, vascular systems and perfusion products and services markets, and is the worldwide leader in tissue replacement heart valves and heart valve repair products. With proforma sales of more than $800 million in 1999, the company has a strong international presence in over 80 countries and generates more than 35 percent of its sales outside of the United States. Edwards’ extensive manufacturing operations are located in North America, Europe, Japan (through a contractual joint venture with Baxter International) and Latin America.
Additional information about Edwards Lifesciences can be found at www.edwards.com.
Conference Call and Webcast Information
Edwards Lifesciences will be hosting a conference call today at 12:00 p.m. EST to discuss this press release. The call can be accessed by dialing 847-413-3751 or via live webcast at www.edwards.com. A telephonic replay can be accessed for 72 hours by dialing 630-652-3000 and using passcode 2819229. Additionally, the call will be archived on the company’s website.
This news release includes forward-looking statements that involve risks and uncertainties, including those related to targeted financial and operating objectives for the fourth quarter of 2000 and full year 2001, efforts aimed at achieving cost savings and stimulating sales growth, foreign exchange, and more generally, timing or results of pending or future clinical trials, actions by the U.S. Food and Drug Administration and European Union, technological advances in the medical field, product demand and market acceptance, the effect of changing economic conditions, and other risks detailed in the company's filings with the Securities and Exchange Commission. These forward-looking statements are based on estimates and assumptions made by management of the company and are believed to be reasonable, though are inherently uncertain and difficult to predict. Actual results or experience could differ materially from the forward-looking statements.
Edwards Lifesciences and Edwards are trademarks of Edwards Lifesciences Corporation.
Carpentier-Edwards and PERIMOUNT are trademarks of Edwards Lifesciences Corporation and are registered in the U.S. Patent and Trademark Office.
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Contact Information :
Media, Barry R. Liden, +1-949-250-5070, or Investors, David K. Erickson, +1-949-250-6826, both of Edwards Lifesciences Corporation