On April 23, 2020 Edwards Lifesciences Corporation (NYSE: EW), the global leader in patient-focused innovations for structural heart disease and critical care monitoring, reported financial results for the quarter ended March 31, 2020 (Press release, Edwards Lifesciences, APR 23, 2020, View Source [SID1234556558]).

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First Quarter Results and Outlook

Sales grew nearly 14% to $1.1 billion
TAVR sales grew 24%; underlying1 sales grew 25%
EPS was $1.47; adjusted1 EPS grew 14% to $1.51
Sales were significantly impacted by the effects of COVID-19 the last few weeks of Q1
2020 sales and EPS guidance substantially reduced as a result of COVID-19
"I want to recognize the extraordinary actions that our 14,000 employees around the world have taken to overcome the unique challenges associated with COVID-19," said Michael A. Mussallem, chairman and CEO. "On behalf of everyone at Edwards, I want to express our deep gratitude to our clinician partners and the global healthcare community for their tireless dedication to serving patients during this challenging time. We appreciate their strong leadership and brave commitment to patient care, and we are dedicated to supporting them as they address this global health crisis."

First Quarter 2020 Results

Sales for the quarter ended March 31, 2020 were $1.1 billion, up 14% over the prior year on both a reported and underlying basis. Diluted earnings per share for the quarter were $1.47, while adjusted earnings per share grew 14%, to $1.51.

Transcatheter Aortic Valve Replacement (TAVR)

For the quarter, the company reported global TAVR sales of $742 million, an increase of approximately 24% over the first quarter last year, or 25% on an underlying basis. Global TAVR sales growth through early March was consistent with the company’s fourth quarter global growth rate. This was dramatically impacted in the last few weeks of the quarter as procedures decreased as a result of COVID-19 disruptions. Globally, average selling prices were stable.

Transcatheter Mitral and Tricuspid Therapies (TMTT)

First quarter TMTT sales were $10 million. From a commercial standpoint, the company experienced strong momentum with accelerated adoption of the PASCAL mitral valve system in Europe. TMTT sales were tracking to expectations until the last few weeks of the quarter, when sales declined abruptly due to the impact of COVID-19.

Edwards remains focused on transforming care for patients with mitral and tricuspid valvular disease by developing a portfolio of innovative therapies supported by a growing body of clinical evidence. The company continues to gain experience and make meaningful progress across its portfolio and investors can expect to hear informative updates regarding the PASCAL system, Cardioband and EVOQUE tricuspid replacement valve system at the upcoming EuroPCR medical meeting.

Surgical Structural Heart and Critical Care

Surgical Structural Heart sales for the quarter were $193 million, down 10% compared to the first quarter of 2019, and down 9% on an underlying basis. As expected, driven by the rapid adoption of TAVR, the U.S. surgical aortic valve procedure headwinds experienced in the fourth quarter persisted into the first quarter. This was partially offset by the continued adoption of the company’s premium INSPIRIS surgical aortic valve. During the last few weeks of March, there was a sharp deceleration in procedures related to COVID-19.

Critical Care sales were $183 million for the quarter, representing an increase of 4% versus the first quarter of 2019, or 1% on an underlying basis. This performance was lifted by strong demand for the company’s disposable pressure monitoring devices used in intensive care units as a result of the COVID-19 pandemic.

Additional Financial Results

For the quarter, the company’s adjusted gross margin was 76.7%, consistent with the prior year quarter. This year’s rate benefitted from a favorable product mix, offset by lower FX hedge gains and spending in support of the new European Medical Device regulations.

Selling, general and administrative expenses increased 10% to $308 million for the quarter, driven by additions that Edwards has made in field clinical personnel to support TAVR cases in the U.S. and TMTT in Europe.

Research and development for the first quarter increased 9% to $187 million, or 16.6% of sales. This increase was primarily the result of continued investments in the company’s transcatheter mitral and tricuspid therapies.

Free cash flow for the first quarter was $125 million, defined as cash flow from operating activities of $207 million, less capital spending of $82 million.

Cash, cash equivalents and short-term investments totaled $1.0 billion at March 31, 2020. Total debt was $595 million. The company purchased 3 million shares for $615 million during the first quarter.

Outlook

As it is difficult to accurately predict the progression of COVID-19 and the extent of the disruption to hospital procedures utilizing the Edwards therapies, there is a wide range of potential outcomes for sales and earnings for 2020. The company assumes the impact of COVID-19 on sales will be most severe in the second quarter, followed by a gradual recovery in the third quarter, and a fourth quarter that better resembles its original expectations for sales.

Overall, 2020 sales guidance for Edwards is now expected to be $4.0 to $4.5 billion versus the company’s previous range of $4.6 to $5.0 billion. Additionally, the company now expects full year 2020 adjusted earnings per share of $4.75 to $5.25 versus previous guidance of $6.15 to $6.40. For the second quarter of 2020, the company projects total sales to be between $700 and $900 million.

"This is a very difficult time for structural heart patients as they weigh the risk of COVID-19 versus the severe effects of progressive heart valve disease. We will continue to actively engage with healthcare providers as they confront extraordinary disruptions in 2020. There are still many patients in need and we remain confident in our long-term patient-focused strategy and innovation pipeline," said Mussallem.