Thoratec® Reports Second Quarter 2015 Results

- Revenue of $128.7 million for the second quarter of 2015

- Worldwide HeartMate pump unit growth of 20%

- GAAP net income per diluted share of $0.24, and non-GAAP net income per diluted share of $0.37

- No financial guidance due to pending transaction

Aug 04, 2015, 16:02 ET from Thoratec Corporation

PLEASANTON, Calif., Aug. 4, 2015 /PRNewswire/ -- Thoratec Corporation (NASDAQ: THOR), a world leader in mechanical circulatory support (MCS) therapies to save, support and restore failing hearts, today reported its financial results for the second quarter and first half of 2015.

"The second quarter continued our trend of improving company and market performance and marked a notable return of revenue growth throughout our business," said D. Keith Grossman, President and Chief Executive Officer.  "We were pleased not only with improved market growth, but also with our competitive position, particularly in the U.S.," he added.

For the quarter ended July 4, 2015, Thoratec reported revenues of $128.7 million, a nine percent increase versus revenues of $118.1 million in the same period a year ago.  Net income on a GAAP basis was $13.2 million, or $0.24 per diluted share, compared to GAAP net income of $17.4 million, or $0.30 per diluted share, in the same period last year.  Non-GAAP net income, which is described later in this press release, was $20.2 million, or $0.37 per diluted share in the second quarter of 2015, compared to non-GAAP net income of $24.4 million, or $0.43 per diluted share, in the second quarter of 2014.

Second quarter revenue growth was driven by the HeartMate franchise, reflecting both an acceleration in worldwide market growth for chronic MCS pumps, which reached approximately 18 percent in terms of pump units sold, along with market share gains in the U.S.  Year-over-year HeartMate pump unit growth of 20 percent worldwide consisted of an 18 percent increase in the U.S. and growth of 27 percent internationally. 

For the first six months of fiscal 2015, revenues were $250.0 million, an increase of three percent over revenues of $243.8 million in the same period a year ago.  Net income on a GAAP basis was $24.0 million, or $0.44 per diluted share, compared with GAAP net income of $35.7 million, or $0.62 per diluted share, in the same period a year ago.  Non-GAAP net income was $41.1 million, or $0.75 per diluted share, compared with non-GAAP net income of $48.1 million, or $0.84 per diluted share, in the same period a year ago.

Second Quarter and First Six Months of 2015 Financial Results

Thoratec reported revenues of $128.7 million in the second quarter of 2015. The HeartMate product line contributed $113.7 million, an increase of 11 percent, while the CentriMag product line contributed $13.4 million, an increase of two percent.  The negative impact of foreign currency movements reduced total revenue by $3.3 million, or three percent, compared with the second quarter of 2014.

For the first half of 2015, Thoratec reported revenues of $250.0 million, an increase of three percent, compared to the same period last year.  The HeartMate product line contributed $218.8 million to revenues, an increase of three percent, while the CentriMag product line contributed $27.2 million, an increase of four percent.  The negative impact of foreign currency movements reduced total revenue by $6.1 million, or three percent, during the first half of 2015 compared with the prior year period. 

GAAP gross margin in the second quarter of 2015 was 69.0 percent compared to 70.9 percent in the same quarter last year.  Non-GAAP gross margin, described later in this press release, was 70.0 percent compared to 72.4 percent in the same quarter last year. The decrease in GAAP and non-GAAP gross margin was due primarily to manufacturing variances and the impact of foreign exchange.

GAAP operating expenses in the second quarter of 2015 were $70.4 million compared to $58.5 million in the same quarter last year.  Non-GAAP operating expenses, described later in this press release, were $61.3 million compared to $50.3 million in the same quarter last year.  The increase in both GAAP and non-GAAP operating expenses was primarily due to higher personnel expenses, as well as legal and clinical trial costs.  In addition, GAAP operating expenses increased in 2015 due to higher stock-based compensation and the re-measurement of contingent consideration, partially offset by lower acquisition-related transaction costs in 2015.  

GAAP other income in the second quarter of 2015 was $0.7 million compared to $0.6 million in the same quarter last year. Non-GAAP other income, described later in this press release, was $0.1 million compared to $0.6 million in the same quarter last year.

The GAAP effective tax rate in the second quarter of 2015 was 30.4 percent versus 32.5 percent a year ago. The non-GAAP tax rate, which is described later in this press release, was 29.9 percent versus 32.0 percent in the same period last year. The decrease in the GAAP and non-GAAP effective tax rate was primarily due to a higher mix of income generated in lower tax jurisdictions.

Cash and investments were $278.2 million as of July 4, 2015, compared to $244.6 million as of April 4, 2015, and $234.7 million as of January 3, 2015.  The company repurchased $4.8 million of stock during the second quarter of 2015.

GUIDANCE

The company is not providing 2015 financial guidance due to the definitive agreement to be acquired by St. Jude Medical.

CONFERENCE CALL/WEBCAST INFORMATION

Thoratec will hold a conference call to discuss its financial results and operating activities for all interested parties at 1:30 p.m., Pacific Daylight Time (4:30 p.m., Eastern Daylight Time), today. The teleconference can be accessed by calling (719) 325-2320, passcode 5828271. Please dial in 10-15 minutes prior to the beginning of the call. The webcast will be available via the Internet at http://www.thoratec.com.  A replay of the conference call will be available through Tuesday, August 11, via http://www.thoratec.com, or by telephone at (719) 457-0820, passcode 5828271.

GAAP TO NON-GAAP RECONCILIATION

Thoratec management evaluates and makes operating decisions using various measures. These measures are generally based on revenues generated by the company's products and certain costs of producing those revenues, such as costs of product sales, research and development and selling, general and administrative expenses. We use the following measures, which are not calculated in accordance with Generally Accepted Accounting Principles ("GAAP"): non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP other income, non-GAAP tax rate and expense, non-GAAP net income, and non-GAAP net income per diluted share. These are non-GAAP financial measures under Section 101 of Regulation G under the Securities Exchange Act of 1934, as amended. These non-GAAP financial measures are calculated by excluding certain GAAP financial items that we believe have less significance to the day-to-day operation of our business.  The company has outlined below the type and scope of these exclusions and the limitations on the use of the non-GAAP financial measures as a result of these exclusions.

Management uses these non-GAAP financial measures for financial and operational decision making, including in the determination of employee annual cash incentive compensation, as a means to evaluate period-to-period comparisons, as well as comparisons to our competitors' operating results.  Management also uses this information internally for forecasting and budgeting, as it believes that the measures are indicative of Thoratec's core operating results.  Management also believes that non-GAAP financial measures provide useful supplemental information to management and investors regarding the performance of the company's business operations, provide a greater transparency with respect to key metrics used by management in its decision making, facilitate comparisons of results for current periods and guidance for future periods with our historical operating results, and assist in analyzing future trends.

Non-GAAP net income consists of GAAP net income, excluding, as applicable, the tax-effected impact of share-based compensation expense, the impairment and amortization of purchased intangible assets, acquisition-related contingent consideration adjustments including foreign currency re-measurement, and acquisition-related transaction costs.

Non-GAAP net income per diluted share is defined as non-GAAP net income divided by the weighted average number of shares on a fully-diluted basis. 

Non-GAAP gross profit and gross margin consist of GAAP gross profit and gross margin excluding, as applicable, share-based compensation expense and the impairment and amortization of purchased intangible assets.   

Non-GAAP operating expenses consist of GAAP operating expenses excluding, as applicable, share-based compensation expense, the impairment and amortization of purchased intangible assets, acquisition-related contingent consideration adjustments, and acquisition-related transaction costs.

Non-GAAP other income consists of GAAP other income excluding the impact of foreign currency re-measurement related to contingent consideration.

Non-GAAP income tax expense consists of the GAAP income tax expense adjusted for the tax effect of the adjustments from GAAP net income to non-GAAP net income, including the impact of the adjustment to prior years' GAAP tax expense that was recorded in the first quarter of 2015.

Management believes that it is useful in measuring Thoratec's operations to exclude the impairment and amortization of purchased intangible assets.  These costs are primarily fixed at the time of an acquisition and, unlike other fixed costs that result from ordinary operations, are the result of infrequent and irregular events.

Because of varying valuation methodologies, subjective assumptions and the variety of award types that companies can use, Thoratec management believes that providing non-GAAP financial measures that exclude share-based compensation allows investors to compare Thoratec's recurring core business operating results to those of other companies and over multiple periods.  The exclusion also enhances investors' ability to review Thoratec's business from the same perspective as Thoratec management, which believes that share-based compensation expense is not directly attributable to the underlying performance of the company's business operations.

Thoratec management has excluded acquisition-related contingent consideration adjustments, including foreign currency re-measurement, and acquisition-related transaction costs from GAAP results to allow investors to compare Thoratec's recurring core business operating results to those of other companies and over multiple periods.

There are a number of limitations related to the use of non-GAAP financial measures.  First, non-GAAP financial measures exclude some costs, namely share-based compensation, that are recurring expenses.  Second, share-based compensation is part of an employee's compensation package and as such may be useful for investors to consider.  Third, the components of costs that we exclude in our non-GAAP financial measures may differ from components that our peer companies exclude when they report their results from operations.

Non-GAAP financial measures should not be considered as a substitute for measures of financial performance in accordance with GAAP. However, these measures may provide additional insight into Thoratec's financial results. Investors and potential investors are strongly encouraged to review the reconciliation of non-GAAP financial measures contained within this press release with their most directly comparable GAAP financial results and not to rely on any single financial measure to evaluate our business.

The following table includes the GAAP condensed consolidated balance sheets as of July 4, 2015 and January 3, 2015:

THORATEC CORPORATION

Condensed Consolidated Balance Sheets

(unaudited)

(in thousands)

July 4, 2015

January 3, 2015

ASSETS

Current assets:

Cash and cash equivalents 

$  144,925

$  72,814

Short-term available-for-sale investments 

129,042

157,664

Receivables, net of allowances of $1,892 in 2015 and $1,504 in 2014 

79,915

72,847

Inventories 

70,859

62,204

Deferred tax assets 

15,782

15,727

Income tax receivable 

14,476

10,778

Prepaid expenses and other assets 

5,922

12,458

Total current assets 

460,921

404,492

Property, plant and equipment, net 

49,371

51,231

Goodwill 

226,578

225,293

Purchased intangible assets, net 

40,313

44,488

Long-term available-for-sale investments 

4,212

4,239

Other long-term assets 

35,787

34,240

Total Assets 

$  817,182

$  763,983

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable 

$  20,969

$  12,662

Accrued compensation 

25,472

22,836

Warranty and related accrual

8,648

10,639

Contingent liabilities, current portion 

5,782

14,902

Other accrued liabilities 

22,391

20,441

Total current liabilities 

83,262

81,480

Long-term deferred tax liability 

4,376

3,592

Other long-term liabilities 

17,079

14,458

Contingent liabilities, non-current portion

32,237

31,656

Total Liabilities 

136,954

131,186

Shareholders' equity:

Common shares: no par, authorized 100,000; issued and outstanding 54,741 in 2015 and 54,109 in 2014 

-

-

Additional paid-in capital 

652,793

614,577

Retained earnings 

45,335

40,242

 Accumulated other comprehensive loss

(17,900)

(22,022)

 Total Shareholders' Equity 

680,228

632,797

 Total Liabilities and Shareholders' Equity 

$  817,182

$  763,983

The following table includes the GAAP Condensed Consolidated Statements of Operations for the three and six month periods ended July 4, 2015 and June 28, 2014:

THORATEC CORPORATION

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except for per share data)

 Three Months Ended 

 Six Months Ended 

July 4, 2015

June 28, 2014

July 4, 2015

June 28, 2014

Product sales

$  128,692

$  118,063

$   250,000

$   243,760

Cost of product sales

39,897

34,307

77,026

74,333

Gross profit

88,795

83,756

172,974

169,427

Operating expenses:

Selling, general and administrative

43,932

35,477

84,049

70,978

Research and development

26,511

23,048

52,628

46,387

Total operating expenses

70,443

58,525

136,677

117,365

Income from operations

18,352

25,231

36,297

52,062

Other income and (expense):

Interest expense

(13)

(2)

(13)

(2)

Interest income and other

687

559

1,504

806

Income before taxes

19,026

25,788

37,788

52,866

Income tax expense 

(5,778)

(8,375)

(13,760)

(17,214)

Net income

$  13,248

$  17,413

$  24,028

$   35,652

Net income per share

   Basic

$      0.24

$      0.31

$      0.44

$       0.63

   Diluted

$      0.24

$      0.30

$      0.44

$       0.62

Shares used to compute net income per share:

Basic

54,481

56,723

54,246

56,781

Diluted

55,261

57,188

55,155

57,538

 

The following table presents our quarterly revenues by source for the first and second quarter of fiscal 2015 and for the full year of fiscal 2014:

THORATEC CORPORATION

Quarterly Revenue Analysis

(Unaudited)

(in millions)

 Three Months Ended 

July 4, 2015

April 4, 2015

January 3, 2015

September 27, 2014

June 28, 2014

March 29, 2014

Revenue by Product Line

HeartMate

$  113.7

$ 105.1

$  112.4

$   91.6

$   102.0

$  110.0

CentriMag (1)

13.4

13.8

12.6

11.3

13.1

13.0

PVAD & IVAD

0.8

1.7

2.0

2.4

2.5

2.3

Other

0.8

0.7

1.0

0.5

0.5

0.4

Total

$   128.7

$  121.3

$  128.0

$  105.8

$  118.1

$   125.7

Revenue by Category

Pump

$  93.1

$  86.9

$   92.1

$  74.2

$   81.6

$   89.3

Non-Pump

34.8

33.7

34.9

31.1

36.0

36.0

Other

0.8

0.7

1.0

0.5

0.5

0.4

Total

$  128.7

$  121.3

$  128.0

$  105.8

$  118.1

$  125.7

Revenue by Geography

United States

$  104.3

$  96.1

$   99.7

$   85.7

$   94.2

$  95.6

International

24.4

25.2

28.3

20.1

23.9

30.1

Total

$  128.7

$  121.3

$  128.0

$  105.8

$  118.1

$  125.7

(1) CentriMag includes PediMag/PediVAS®  sales

 

The following table presents our quarterly HeartMate pump units by geography for the first and second quarter of fiscal 2015 and for the full year of fiscal 2014:

THORATEC CORPORATION

Quarterly HeartMate Pump Units (1)

(Unaudited)

Three Months Ended

Units by Geography

July 4, 2015

April 4, 2015

January 3, 2015

September 27, 2014

June 28, 2014

March 29, 2014

United States

793

686

746

612

670

701

International

242

247

291

213

191

263

Total (1)

1,035

933

1,037

825

861

964

(1) Includes HeartMate III units sold commercially or implanted in clinical trials.

 

The following table reconciles the specific items excluded from GAAP net income in the calculation of non-GAAP net income and diluted net income per share for the periods shown below:        

THORATEC CORPORATION

Reconciliation of GAAP to Non-GAAP Net Income

(Unaudited)

(in thousands, except for per share data)

 Three Months Ended 

 Six Months Ended 

Net income reconciliation

July 4, 2015

June 28, 2014

July 4, 2015

June 28, 2014

Net income on a GAAP basis

$  13,248

$  17,413

$  24,028

$  35,652

Share-based compensation expense:

- Cost of product sales

675

756

1,459

1,377

- Selling, general and administrative

6,198

4,794

12,855

8,819

- Research and development

2,581

2,283

4,537

4,419

Amortization of purchased intangibles:

- Cost of product sales

552

1,016

1,105

2,029

- Selling, general and administrative

507

765

1,014

1,526

- Research and development

132

132

264

264

Acquisition-related contingent consideration adjustments:

- Selling, general and administrative

(53)

(377)

515

712

- Research and development

(194)

(593)

303

(2,148)

Acquisition-related transaction costs

21

1,271

28

1,271

Foreign currency re-measurement of contingent consideration

(606)

-

(1,102)

-

Income tax expense (1)

(2,843)

(3,092)

(3,874)

(5,839)

Net income on a non-GAAP basis

$  20,218

$  24,368

$  41,132

$  48,082

 Three Months Ended 

 Six Months Ended 

Diluted net income per share reconciliation

July 4, 2015

June 28, 2014

July 4, 2015

June 28, 2014

Diluted net income per share on a GAAP basis

$  0.24

$  0.30

$  0.44

$  0.62

Share-based compensation expense:

- Cost of product sales

0.01

0.01

0.03

0.02

- Selling, general and administrative

0.11

0.09

0.23

0.15

- Research and development

0.05

0.04

0.08

0.08

Amortization of purchased intangibles:

- Cost of product sales

0.01

0.02

0.02

0.04

- Selling, general and administrative

0.01

0.01

0.02

0.03

- Research and development

-

-

-

0.01

Acquisition-related contingent consideration adjustments:

- Selling, general and administrative

-

-

0.01

0.01

- Research and development

-

(0.01)

0.01

(0.04)

Acquisition-related transaction costs

-

0.02

-

0.02

Foreign currency re-measurement of contingent consideration

(0.01)

-

(0.02)

-

Income tax expense (1)

(0.05)

(0.05)

(0.07)

(0.10)

Diluted net income per share on a non-GAAP basis

$  0.37

$  0.43

$  0.75

$  0.84

 Three Months Ended 

 Six Months Ended 

July 4, 2015

June 28, 2014

July 4, 2015

June 28, 2014

Shares used in calculation of diluted net income per share -- GAAP and non-GAAP

55,261

57,188

55,155

57,538

(1) Includes the impact of both the differential between the GAAP and non-GAAP tax rates and the tax effect of non-GAAP adjustments.

The following table reconciles the specific items excluded from GAAP gross profit and gross margin in the calculation of non-GAAP gross profit and gross margin for the periods shown below:

THORATEC CORPORATION

Reconciliation of GAAP to Non-GAAP Gross Profit and Gross Margin

(Unaudited)

(in thousands)

 Three Months Ended 

 Six Months Ended 

July 4, 2015

June 28, 2014

July 4, 2015

June 28, 2014

Gross profit on a GAAP basis

$  88,795

69.0%

$  83,756

70.9%

$  172,974

69.2%

$  169,427

69.5%

  Share-based compensation expense

675

756

1,459

1,377

  Amortization of intangibles

552

1,016

1,105

2,029

Gross profit on a non-GAAP basis

$  90,022

70.0%

$  85,528

72.4%

$  175,538

70.2%

$  172,833

70.9%

The following table reconciles the specific items excluded from GAAP operating expenses in the calculation of non-GAAP operating expenses for the periods shown below:

THORATEC CORPORATION

Reconciliation of GAAP to Non-GAAP Operating Expenses

(Unaudited)

(in thousands)

 Three Months Ended 

 Six Months Ended 

July 4, 2015

June 28, 2014

July 4, 2015

June 28, 2014

 Operating expenses on a GAAP basis 

$  70,443

$  58,525

$  136,677

$  117,365

  Share-based compensation expense:

 - Selling, general and administrative

(6,198)

(4,794)

(12,855)

(8,819)

 - Research and development

(2,581)

(2,283)

(4,537)

(4,419)

  Amortization of purchased intangibles:

 - Selling, general and administrative

(507)

(765)

(1,014)

(1,526)

 - Research and development

(132)

(132)

(264)

(264)

  Acquisition-related contingent consideration adjustments:

 - Selling, general and administrative

53

377

(515)

(712)

 - Research and development

194

593

(303)

2,148

  Acquisition-related transaction costs

(21)

(1,271)

(28)

(1,271)

 Operating expenses on a non-GAAP basis 

$  61,251

$  50,250

$  117,161

$  102,502

The following table reconciles the specific items excluded from GAAP other income in the calculation of non-GAAP other income for the periods shown below:

THORATEC CORPORATION

Reconciliation of GAAP to Non-GAAP Other Income and Expense

(Unaudited)

(in thousands)

 Three Months Ended 

 Six Months Ended 

July 4, 2015

June 28, 2014

July 4, 2015

June 28, 2014

 Other income (expense) on a GAAP basis 

$  674

$  557

$  1,491

$  804

  Foreign currency re-measurement of contingent consideration

(606)

-

(1,102)

-

 Other income (expense) on a non-GAAP basis 

$  68

$  557

$  389

$  804

The following table reconciles the adjustments from GAAP income tax expense to non-GAAP income tax expense:

THORATEC CORPORATION

Reconciliation of GAAP to Non-GAAP Income Tax Expense

(Unaudited)

(in thousands)

 Three Months Ended 

 Six Months Ended 

July 4, 2015

June 28, 2014

July 4, 2015

June 28, 2014

Income Tax expense on a GAAP basis

$  5,778

30.4%

$  8,375

32.5%

$  13,760

36.4%

$  17,214

32.6%

  Share-based compensation expense and other

2,598

2,949

5,257

5,228

  Amortization of purchased intangibles

418

650

836

1,298

  Acquisition-related contingent consideration adjustments

(54)

(996)

266

(1,176)

  Acquisition-related transaction costs

8

489

11

489

  Foreign currency re-measurement of contingent consideration

(127)

-

(231)

-

  Prior years' tax adjustment

-

-

(2,265)

-

Income Tax expense on a non-GAAP basis

$  8,621

29.9%

$  11,467

32.0%

$  17,634

30.0%

$  23,053

32.4%

About Thoratec

Thoratec is a world leader in therapies to address advanced-stage heart failure.  The company's products include the HeartMate II® and HeartMate 3™ LVAS (Left Ventricular Assist Systems) and Thoratec® VAD (Ventricular Assist Device) with more than 20,000 devices implanted in patients suffering from heart failure.  Thoratec also manufactures and distributes the CentriMag®, PediMag®/PediVAS®, and HeartMate PHP™ product lines.  HeartMate 3 and HeartMate PHP are investigational devices and are limited by US law to investigational use. Thoratec is headquartered in Pleasanton, California. For more information, visit the company's website at http://www.thoratec.com.

Thoratec, the Thoratec logo, HeartMate and HeartMate II are registered trademarks of Thoratec Corporation and HeartMate III, HeartMate PHP, PVAD, IVAD and Pocket Controller are trademarks of Thoratec Corporation. CentriMag and PediMag are registered trademarks of Thoratec LLC, and PediVAS is a registered trademark of Thoratec Switzerland GmbH.

Many of the preceding paragraphs, particularly but not exclusively those addressing guidance for fiscal 2015 financial results or future performance contain forward-looking statements within the meaning of Sections 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements can be identified by the words, "believes," "views," "expects," "anticipates, " "plans," "likely," "should," "could," "will," "estimates," and other similar words. Actual results, events or performance could differ materially from these forward-looking statements based on a variety of factors, many of which are beyond Thoratec's control. Therefore, readers are cautioned not to put undue reliance on these statements. Investors are cautioned that all such statements involve risks and uncertainties, including risks related to regulatory approvals, the development of new products, including development and clinical trial timing, and new markets including Destination Therapy, the growth of existing markets for our products, customer and physician acceptance of Thoratec products, changes in the mix of existing markets for our products and related gross margin for such product sales, the ability to improve financial performance, the effects of FDA regulatory requirements, our ability to address quality issues adequately and on a timely basis without a resulting recall of products or interruption of manufacturing or shipment of products, the effects of healthcare reimbursement and coverage policies, the effects of seasonality on Thoratec product sales, the effects of competition and the effects of any merger, acquisition and divestiture related activities. Forward-looking statements contained in this press release should be considered in light these factors and those factors discussed from time to time in Thoratec's public reports filed with the Securities and Exchange Commission, such as those discussed under the heading, "Risk Factors," in Thoratec's most recent annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and other SEC filings. These forward-looking statements speak only as of the date hereof. Thoratec undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events. 

 

SOURCE Thoratec Corporation



RELATED LINKS

http://www.thoratec.com