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4-Traders Homepage  >  Equities  >  Nasdaq  >  HeartWare International Inc    

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HeartWare : Reports $68.7 Million In Second Quarter 2016 Revenue

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07/28/2016 | 02:01pm CEST

FRAMINGHAM, Mass., July 28, 2016 /PRNewswire/ -- HeartWare International, Inc. (NASDAQ: HTWR), a leading innovator of less-invasive, miniaturized circulatory support technologies that are revolutionizing the treatment of advanced heart failure, today announced total revenue of $68.7 million for the quarter ended June 30, 2016, compared to $73.6 million for the same period in 2015 and $55.1 million for the first quarter of 2016. Total revenue decreased approximately 7% year-over-year, which is primarily attributable to the third quarter 2015 completion of enrollment of the company's ENDURANCE2 Destination Therapy (DT) clinical trial, which contributed approximately $5 million to revenue in the second quarter of 2015.

During the second quarter, a total of 715 HeartWare HVAD(®) Systems were sold globally, representing a sequential-quarter increase of 24% from 578 units sold in the first quarter of 2016. A total of 371 units were sold in the U.S. during the second quarter, representing an increase of 26% on a sequential-quarter basis, primarily due to a rebound in the overall bridge-to-transplant market. A total of 344 units were sold internationally during the second quarter of 2016, representing an increase of 22% on a sequential-quarter basis, primarily due to increased sales in most European markets, with the exception of a slight unit decrease in Germany.

U.S. revenue was $41.0 million for the second quarter of 2016, compared to $42.9 million for the same period in 2015. The year-over-year decrease was primarily due to revenue generated from the ENDURANCE2 clinical trial during the second quarter of 2015. International revenue was $27.7 million for the second quarter of 2016, compared to $30.6 million for the same period in 2015. The year-over-year decrease was primarily due to the launch of a competitor's new device into the market. Currency fluctuations positively impacted total revenue by approximately $0.2 million, or 0.3%, during the three months ended June 30, 2016, compared to the same period in 2015.

"Our solid second quarter performance was highlighted by a strong rebound in sales of the HVAD System in the U.S. and in most international markets," said Doug Godshall, President and Chief Executive Officer. "We are proud of the outstanding effort of our field team and are grateful to all of the heart failure specialists, cardiothoracic surgeons and VAD coordinators around the world who continue to demonstrate their enthusiasm and support for HeartWare and the HVAD System.

"During the second quarter, we made significant progress on our key priorities of pursuing a DT indication for the HVAD System and advancing the MVAD(®) System toward a return to the clinic," continued Mr. Godshall. "We also announced an agreement to be acquired by Medtronic and are looking forward to the close of the acquisition and the tremendous opportunity that we will have as part of the Medtronic organization. The strengths and resources of the combined company will enable accelerated innovation and pipeline development, while maintaining the exceptionally high standards HeartWare has set for being responsive to our customers and their patients."

For the six months ended June 30, 2016, total revenue decreased approximately 14% to $123.8 million, compared to $143.6 million for the same period in 2015, primarily due to the completion of patient enrollment for our ENDURANCE2 clinical trial during the third quarter of 2015 and the market adjusting to the introduction of a new competitive device.

Gross margin percentage was 65% during the second quarter of 2016, compared to 66% for the second quarter of 2015. Gross margin percentage for the second quarter of 2016 improved by seven percentage points on a sequential-quarter basis, due to improved sales performance and reduced field action costs during the second quarter.

Total operating expenses for the second quarter of 2016 were $51.3 million, compared to $56.2 million for the second quarter of 2015 and $47.3 million for the first quarter of 2016. Total operating expenses for the second quarter of 2016 included $0.6 million of expense related to changes in fair value of the contingent consideration associated with the 2013 acquisition of CircuLite, Inc., compared to $2.2 million of expense in the second quarter of 2015.

Research and development expense was $27.9 million for the second quarter of 2016, compared to $31.7 million for the same period in 2015. The decrease in R&D expense reflects the company's focus on a narrowed set of key priorities, as well as reductions in clinical trial costs and stock-based compensation.

Selling, general and administrative expenses were $22.8 million for the second quarter of 2016, compared to $22.2 million for the second quarter of 2015. The increase in SG&A expenses was primarily attributable to Medtronic-related transaction costs and increased personnel-related costs, partially offset by a reduction in expenses associated with the suspension of the medical device excise tax at the beginning of 2016, and a reduction in stock-based compensation and other expenses.

Net loss for the second quarter of 2016 was $10.9 million, or a loss of $0.62 per basic and diluted share, compared to a net loss of $27.4 million, or $1.59 per basic and diluted share, for the second quarter of 2015. Non-GAAP net loss for the second quarter of 2016 was $7.6 million, or a loss of $0.43 per basic and diluted share, compared to a non-GAAP net loss of $8.1 million, or a loss of $0.47 per basic and diluted share, for the second quarter of 2015.

Net loss for the six months ended June 30, 2016 was $28.3 million, or a loss of $1.62 per basic and diluted share, compared to a net loss of $41.9 million, or a loss of $2.43 per basic and diluted share, for the six months ended June 30, 2015. Non-GAAP net loss for the six months ended June 30, 2016 was $24.1 million, or a loss of $1.38 per basic and diluted share, compared to a non-GAAP net loss of $17.5 million, or a loss of $1.02 per basic and diluted share, for the six months ended June 30, 2015.

Items impacting comparability of operating results for the three- and six-month periods ended June 30, 2016 to the same periods in 2015 include purchase accounting amortization, restructuring and lease exit costs, acquisition costs, contingent consideration adjustments and loss on extinguishment of long-term debt, as described later in this news release under "Use of Non-GAAP Financial Measures" and "Reconciliation of GAAP to Non-GAAP Net Loss per Common Share."

At June 30, 2016, HeartWare had $185 million of cash, cash equivalents and investments, compared to approximately $189 million at March 31, 2016.

Subsequent to the close of the second quarter of 2016, on July 25, 2016, HeartWare submitted for European regulatory approval of the company's next-generation controller for the HVAD System and plans to submit the new controller for U.S. approval in August 2016, with submissions to other jurisdictions to follow. The new controller features enhancements in component reliability and incorporates multiple enhancements to support the overall user experience. The new controllers are expected to be available in the market upon regulatory approval in each territory, and HeartWare intends to enact a voluntary plan to replace existing controllers in the field with the new, upgraded controllers. The roll-out is expected to result in a charge during the third or fourth quarter of 2016 of approximately $24 million to $27 million for prospective replacement of HVAD controllers in the field. Beginning with the first regulatory submission, HeartWare will also defer a portion of revenue on the sales of current controllers that it intends to eventually replace. The deferred revenue will amount to approximately 7% of the average selling price per HVAD System, and will be recognized as income at the time the new replacement controller is shipped to customers.

Due to Pending Acquisition, HeartWare Will Not Conduct an Investor Call Today
HeartWare will not be hosting an investor conference call and webcast related to the announcement of second quarter financial results due to the pending acquisition by Medtronic. Investors may find a detailed report of the company's second quarter and year-to-date financial results in the tables below, as well as in Form 10-Q filed with the U.S. Securities and Exchange Commission (SEC).

Use of Non-GAAP Financial Measures
HeartWare management supplements its GAAP financial reporting with certain non-GAAP financial measures for financial and operational decision making. For example, we use "non-GAAP net loss" and "non-GAAP net loss per common share" to refer to GAAP loss per share excluding certain adjustments such as amortization of intangible assets, impairment charges, purchase accounting and acquisition-related transaction costs, loss on extinguishment of long-term debt, and restructuring and severance costs. These are non-GAAP financial measures under Section 101 of Regulation G under the Securities Exchange Act of 1934, as amended. Management believes that providing this additional information enhances investors' understanding of the financial performance of the company's operations and increases comparability of its current financial statements to prior periods. Non-GAAP measures should not be considered a substitute for measures of financial performance in accordance with GAAP, and they should be reviewed in comparison with their most directly comparable GAAP financial results. Reconciliations of HeartWare's GAAP to non-GAAP financial measures are provided at the end of this news release under "Reconciliation of GAAP to Non-GAAP Net Loss Per Common Share."

About HeartWare International
HeartWare International develops and manufactures miniaturized implantable heart pumps, or ventricular assist devices, to treat patients around the world suffering from advanced heart failure. Dedicated to developing new, minimally invasive technologies to revolutionize the treatment of patients with end-stage heart failure, HeartWare has multiple technologies in development to offer progressively less-invasive mechanical circulatory support options. HeartWare's corporate headquarters are located in Framingham, Massachusetts, and the company has technology, operations, manufacturing and distribution centers in Miami Lakes, Florida; Arden Hills, Minnesota; and Hannover, Germany. For additional information about the company, please visit www.heartware.com.

Additional Information About the Transaction and Where to Find It
The tender offer by Medtronic for the outstanding shares of HeartWare commenced on July 26, 2016. Certain information related to the pending transaction included in this news release is for informational purposes only and shall not constitute an offer to purchase nor a solicitation of an offer to sell any securities of HeartWare. The offer is being made pursuant to a tender offer statement on Schedule TO, which contains an offer to purchase, form of letter of transmittal and other documents relating to the tender offer (collectively, the "Tender Offer Materials"), each filed with the SEC by Medtronic plc, Medtronic, Inc. and Medtronic Acquisition Corp. on July 26, 2016. On the same date, HeartWare filed with the SEC a solicitation/recommendation statement on Schedule 14D-9 with respect to the tender offer. The Tender Offer Materials, as well as the Schedule 14D-9, were mailed to HeartWare stockholders. HeartWare's stockholders are advised to read these documents and any other documents relating to the tender offer that have been or will be filed with the SEC carefully and in their entirety because they contain important information. HeartWare's stockholders may obtain copies of these documents for no charge at the SEC's website at www.sec.gov or by contacting HeartWare's investor relations department at [email protected] or HeartWare International, Inc., 500 Old Connecticut Path, Framingham, MA 01701, Attention: Investor Relations.

Forward-Looking Statements
This announcement contains forward-looking statements that are based on management's beliefs, assumptions and expectations and on information currently available to management. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future are forward-looking statements, including without limitation our expectations with respect to: HeartWare's ventricular assist device business; submission for U.S. approval of a destination therapy indication; MVAD System return to clinic; accelerating innovation and development of our technology pipeline; responsiveness to customers and patients; planned product replacement strategies and accounting treatment; and acquisition by Medtronic. Management believes that these forward-looking statements are reasonable as and when made. However, you should not place undue reliance on forward-looking statements because they speak only as of the date when made. HeartWare does not assume any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by federal securities laws and the rules and regulations of the Securities and Exchange Commission (SEC). HeartWare may not actually achieve the plans, projections or expectations disclosed in forward-looking statements, and actual results, developments or events could differ materially from those disclosed in the forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties, including without limitation those described in Part I, Item 1A. "Risk Factors" in HeartWare's Annual Report on Form 10-K filed with the SEC. HeartWare may update risk factors from time to time in Part II, Item 1A. "Risk Factors" in Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, or other filings with the SEC.

HEARTWARE, HVAD, MVAD, PAL, SYNERGY, CIRCULITE and HeartWare logos are trademarks of HeartWare, Inc. or its affiliates.

Contact:
Christopher Taylor
HeartWare International, Inc.
Email: [email protected]
Phone: +1 508 739 0864

- Tables to Follow -


                                 HEARTWARE INTERNATIONAL, INC.

                        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                             (in thousands, except per share data)

                                          (unaudited)


                           Three Months Ended                          Six Months Ended

                              June 30,                                June 30,
                              --------                                --------

                               2016                        2015                        2016         2015
                               ----                        ----                        ----         ----


    Revenue, net            $68,720                     $73,569                    $123,794     $143,590

    Cost of revenue          23,826                      25,228                      46,848       47,268
                             ------                      ------                      ------       ------

    Gross profit             44,894                      48,341                      76,946       96,322


    Operating expenses:

    Selling, general
     and administrative      22,780                      22,247                      44,254       44,176

    Research and
     development             27,878                      31,702                      53,099       62,969

    Change in fair
     value of
     contingent
     consideration              600                       2,240                       1,180        4,340
                                ---                       -----                       -----        -----

    Total operating
     expenses                51,258                      56,189                      98,533      111,485


    Loss from
     operations             (6,364)                    (7,848)                   (21,587)    (15,163)


    Other expense, net      (4,321)                   (19,239)                    (6,410)    (26,228)
                             ------                     -------                      ------      -------

    Loss before taxes      (10,685)                   (27,087)                   (27,997)    (41,391)

    Income tax expense          198                         306                         345          537
                                ---                         ---                         ---          ---

    Net loss              $(10,883)                  $(27,393)                  $(28,342)   $(41,928)
                           ========                    ========                    ========     ========


    Net loss per common
     share - basic and
     diluted                $(0.62)                    $(1.59)                    $(1.62)     $(2.43)
                             ======                      ======                      ======       ======


    Weighted average
     shares outstanding
     - basic and
     diluted                 17,543                      17,269                      17,503       17,232
                             ======                      ======                      ======       ======




                                             HEARTWARE INTERNATIONAL, INC.

                                         CONDENSED CONSOLIDATED BALANCE SHEETS

                                                    (in thousands)

                                                      (unaudited)


                                           June 30, 2016                         December 31, 2015
                                           -------------                         -----------------


    ASSETS

    Current assets:

    Cash and cash equivalents                                           $129,241                   $175,047

    Short-term investments                                                55,981                     68,531

    Accounts receivable, net                                              38,698                     35,570

    Inventories                                                           37,864                     39,947

    Prepaid expenses and other current
     assets                                                                5,407                      2,868
                                                                           -----                      -----

    Total current assets                                                 267,191                    321,963

    Property, plant and equipment, net                                    14,535                     15,098

    Other assets, net                                                    147,646                    116,542
                                                                         -------                    -------

    Total assets                                                        $429,372                   $453,603


    LIABILITIES AND STOCKHOLDERS' EQUITY

    Current liabilities:

    Accounts payable                                                     $15,501                    $15,249

    Other accrued liabilities                                             35,025                     45,889
                                                                          ------                     ------

    Total current liabilities                                             50,526                     61,138

    Convertible senior notes, net                                        192,107                    187,089

    Other long-term liabilities                                           17,447                     16,884

    Stockholders' equity                                                 169,292                    188,492
                                                                         -------                    -------

    Total liabilities and
     stockholders' equity                                               $429,372                   $453,603
                                                                        ========                   ========




    Reconciliation to Constant-Currency Revenue Growth (unaudited) (see explanation below)

    (in thousands)


                                                        Three Months Ended
                                                             June 30,                 Reported $ chg           Reported % chg            FX impact          Constant Currency $ chg       Constant Currency % chg
                                                    -------------------            --------------           --------------            ---------          -----------------------       -----------------------


                                                          2016          2015
                                                          ----          ----

    Total U.S. Revenue                                  40,984        42,922                        (1,938)                    -4.5%                   -                       (1,938)                         -4.5%

    Total Int'l Revenue                                 27,736        30,647                        (2,911)                    -9.5%               (240)                       (3,151)                        -10.3%
                                                        ------        ------                         ------                      ----                 ----                         ------                          -----

    Total Revenue                                       68,720        73,569                        (4,849)                    -6.6%               (240)                       (5,089)                         -6.9%
                                                        ======        ======                         ======                      ====                 ====                         ======                           ====


                                                       Six Months Ended
                                                           June 30,                Reported $ chg           Reported % chg            FX impact          Constant Currency $ chg       Constant Currency % chg
                                                      -----------------            --------------           --------------            ---------          -----------------------       -----------------------


                                                          2016          2015
                                                          ----          ----

    Total U.S. Revenue                                  74,332        85,111                       (10,779)                   -12.7%                   -                      (10,779)                        -12.7%

    Total Int'l Revenue                                 49,462        58,480                        (9,018)                   -15.4%                 356                        (8,661)                        -14.8%
                                                        ------        ------                         ------                     -----                  ---                         ------                          -----

    Total Revenue                                      123,794       143,591                       (19,796)                   -13.8%                 356                       (19,440)                        -13.5%
                                                       =======       =======                        =======                     =====                  ===                        =======                          =====

Constant-currency changes in the tables above take into consideration the foreign exchange rates in effect during the three- and six-month periods ended June 30, 2015.




    Reconciliation of GAAP to Non-GAAP Net Loss Per Common Share (unaudited) (see explanation of adjustments below) (in thousands, except per share data)


                                                                Three Months Ended                          Six Months Ended

                                                                     June 30,                                   June 30,
                                                                     --------

                                                                 2016                        2015                        2016                        2015
                                                                 ----                        ----                        ----                        ----


    GAAP net loss                              $(10,883)                  $(27,393)                  $(28,342)                  $(41,928)

    GAAP net loss per common share -
     basic and diluted                           $(0.62)                    $(1.59)                    $(1.62)                    $(2.43)


    Adjustments:

      Acquisition-related
       contingent
       consideration
       adjustments                          (a)                     600                       2,240                       1,180                       4,340

      Acquisition-related
       transaction costs                    (b)                   2,650                           -                      2,650                           -

      Amortization of
       purchased intangible
       assets                               (c)                     327                         411                         654                         822

      Loss on
       extinguishment of
       long-term debt                       (d)                       -                     16,588                           -                     16,588

      Restructuring costs                   (e)                   (288)                          5                       (268)                      2,636


    Total adjustments                                           3,289                      19,244                       4,216                      24,386


    Non-GAAP net loss                           $(7,594)                   $(8,149)                  $(24,126)                  $(17,542)
                                                 =======                     =======                    ========                    ========

    Non-GAAP net loss per common
     share - basic and diluted                   $(0.43)                    $(0.47)                    $(1.38)                    $(1.02)
                                                  ======                      ======                      ======                      ======


    Shares used in computing non-GAAP
     net loss per common share -
     basic and diluted                                         17,543                      17,269                      17,503                      17,232
                                                               ======                      ======                      ======                      ======



                                                    Three Months Ended June 30,          Six Months Ended June
                                                                                                30,
                                                    ---------------------------         ----------------------

    (In thousands)                                          2016                   2015                  2016        2015
                                                            ----                   ----                  ----        ----


    SG&A operating expenses on a GAAP basis              $22,780                $22,247               $44,254     $44,176

       -Acquisition-related transaction costs   (b)      (2,650)                     -              (2,650)          -

       -Amortization of purchased intangibles   (c)            -                  (84)                    -      (168)

       -Restructuring costs                     (d)          288                     44                   268       (423)
                                                             ---                    ---                   ---        ----

    SG&A operating expenses on a non-GAAP basis           20,418                 22,207                41,872      43,585


    R&D operating expenses on a GAAP basis                27,878                 31,702                53,100      62,969

       -Amortization of purchased intangibles   (c)        (327)                 (327)                (654)      (654)

       -Restructuring costs                     (d)            -                  (49)                    -    (2,213)
                                                             ---                   ---                   ---     ------

    R&D operating expenses on a non-GAAP basis            27,551                 31,326                52,446      60,102


    Total SG&A and R&D on a non-GAAP Basis               $47,969                $53,533               $94,318    $103,687

    (a)              Represents the change in fair value
                     of contingent consideration
                     associated with the acquisition of
                     CircuLite in December 2013.

    (b)              Represents transaction expenses
                     related to the acquisition of
                     HeartWare by Medtronic.

                    Represents amortization of purchased
                     intangible assets related to
                     CircuLite and WorldHeart during the
                     three and six months ended June 30,
    (c)              2016 and 2015.

    (d)              Represents the loss on
                     extinguishment of 3.5% convertible
                     notes

    (e)              Represents restructuring costs
                     comprised of lease exit costs,
                     employee severance, abandoned fixed
                     assets and contract termination
                     charges primarily related to the
                     CircuLite acquisition during the
                     three and six months ended June 30,
                     2016 and 2015.

The terms "non-GAAP net loss" and "non-GAAP net loss per common share" refer to GAAP net loss and GAAP net loss per common share excluding certain adjustments such as amortization of purchased intangible assets, impairment charges, purchase accounting and acquisition-related transaction costs, and restructuring and severance costs as follows:

    1. We exclude amortization of purchased intangible assets and periodic
       impairment charges related to long-lived assets from this measure because
       such charges do not represent what our management believes are the costs
       of developing, producing, supporting and selling our products and the
       costs to support our internal operating structure.
    2. We exclude purchase accounting adjustments and acquisition-related costs
       from this measure because they occur as a result of specific events and
       are not reflective of our internal investments and the ongoing costs to
       support our operating structure.  Purchase accounting adjustments include
       contingent consideration fair market value adjustments.
    3. We exclude restructuring and severance costs from this measure because
       they tend to occur as a result of specific events such as acquisitions,
       divestitures, repositioning our business or other unusual events that
       could make comparisons of long-range trends difficult and are not
       reflective of our internal investments and the costs to support our
       operating structure.

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SOURCE HeartWare International, Inc.

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