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, April 4, January 3, September 27, June 28, March 29,
2015 2015 2015 2014 2014 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(R)
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, April 4, January 3, September 27, June 28, March 29,
2015 2015 2015 2014 2014 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, June 28, July 4, June 28,
2015 2014 2015 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, June 28, July 4, June 28,
2015 2014 2015 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, June 28, July 4, June 28,
2015 2014 2015 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, June 28, July 4, June 28,
2015 2014 2015 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(TM) 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(TM) 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.
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SOURCE Thoratec Corporation
