PERFORMANCE DRIVEN BY SUCCESSFUL U.S. COMMERCIAL LAUNCH OF HEARTMATE II(R) FOR BRIDGE-TO-TRANSPLANTATION PLEASANTON, Calif., July 31
PLEASANTON, Calif., July 31 /PRNewswire-FirstCall/ -- Thoratec Corporation
(Nasdaq: THOR), a world leader in device-based mechanical circulatory support
therapies to save, support and restore failing hearts, today said that
revenues for the second quarter of 2008 increased 44 percent over revenues in
the same period a year ago.
Revenues for the quarter ended June 28, 2008 were $82.6 million versus
$57.3 million in the second quarter of 2007. Net income on a GAAP basis in the
second quarter of fiscal 2008 was $8.7 million, or $0.15 per diluted share,
compared with net income on a GAAP basis of $1.3 million, or $0.02 per diluted
share, in the second quarter of 2007. Non-GAAP net income, which is described
later in this press release, was $12.1 million, or $0.20 per diluted share, in
the second quarter of 2008, compared with non-GAAP net income of $5.3 million,
or $0.09 per diluted share, in the same period a year ago.
For the first six months of fiscal 2008, revenues were $147.1 million
versus $114.6 million in the first six months a year ago, or an increase of 28
percent. On a GAAP basis, Thoratec reported net income of $9.0 million, or
$0.16 per diluted share, versus net income of $1.0 million, or $0.02 per
diluted share, a year ago. Non-GAAP net income for the first six months of
fiscal 2008 was $16.7 million, or $0.28 per diluted share, compared with non-
GAAP net income of $9.6 million, or $0.17 per diluted share, in the first six
months of fiscal 2007.
"We were extremely pleased with our performance for the quarter, which was
driven by a 68 percent increase in sales at our Cardiovascular Division year-
over-year," said Gary F. Burbach, president and chief executive officer.
"The key contributor to this growth was our successful launch of the
HeartMate II LVAS (Left Ventricular Assist System) for bridge-to-
transplantation (BTT) following its approval by the FDA in April. Our program
to bring on new centers is ahead of expectations, as we added 26 during the
quarter. We have also seen increased activity at existing centers and
benefited from favorable pricing for the HeartMate II. In addition, we are
seeing continued strong adoption of the HeartMate II in Europe," he added.
Burbach said that the company believes that factors contributing to
increased utilization of mechanical circulatory support include the ongoing
flow of favorable data around the HeartMate II, increasing clinician comfort
with the device-based on the patient experience and ease of the procedure-and
an improved reimbursement environment.
"Our financial performance also reflects solid growth at our
International Technidyne Corporation (ITC) Division. Our ProTime(R) alternate
site business had strong growth, as did our HEMOCHRON(R) coagulation product
line, and our AVOX co-oximetry systems," Burbach noted.
The company also updated enrollment in the Destination Therapy (DT) arm of
its Pivotal clinical trial for the HeartMate II. As of July 25, 2008, there
were 570 patients enrolled in the DT arm of the trial. Enrollment in the
randomized portion of the DT arm was 350 patients.
FINANCIAL HIGHLIGHTS
Thoratec reported revenues of $82.6 million in the second quarter of 2008
compared with revenues of $57.3 million in the second quarter of 2007.
Cardiovascular Division revenues were $57.5 million versus $34.2 million in
the same period a year ago. Revenues at ITC were $25.1 million versus
$23.1 million a year ago.
GAAP gross margin for the second quarter of 2008 was 61.5 percent versus
58.8 percent a year ago. Non-GAAP gross margin, which excludes SFAS No. 123R
expense and is described later in this press release, was 62.1 percent versus
59.4 percent a year ago. The improvement in gross margin reflects primarily
the increase in average selling prices associated with U.S. commercial
approval of the HeartMate II and favorable pump mix at the Cardiovascular
Division combined with favorable manufacturing variances. This was offset by
lower margins at ITC primarily related to geographic and product mix and
competitive pricing pressure in our skin incision business.
Operating expenses for the second quarters of 2008 and 2007 on a GAAP
basis were $40.0 million and $33.0 million, respectively. On a non-GAAP basis,
operating expenses in the second quarter of 2008 were $34.5 million compared
with $27.6 million in the second quarter of 2007. Operating expenses on a non-
GAAP basis are described later in this press release. The year-over-year
increase in operating expenses is primarily due to product and market
development initiatives, commercialization efforts around the HeartMate II,
and higher compensation expense.
The company's GAAP effective tax rate for the second quarter of 2008 was
27.8 percent versus 6.1 percent in the second quarter of 2007. The non-GAAP
tax rate for the second quarter of 2008, which is described later in this
press release, was 32.4 percent versus 26.8 percent in the prior year. This
increase is primarily related to an increase in projected pre tax earnings and
the absence of R&D tax credits in 2008, which will be recognized in a future
period upon Congressional approval.
On a GAAP and non-GAAP basis, the company's convertible debt was dilutive
to the company's fully diluted weighted average shares outstanding. The
increase in shares was approximately 7.3 million.
Cash and investments at the end of the quarter were $228 million, an
increase of $10 million from the end of fiscal 2007. The cash and investments
balance includes $32.0 million of Auction Rate Securities classified as long
term investments.
The company also provided a breakdown of sales by product line
year-to-date for both of its divisions. The Cardiovascular Division
year-to-date revenue was $97.7 million. HeartMate II and HeartMate(R) XVE
product sales were $69.0 million, an increase of 59 percent year-over-year.
PVAD and IVAD product line sales were $22.0 million, a decrease of two percent
year-over year. CentriMag(R) sales were $5.4 million, an increase of 108
percent year-over-year, and graft sales were $1.3 million, consistent with
prior year.
The ITC Division year-to-date revenue was $49.3 million. Hospital
point-of-care revenues, which include HEMOCHRON coagulation, AVOX co-oximetry
and IRMA(R) blood gas products, were $27.2 million, an increase of 16 percent
year-over-year. Alternate site revenues, which are primarily from ProTime
sales, were $13.8 million, a seven percent increase over last year, while skin
incision revenues were $8.3 million, a decrease of three percent versus last
year.
GUIDANCE FOR FISCAL 2008
The following statements are based on current expectations. These
statements are forward-looking and actual results may differ materially. For a
more detailed discussion of forward looking statements, please see additional
information below. The company provided an update to guidance for the full
year. Revenues are projected to be between $285 million and $295 million.
GAAP gross margins are expected to be between 58% and 59%, with non-GAAP gross
margins between 59% and 60%. GAAP EPS is expected to be between $0.20 and
$0.26, while non-GAAP EPS is expected to be in a range of $0.47 to $0.52.
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 (913) 312-0379, passcode 4566478. 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 Thursday, August 7, 2008, via http://www.thoratec.com or
by telephone at (719) 457-0820, passcode 4566478.
GAAP TO NON-GAAP RECONCILIATION
Thoratec management evaluates and makes operating decisions using various
measures. These measures are generally based on revenues generated by its
products and certain costs of producing that revenue, 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 tax
rate, non-GAAP net income, and non-GAAP EPS. 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 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 (loss) consists of GAAP net income (loss) before
taxes, excluding, as applicable, share-based compensation expense under SFAS
No. 123R, amortization of purchased intangibles, the 2007 changes in the value
of the make-whole provision of our convertible notes, as adjusted by the
amount of additional taxes payable or tax benefit that the company would
accrue if it used non-GAAP results instead of GAAP results to calculate the
company's tax liability.
Non-GAAP EPS 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 share-based compensation expense under SFAS No 123R.
Non-GAAP operating expenses consist of GAAP operating expenses excluding
share-based compensation expense under SFAS No. 123R and amortization of
purchased intangibles
Non-GAAP tax rate consists of the GAAP tax rate adjusted for the tax
effect of the adjustments from GAAP net income to non-GAAP net income.
Management believes that it is useful in measuring Thoratec's operations
to exclude amortization of intangibles, and in-process research and
development expenses. 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. Management
believes it is useful to exclude 2007 changes in the value of the make-whole
provision of our convertible notes as this item is also not indicative of
Thoratec's core operating business. The make-whole provision is a non-
operating item that is included in other income (expense) and is part of our
financing activities in 2007.
Because of varying valuation methodologies, subjective assumptions and the
variety of award types that companies can use under SFAS No. 123R, 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.
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 calculations 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 reconciliations of the forward looking non-GAAP financial measures to
the most directly comparable GAAP financial measures in the tables below
include all information reasonably available to Thoratec at the date of this
press release. These tables include adjustments that we can reasonably
predict. Events that could cause the reconciliation to change include
acquisitions and divestitures of business, goodwill and other asset
impairments and sales of marketable equity securities.
The following table includes the GAAP income statement for the three and
six month periods ending in 2008 and 2007.
THORATEC CORPORATION
Condensed Consolidated Statement of Operations
(Unaudited)
(in thousands, except for per share data)
Three Months Ended Six Months Ended
June 28, June 30, June 28, June 30,
2008 2007 2008 2007
Product sales$82,648 $57,333 $147,075 $114,643
Cost of product sales 31,825 23,64860,41546,445
Gross profit 50,823 33,68586,66068,198
Operating expenses:
Selling, general and
administrative 23,857 19,13444,49341,079
Research and development12,839 10,76725,35821,660
Amortization of purchased
intangible assets 3,2963,143 6,592 6,296
Total operating expenses 39,992 33,04476,44369,035
Income (loss) from operations 10,831 64110,217 (837)
Other income and (expense):
Interest expense(1,131) (1,074) (2,021) (2,142)
Interest income and other2,2811,766 4,459 3,953
Income before income taxes11,9811,33312,655 974
Income tax benefit (expense)(3,330) (80) (3,655)4
Net income$8,651 $1,253$9,000 $978
Net income per share
Basic$0.16$0.02 $0.17 $0.02
Diluted $0.15$0.02 $0.16 $0.02
Shares used to compute net income
per share:
Basic 54,556 53,37054,38953,055
Diluted 62,624 54,72862,39654,421
The following table reconciles the specific items excluded from GAAP net
income in the calculation of non-GAAP net income 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
June 28, June 30, June 28, June 30,
Net income/(loss) reconciliation 2008 2007 2008 2007
Net income on a GAAP basis$8,651 $1,253 $9,000$978
Share-based compensation expense:
- Cost of product sales 471 381 913 738
Share-based compensation expense:
- Selling, general and
administrative 1,5621,7573,236 4,105
- Research and development 596 5911,344 1,389
Amortization of purchased
intangibles 3,2963,1436,592 6,296
Make-whole provision- (B)11 - (80)
Income tax effect of non-GAAP
adjustments(2,471) (1,851) (4,433) (3,864)
Net income on a non-GAAP basis $12,105 $5,285 $16,652 $9,562
Three Months Ended Six Months Ended
Diluted net income (loss) per June 28, June 30, June 28, June 30,
share reconciliation 2008 2007 2008 2007
(in thousands, except per
share data)
Diluted net income per share
on a GAAP basis $0.15 $0.02 $0.16 $0.02
Share-based compensation
expense:
- Cost of product sales 0.01 0.010.01 0.01
Share-based compensation
expense:
- Selling, general and
administrative 0.02 0.030.05 0.08
- Research and development 0.01 0.010.02 0.03
Amortization of purchased
intangibles 0.05 0.060.11 0.12
Make-whole provision - - - -
Income tax effect of non-GAAP
adjustments (0.04) (0.03) (0.07)(0.07)
Convertible debt dilution
impact- (A)(0.01) (A) - (A) (0.02) (A)
Diluted net income per share
on a non-GAAP basis $0.20 $0.09 $0.28 $0.17
Shares used in calculation of
diluted net income per share
--GAAP 62,624 54,728 62,39654,421
Shares used in calculation of
diluted net income per share
-- Non-GAAP 62,624 62,018 62,39661,711
(A) The company's total diluted share count on a non-GAAP basis in Q2 2008
and Q2 2007 & GAAP basis in Q2 2008 includes approximately 7.3 million
shares underlying its convertible notes as they were dilutive for the
quarter.
(B) The Make-whole provision is included in Non-GAAP earnings for Q2 2008.
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
(Unaudited)
(in thousands, except for per share data)
Three Months EndedSix Months Ended
June 28, June 30,June 28, June 30,
2008 2007 2008 2007
Gross profit
on a GAAP
basis $50,823 61.5% $33,685 58.8% $86,660 58.9% $68,198 59.5%
Share-based
compensation
expense 471 381913 738
Gross profit on
a non-GAAP
basis $51,294 62.1% $34,066 59.4% $87,573 59.5% $68,936 60.1%
The following tables reconcile 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, except for per share data)
Three Months Ended Six Months Ended
June 28, June 30, June 28, June 30,
2008 2007 2008 2007
Operating expenses on a GAAP basis $39,992 $33,044 $76,443 $69,035
Share-based compensation expense:
- Selling, general and
administrative(1,562) (1,757) (3,236) (4,105)
- Research and development(596)(591) (1,344) (1,389)
Amortization of purchased intangibles (3,296) (3,143) (6,592) (6,296)
Operating expenses on a non-GAAP
basis $34,538 $27,553 $65,271 $57,245
The following table reconciles the GAAP tax rate adjusted for the tax
effect of the adjustments from GAAP net income to non-GAAP net income.
THORATEC CORPORATION
GAAP to Non-GAAP Tax Benefit (Expense) Reconciliation
(Unaudited)
(in thousands, except for per share data)
Three Months EndedSix Months Ended
June 28, June 30, June 28, June 30,
2008 2007 2008 2007
Tax benefit
(expense) on
a GAAP
basis$(3,330) 27.8% $(80) 6.0% $(3,655) 28.9% $4 -0.4%
Amorti-
zation
of
purchased
intan-
gibles (1,318) (1,219) (2,637) (2,440)
Make-whole
pro-
vision- - - 35
Equity plan
review
adjustment- - -(38)
Share-based
compensation
expense and
other(1,153) (632) (1,795)(1,421)
Tax expense
on a
non-GAAP
basis $(5,801) 32.4% $(1,931) 26.8% $(8,087) 32.7% $(3,860) 28.8%
The following tables reconcile the Guidance on a GAAP and Non GAAP basis
for the periods shown below:
THORATEC CORPORATION
Reconciliation of GAAP to Non-GAAP Forward-Looking Guidance
(Unaudited)
(in thousands, except for per share data)
Gross marginFor the Fiscal Year Ended 2008
From To
(in thousands)
Gross profit on a GAAP basis58% 59%
Share-based compensation expense:
- Cost of product sales 1%1%
Gross profit on a non-GAAP basis59% 60%
Diluted net income/(loss) per share
reconciliation For the Fiscal Year Ended 2008
From To
(in thousands, except per share data)
Diluted net income (loss) per share on a
GAAP basis $0.20 $0.26
Share-based compensation expense0.20 0.20
Amortization of purchased intangibles 0.21 0.21
Income tax effect of non-GAAP
adjustments (0.14)(0.15)
Diluted net income per share on a
non-GAAP basis $0.47 $0.52
Shares used in calculation of diluted
net income (loss) per share -- GAAP62,80162,801
Shares used in calculation of
diluted net income per share -- non-
GAAP (a) 62,80162,801
(a) Shares used in the per share calculation for reconciling items
between GAAP and non-GAAP financial measures.
Thoratec is a world leader in therapies to address advanced stage heart
failure. The company's product lines include the Thoratec(R) VAD and HeartMate
LVAS with nearly 12,000 devices implanted in patients suffering from heart
failure. Additionally, its International Technidyne Corporation (ITC) Division
supplies point-of-care blood testing and skin incision products. Thoratec is
headquartered in Pleasanton, California. For more information, visit the
company's web sites at http://www.thoratec.com or http://www.itcmed.com.
Thoratec, the Thoratec logo, HeartMate, and HeartMate II are registered
trademarks of Thoratec Corporation, and IVAD is a trademark of Thoratec
Corporation. ITC, A-VOX Systems, AVOXimeter, HEMOCHRON, ProTime, and IRMA are
registered trademarks of International Technidyne Corporation. CentriMag is a
registered trademark of Levitronix LLC.
Many of the preceding paragraphs, particularly but not exclusively those
addressing guidance for fiscal 2008 financial results, future performance or
timelines and milestones for clinical trials, contain forward-looking
statements within the meaning of Section 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," "projects," "hopes,"
"could," "will," 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 the development of 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 results of enrollment in and timing of clinical trials,
including for the HeartMate II, the ability to improve financial performance,
regulatory approval processes, the effects of healthcare reimbursement and
coverage policies, the effects of seasonality in Thoratec product sales, the
effects of price competition from any Thoratec competitors and the effects of
any merger and acquisition related activities. Forward-looking statements
contained in this press release should be considered in light of 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, and as may be updated in subsequent 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
