Thoratec Corporation Reports First Quarter 2015 Results

PLEASANTON, Calif., May 7, 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 first quarter of 2015.

"We made additional progress during the first quarter with our efforts to stimulate growth including building our team and improving execution," said D. Keith Grossman, President and Chief Executive Officer.  "We remain in the early stages with these initiatives and continue to address market challenges, but I believe these efforts will favorably impact our overall market and contribute to the return of strong levels of growth at Thoratec in the future," he added.

For the quarter ended April 4, 2015, Thoratec reported revenues of $121.3 million, a four percent decrease versus revenues of $125.7 million in the same period a year ago. Revenues for the period increased four percent compared with the prior year excluding changes in foreign exchange and results in Japan, where unusual order patterns impact reported growth.  GAAP net income was $10.8 million, or $0.20 per diluted share, compared to GAAP net income of $18.2 million, or $0.32 per diluted share, in the same period last year.  Non-GAAP net income, which is described later in this press release, was $20.9 million, or $0.38 per diluted share, in the first quarter of 2015, compared to non-GAAP net income of $23.7 million, or $0.41 per diluted share, in the first quarter of 2014.

"We also continue to make progress with HeartMate III and HeartMate PHP as we move closer to commercial launches in Europe later this year, while also realizing advancements with our clinical programs in the U.S.," Grossman commented.  "We believe new technology is an important driver of market expansion, and we are focused on ensuring that we can deliver on the full potential of our exciting pipeline opportunities."

First Quarter of 2015 Financial Results

Thoratec reported revenues of $121.3 million in the first quarter of 2015. The HeartMate product line contributed $105.1 million, a decrease of four percent, while the CentriMag product line contributed $13.8, an increase of six percent.

GAAP gross margin in the first quarter of 2015 was 69.4 percent compared to 68.2 percent in the same quarter last year. Non-GAAP gross margin, described later in this press release, was 70.5 percent compared to 69.5 percent in the same quarter last year. The increase in GAAP and non-GAAP gross margin was due primarily to lower inventory-related charges and favorable manufacturing variances, in part offset by increased warranty expense, unfavorable product mix, and the impact of foreign exchange.

GAAP operating expenses in the first quarter of 2015 were $66.2 million compared to $58.8 million in the same quarter last year. Non-GAAP operating expenses, described later in this press release, were $55.9 million compared to $52.3 million in the same quarter last year. The increase in both GAAP and non-GAAP operating expenses was primarily due to higher personnel and clinical trial costs, partially offset by lower spending on certain R&D projects in comparison to the prior year.  In addition, GAAP operating expenses increased in 2015 due to higher stock-based compensation and the re-measurement of contingent consideration.  

GAAP other income in the first quarter of 2015 was $0.8 million compared to $0.2 million in the same quarter last year. The increase in GAAP other income was due primarily to the foreign currency re-measurement of our contingent consideration. Non-GAAP other income, described later in this press release, was $0.3 million compared to $0.2 million in the same quarter last year.

The GAAP effective tax rate in the first quarter of 2015 was 42.5 percent versus 32.6 percent a year ago. The increase in the GAAP effective tax rate was primarily due to an adjustment in the first quarter of 2015 related to the overstatement of certain tax benefits in prior years.  The non-GAAP tax rate, which is described later in this press release, was 30.1 percent versus 32.8 percent in the same period last year. The decrease in the non-GAAP effective tax rate was primarily due to a higher mix of income in foreign jurisdictions.

Cash and investments were $244.6 million as of April 4, 2015, compared to $234.7 million as of January 3, 2015.  The company repurchased $21.4 million of stock during the first quarter of 2015.

GUIDANCE

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 the additional information below. 

The company expects fiscal 2015 revenues to be in a range of $465 million to $475 million.  Incorporated into this guidance range are the negative impacts of foreign exchange movements and having one fewer week in fiscal 2015 relative to fiscal 2014, the combined effect of which is approximately $23 million, an increase of $5 million from previous guidance due to additional unfavorable movement in foreign exchange rates.  Guidance for net income per diluted share is a range of $0.58 to $0.68 on a GAAP basis and $1.15 to $1.25 on a non-GAAP basis.  Gross margin is expected to be approximately 69.0 percent on a GAAP basis and approximately 70.5 percent on a non-GAAP basis.  We expect the effective tax rate to be approximately 33.5 percent on a GAAP basis and approximately 30.0 percent on a non-GAAP basis.

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) 312-1276, passcode 1716500. 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, May 14, via http://www.thoratec.com or by telephone at (719) 457-0820, passcode 1716500.

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. 

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