Thoratec Corporation Reports Second Quarter 2014 Results
PLEASANTON, Calif., Aug. 6, 2014 /PRNewswire/ -- Thoratec Corporation (NASDAQ: THOR), a world leader in device-based mechanical circulatory support therapies to save, support and restore failing hearts, today reported its financial results for the second quarter and first half of 2014.
"We are disappointed with the shortfall in our financial results as near-term factors are having a greater than expected negative impact on our business," said Gary F. Burbach, President and Chief Executive Officer. "However, our confidence in the long-term outlook for our business remains unchanged, and we will focus on executing to realize these opportunities while working diligently on implementing actions to improve near-term results," he added.
For the quarter ended June 28, 2014, Thoratec reported revenues of $118.1 million, a ten percent decrease versus revenues of $130.5 million in the same period a year ago. Net income on a GAAP basis was $17.4 million, or $0.30 per diluted share, compared to GAAP net income of $23.2 million, or $0.40 per diluted share, in the same period last year. Non-GAAP net income, which is described later in this press release, was $24.4 million, or $0.43 per diluted share in the second quarter of 2014, compared to non-GAAP net income of $30.4 million, or $0.52 per diluted share, in the second quarter of 2013.
For the first six months of fiscal 2014, revenues were $243.8 million, a decrease of two percent over revenues of $248.2 million in the same period a year ago. Net income on a GAAP basis was $35.7 million, or $0.62 per diluted share, compared with GAAP net income of $41.4 million, or $0.71 per diluted share, in the same period a year ago. Non-GAAP net income was $48.1 million, or $0.84 per diluted share, compared with non-GAAP net income of $54.3 million, or $0.93 per diluted share, in the same period a year ago.
"We have realized significant clinical progress in our pipeline opportunities with encouraging starts of CE Mark trials for both HeartMate III and HeartMate PHP, while HeartMate III also received conditional approval from FDA to begin the U.S. trial," Burbach commented. "Moreover, the accelerated share repurchase announced today reflects conviction in our long-term vision, and our strong financial position will allow us to continue funding future growth initiatives, strategic investments, and share repurchases going forward."
Second Quarter and First Six Months of 2014 Financial Results
Thoratec reported revenues of $118.1 million in the second quarter of 2014, a decrease of ten percent compared to the same quarter last year. The HeartMate® product line contributed $102.0 million, a decrease of 12 percent while the CentriMag product line contributed $13.1 million, an increase of 14 percent.
For the first half of 2014, Thoratec reported revenues of $243.8 million, a decrease of two percent, compared to the same period last year. The HeartMate product line contributed $212.0 million to revenues, while the CentriMag product line contributed $26.1 million.
GAAP gross margin in the second quarter of 2014 was 70.9 percent compared to 68.6 percent in the same quarter last year. Non-GAAP gross margin, described later in this press release, was 72.4 percent compared to 70.4 percent in the same quarter last year. The increase in GAAP and non-GAAP gross margin was due primarily to favorable manufacturing absorption variances and underlying efficiencies, offset in part by unfavorable warranty expense and inventory reserves. In addition, GAAP gross margin was positively affected by lower intangible assets amortization expense.
GAAP operating expenses in the second quarter of 2014 were $58.5 million compared to $56.4 million in the same quarter last year. Non-GAAP operating expenses, described later in this press release, were $50.3 million compared to $47.7 million in the same quarter last year. The increase in both GAAP and non-GAAP operating expenses was primarily due to incremental expenses from the DuraHeart II program acquired during the third quarter of 2013 and the timing of sales and marketing initiatives, partially offset by a reduction in incentive compensation expense.
The company's GAAP effective tax rate in the second quarter of 2014 was 32.5 percent versus 30.3 percent a year ago. The non-GAAP tax rate, which is described later in this press release, was 32.0 percent versus 31.5 percent in the same period last year. The increase in both the GAAP and non-GAAP effective tax rates was primarily due to the lack of federal R&D credits in the absence of enacted legislation.
Cash and investments were $295.5 million as of June 28, 2014, compared to $299.4 million as of March 29, 2014, and $310.0 million as of December 28, 2013. The company repurchased approximately $25 million of stock during the second quarter of 2014. Earlier in the third quarter, the company funded the $35 million purchase of Apica Cardiovascular using existing cash balances.
GUIDANCE FOR FISCAL 2014
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 is revising fiscal 2014 guidance for revenues to a range of $455 million to $470 million and net income per diluted share of $0.80 to $0.90 on a GAAP basis and $1.25 to $1.35 on a non-GAAP basis. Gross margin is expected to be approximately 69 percent on a GAAP basis and 70.5 percent on a non-GAAP basis. We expect the effective tax rate to be approximately 31 percent on both a GAAP and non-GAAP basis. The guidance above does not include any impact from the Apica Cardiovascular acquisition's purchase price allocation, which has not yet been finalized; however, this purchase price allocation should not affect results 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 (719) 457-2653, passcode 9016109. 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 Wednesday, August 13, via http://www.thoratec.com or by telephone at (719) 457-0820, passcode 9016109.
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 tax rate, 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 amortization of purchased intangible assets, acquisition-related contingent consideration adjustments, 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 share-based compensation expense and the amortization of purchased intangible assets.
Non-GAAP operating expenses consist of GAAP operating expenses excluding share-based compensation expense, the amortization of purchased intangible assets, acquisition-related contingent consideration adjustments, and acquisition-related transaction costs.
Non-GAAP tax expense consists of the GAAP tax expense 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 the 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 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.
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