Thoratec Corporation Reports First Quarter 2012 Results
Published: May 02, 2012
For the quarter ended March 31, 2012, Thoratec reported net income on a GAAP basis of $25.5 million, or $0.43 per diluted share, versus GAAP net income of $16.5 million, or $0.27 per diluted share, in the first quarter of 2011. Non-GAAP net income, which is described later in this press release, was $30.6 million, or $0.51 per diluted share, in the first quarter of fiscal 2012, versus non-GAAP net income of $21.8 million, or $0.34 per diluted share, in the same period a year ago.
"Thoratec had an excellent first quarter, highlighted by strong growth across both the HeartMate II and CentriMag® product lines," said Gary Burbach, President and Chief Executive Officer. "Our HeartMate II performance was broad-based, with unit growth of 32% in both the U.S. and international markets. Internationally, France and Germany delivered robust results, and in the U.S., the Destination Therapy (DT) indication continued to drive the majority of our growth."
"I am encouraged by the ongoing success of our market development initiatives," Burbach added. "In particular, we believe our first quarter results reflect continued progress in generating referrals of well-qualified candidates for HeartMate II therapy, as well as in facilitating program expansion across a broad group of centers, including the increasingly important open heart center segment."
The company ended the first quarter of 2012 with 299 HeartMate II centers globally, including 154 in the U.S. and 145 internationally. In the U.S., there are now 109 centers with Joint Commission certification for DT reimbursement.
Thoratec also commented on the initial results from the DT post-approval study, which show encouraging trends toward improvement since the clinical trial. These initial results were presented at the International Society for Heart and Lung Transplantation by Dr. Ulrich Jorde from Columbia University. The DT post-approval study includes the first 247 DT patients enrolled into INTERMACS from 61 U.S. centers following FDA approval. The study is still ongoing and will reach full two-year follow-up for all patients this Fall. One-year survival for these patients reached 75%, demonstrating continuing improvement relative to the published results from the pivotal trial cohort as well as the DT Continued Access Protocol (CAP). In terms of critical adverse events, HeartMate II continued to demonstrate a low level of thromboembolic complications, while length of stay, bleeding, and infection are all showing favorable trends relative to the clinical trial.
"HeartMate II continues to deliver excellent real-world clinical outcomes for patients with advanced heart failure, and we were excited to treat our 10,000th patient during the first quarter. We look forward to building upon this important milestone by continuing to invest in both our market development activities as well as our innovative pipeline of new technologies," Burbach commented.
Thoratec reported revenues of $126.8 million in the first quarter of 2012 versus revenues of $99.5 million in the first quarter of 2011. The HeartMate product line accounted for $111.7 million in revenues versus $87.3 million a year ago, an increase of 28%. Sales of the acute support product line, which includes CentriMag and PediMag®, were $8.7 million compared with $4.4 million a year ago. Of the $8.7 million in revenues this quarter, approximately $2.7 million were incremental revenues recorded as a result of the Levitronix Medical acquisition completed during the third quarter of 2011. The Thoratec® product line, which includes the PVAD and IVAD, accounted for revenues of $5.8 million compared to revenues of $7.3 million a year ago. In the first quarter of 2012, pump sales accounted for $92.6 million compared to sales of $70.8 million a year ago. Non-pump sales were $33.6 million versus sales of $28.2 million in the first quarter of 2011. The balance of the company's revenues reflects contributions from its graft business. Revenues in the U.S. were $103.9 million versus revenues of $82.5 million a year ago. International revenues in the first quarter of 2012 were $22.9 million versus revenues of $17.0 million a year ago. Foreign exchange rate fluctuations had a negative impact of $0.5 million in the first quarter of 2012 compared to the first quarter of 2011.
GAAP gross margin in the first quarter of 2012 was 69.3 percent versus 68.1 percent a year ago. Non-GAAP gross margin, which is described later in this press release, was 71.6 percent versus 70.5 percent a year ago. The year-over-year increase in gross margin was due to volume-based efficiencies and the contribution from the acquisition of Levitronix Medical.
Operating expenses on a GAAP basis in the first quarter of 2012 were $50.9 million versus $40.7 million a year ago. On a non-GAAP basis, operating expenses were $45.7 million in the first quarter of 2012 versus $36.8 million a year ago. Non-GAAP operating expenses are described later in this press release. The year-over-year increase in operating expenses was due primarily to spending on product and market development initiatives, including sales force expansion and the addition of research and development personnel, and the inclusion of Levitronix Medical.
On a GAAP basis, other income was $0.7 million in the first quarter of 2012 versus other expense of $2.1 million in the prior year. On a non-GAAP basis, other income totaled $0.7 million versus other expense of $0.2 million a year ago. Other income and expense on a non-GAAP basis is described later in this press release.
The company's GAAP effective tax rate in the first quarter of 2012 was 32.4 percent versus 34.1 percent a year ago. The non-GAAP tax rate, which is described later in this press release, was 33.1 percent versus 34.1 percent in the first quarter of 2011.
Cash and investments at the end of the first quarter of 2012 were $247.5 million versus $209.5 million at the end of fiscal 2011.
GUIDANCE FOR FISCAL 2012
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 updated guidance for the full year.
The company expects revenues will be in the range of $452 million to $467 million, reflecting the strong first quarter performance, as well as continued momentum in the Destination Therapy market, driven by the company's market development initiatives.
Gross margins on a GAAP basis are expected to be in the range of 68.5 to 69.0 percent and 71.0 to 71.5 percent on a non-GAAP basis.
GAAP net income per diluted share is expected to be in the range of $1.24 to $1.34 and non-GAAP net income per diluted share in 2012 is expected to be in the range of $1.62 to $1.72.
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) 457-2620, passcode 8806446. 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, May 8, via http://www.thoratec.com or by telephone at (719) 457-0820, passcode 8806446.
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 and expense, non-GAAP tax rate, non-GAAP net income, non-GAAP net income per diluted share and non-GAAP shares used to compute diluted net income per 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 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, amortization of purchased intangibles, expenses associated with the accounting for convertible debt instruments that may be settled in cash upon conversion, including partial settlements in accordance with Financial Accounting Standards Board ("FASB") issued Accounting Standards Codification ("ASC") 470-20, Debt, Levitronix Medical transaction costs, and fair market value inventory adjustments related to the Levitronix Medical acquisition.
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 shares used to compute diluted net income per share consists of GAAP shares used to compute diluted net income per share adjusted for any inclusions made in conjunction with dilutive impact of Thoratec's convertible debt instruments and any exclusions made in conjunction with the application of the two-class method for calculating net income per share.
Non-GAAP gross profit and gross margin consist of GAAP gross profit and gross margin excluding share-based compensation expense, amortization of purchased intangibles, and accounting for fair market value inventory adjustments related to the Levitronix Medical acquisition.
Non-GAAP operating expenses consist of GAAP operating expenses excluding share-based compensation expense, amortization of purchased intangibles, and Levitronix Medical transaction costs.
Non-GAAP other income and expense consists of GAAP other income and expenses excluding expenses related to the accounting for convertible debt instruments that may be settled in cash upon conversion, including partial settlements, in accordance with ASC 470-20, Debt.
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.
Non-GAAP tax rate consists of the non-GAAP tax expense divided by non-GAAP pre-tax earnings.
Management believes that it is useful in measuring Thoratec's operations to exclude amortization of intangibles. 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.
Due to the subjective assumptions used to develop non-cash interest expense related to the accounting for convertible debt instruments that may be settled in cash upon conversion, including partial settlements, in accordance with ASC 470-20, Debt, Thoratec management believes that providing non-GAAP financial measures that exclude such expense 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.
To enable investors to compare Thoratec's recurring core business operating results to those of other companies and over multiple periods, Thoratec has excluded Levitronix Medical transaction costs and accounting for fair market value inventory adjustments related to the Levitronix Medical acquisition as they are infrequent in nature.
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 for the three month periods ending 2012 and 2011:
Condensed Consolidated Statements
(in thousands, except for per share data)
Three Months Ended
March 31, 2012
April 2, 2011
Cost of product sales
Selling, general and administrative
Research and development
Total operating expenses