PLEASANTON, Calif., Aug. 3, 2011 /PRNewswire/ -- Thoratec Corporation (NASDAQ: THOR), a world leader in device-based mechanical circulatory support therapies to save, support and restore failing hearts, said today revenues for the second quarter of 2011 were $111.2 million, a 17 percent increase over revenues of $95.1 million in the second quarter of 2010.
Results for all periods of fiscal 2010 exclude contributions from the company’s International Technidyne Corporation (ITC) Division. Thoratec completed the divestiture of ITC in November of 2010.
For the quarter ended July 2, 2011, Thoratec reported net income on a GAAP basis of $21.8 million, or $0.36 per diluted share, versus GAAP net income of $17.5 million, or $0.29 per diluted share, in the same period a year ago. Non-GAAP net income, which is described later in this press release, was $27.4 million, or $0.44 per diluted share, in the second quarter of 2011, versus non-GAAP net income of $22.4 million, or $0.34 per diluted share, in the second quarter a year ago.
For the first six months of fiscal 2011, revenues were $210.7 million, an increase of eight percent over revenues of $194.4 million in the same period a year ago. On a GAAP basis, Thoratec reported net income of $38.2 million, or $0.63 per diluted share, for the first six months of 2011. For the first six months of 2010, the company reported GAAP net income of $30.9 million, or $0.52 per diluted share. Non-GAAP net income in the first six months of 2011 was $49.2 million, or $0.77 per diluted share, compared with non-GAAP net income of $40.9 million, or $0.63 per diluted share, in the first six months of 2010.
“We had an excellent quarter with double digit revenue growth both year-over-year and sequentially, driven by the continued market penetration of the HeartMate II® LVAS (Left Ventricular Assist System) for Destination Therapy (DT),” said Gary F. Burbach, president and chief executive officer.
“We were particularly pleased with HeartMate II unit growth of 21 percent in the U.S. and 20 percent internationally, demonstrating healthy underlying market trends and HeartMate II’s strong competitive position. This growth is being fueled by the compelling long-term patient outcomes achieved with the device, as well as the impact of our programs to facilitate referral activity, support capacity expansion at existing centers, and foster VAD programs at new centers,” he added.
The company said it ended the second quarter of 2011 with 272 HeartMate II centers globally, including 135 in the U.S. and 137 internationally, versus a total of 254 centers, including 130 in the U.S. and 124 internationally, at the end of fiscal 2010. In addition, 99 centers in the U.S. have now received CMS (Centers for Medicare and Medicaid Services) certification for DT reimbursement, or an increase of nine versus the end of fiscal 2010.
Burbach said the company continues to invest in its long-term growth strategies. “During the quarter, we expanded our field organization to support our broad array of market development efforts, and we continued to hit important milestones in our product development and clinical programs. For example, the full commercial launch of our sealed grafts for the HeartMate II, which occurred late in the first quarter, has gone very well, generating highly positive feedback from the clinical community in terms of ease of use, reduction in operating room time and reduced rates of peri-operative bleeding.”
Also during the quarter, Thoratec announced a technology development agreement with WiTricity Corporation related to WiTricity’s proprietary wireless resonant energy transfer technology for application in the field of mechanical circulatory support. “This agreement is an important milestone for our fully implantable HeartMate II program, which represents a key component of our effort to advance the HeartMate II’s leadership position,” Burbach noted.
Burbach said the company has selected the first eight centers for a new clinical study and expects initial enrollment to occur later this fall. Called ROADMAP, or Risk Assessment and Comparative Effectiveness Of Left Ventricular Assist Device and Medical Management in Ambulatory Heart Failure Patients, this post-market study will enroll up to 200 ambulatory advanced heart failure patients who meet the HeartMate II’s existing indication for DT, but who are not being referred for LVAD therapy in meaningful numbers. The primary objective of the study is to evaluate and compare the effectiveness of the HeartMate II versus the existing standard of care, Optimal Medical Management, in these patients.
During the quarter, Thoratec announced the retirement of all the outstanding Senior Subordinated Convertible Notes due 2034, through the payment of $164.4 million of cash and the issuance of 2.4 million shares of common stock. As a result of this transaction, the company’s diluted share count, which previously included 7.2 million shares attributable to the convertible debt, was reduced by 4.8 million shares.
Separately, Thoratec today announced the acquisition of the medical business of Levitronix LLC (“Levitronix Medical”). This acquisition follows a successful strategic partnership between the two companies. Since 2006, Thoratec has provided distribution and clinical support in the U.S. for the CentriMag® Acute Circulatory Support System, Levitronix Medical’s flagship product, under an agreement that would have expired at the end of 2011. Levitronix Medical and Thoratec have also collaborated on the development of the fully magnetically levitated motor technology employed in the HeartMate® III left ventricular assist system, which is currently in preclinical testing. Details of this transaction can be found in a separate press release issued today, and the anticipated financial impact of the transaction for the remainder of 2011 has been incorporated into the “Guidance” section of this release.
FINANCIAL HIGHLIGHTS
Thoratec reported revenues of $111.2 million in the second quarter of 2011 compared with revenues of $95.1 million in the second quarter of 2010, or an increase of 17 percent. Revenues from the HeartMate product line were $97.6 million versus $82.5 million, or an increase of 18 percent, in the same period a year ago. Sales of the Thoratec® product line, which includes the PVAD and IVAD, were $7.6 million, an increase of four percent over revenues of $7.3 million in the second quarter of 2010. CentriMag® Blood Pump sales were $5.3 million compared with $4.6 million a year ago, or an increase of 15 percent. Graft sales were $678,000 compared with $726,000 a year ago. Revenues from pump sales were $77.8 million versus $64.4 million in the second quarter a year ago, or an increase of 21 percent. Non-pump revenues were $32.7 million in the second quarter of 2011 versus $30.0 million in the same period a year ago, or an increase of nine percent. Revenues in the U.S. were $93.0 million versus $79.9 million in the same quarter a year ago, or an increase of 16 percent, while international revenues were $18.2 million versus $15.2 million a year ago, an increase of 20 percent. Foreign exchange fluctuation rates had a favorable effect of $1.1 million in the second quarter of 2011 versus the second quarter of 2010.
For the first six months of fiscal 2011, revenues were $210.7 million, an increase of eight percent versus revenues of $194.4 million in the same period a year ago. The breakout of year-to-date revenues by product line included HeartMate product line sales of $184.9 million versus $168.6 million in the same period a year ago, or an increase of 10 percent. Sales of the Thoratec product line were $14.9 million versus $16.1 million a year ago, or a decrease of seven percent. CentriMag Blood Pump sales were $9.7 million versus $8.3 million in the first half of 2010, an increase of 17 percent. Graft sales were $1.2 million, compared to $1.4 million in the first six months of 2010. Revenues from pump sales were $148.6 million, an 11 percent increase over pump sales of $133.9 million in the first half of 2010. Non-pump revenues were $60.9 million versus $59.1 million a year ago, or an increase of three percent. Revenues in the U.S. were $175.5 million, an increase of eight percent over revenues of $162.1 million a year ago, while international revenues were $35.2 million, a nine percent increase over revenues of $32.3 million in the first six months of 2010. For the first six months of 2011, foreign exchange rate fluctuations had a $0.6 million favorable impact on revenues versus the same period in 2010.
GAAP gross margin for the second quarter of 2011 was 70.9 percent versus 67.8 percent a year ago. Non-GAAP gross margin, which is described later in this press release, was 71.2 percent versus 68.2 percent a year ago. The increase in non-GAAP gross margin was due to favorable pump to non-pump mix and volume based efficiencies, and lower inventory reserves.
Operating expenses on a GAAP basis in the second quarter of 2011 were $44.6 million versus $35.3 million a year ago. On a non-GAAP basis, operating expenses in the second quarter of 2011 were $37.5 million versus $30.2 million in the second quarter a year ago. Operating expenses on a non-GAAP basis are described later in this press release. The year-over-year increase in non-GAAP operating expenses was due primarily to the increased spending on product and market development initiatives, including the continued expansion of our research and development and field organizations, and investment in our next generation pump and fully implantable pump platforms.
On a GAAP basis, other expense was $1.3 million in the second quarter of 2011 versus $2.0 million in the same period a year ago. On a non-GAAP basis, other expense was $35,000 versus $22,000 a year ago. Other expense on a non-GAAP basis is described later in this press release.
The company’s GAAP effective tax rate for the second quarter of 2011 was 33.9 percent versus 35.4 percent a year ago. The non-GAAP tax rate, which is described later in this press release, was 34.2 percent versus 35.4 percent in the second quarter of 2010. The decrease in the GAAP and non-GAAP tax rates reflects the company’s inability in the second quarter of 2010 to recognize federal research and development credits in the absence of enacted legislation.
Cash and investments at the end of the second quarter of 2011 were $298.5 million versus $438.0 million at the end of the first quarter of 2011 and $469.5 million at the end of fiscal 2010. The decline in cash and investments from year end was due to the retirement of the company’s convertible debt and the share repurchase activity in the first quarter of 2011.
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 updated guidance for the full year.
The company expects that revenues for fiscal 2011 will be in the range of $422 to $430 million. This represents an increase from prior guidance and reflects the contribution from the first half of the year, and the expectation for ongoing growth in the second half of the year, along with $4 million in incremental revenues attributable to the acquisition of Levitronix Medical.
Gross margin is expected to increase to a range of 68.5 to 69.5 percent on a GAAP basis and 69 to 70 percent on a non-GAAP basis, reflecting the strong gross margin performance during the first half of 2011 and the expectation for moderation in the second half of the year.
GAAP operating expenses are expected to increase 17 to 19 percent over 2010, while non-GAAP operating expenses are expected to increase approximately 15 to 17 percent versus 2010. This reflects higher operating expenses expected in the second half of 2011 as the company continues to invest in market development initiatives and advancement of the product development pipeline. In addition, this guidance includes operating expenses from the acquired Levitronix Medical business for the remainder of the year.
GAAP net income per diluted share is expected to be in the range of $1.05 to $1.15. On a GAAP basis, net income per diluted share includes transaction costs related to the acquisition of Levitronix Medical; however, it does not reflect any income statement impact from the purchase price allocation as this has not been finalized for this transaction. The purchase price allocation is not expected to have a material impact to the income statement. Non-GAAP net income per diluted share is expected to be in the range of $1.40 to $1.50, reflecting increased operating leverage, continued investment in the business, and the neutral impact from the Levitronix Medical acquisition in 2011.
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) 325-2350, passcode 6542882. 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 10, via http://www.thoratec.com, or by telephone at (719) 457-0820, passcode 6542882.
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, and Levitronix 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 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.
Non-GAAP operating expenses consist of GAAP operating expenses excluding share-based compensation expense, amortization of purchased intangibles, and Levitronix 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.
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 transaction costs 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 continuing operations for the three and six month periods ending 2011 and 2010:
