PLEASANTON, Calif., Aug. 4, 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 second quarter and first half of 2015.
"The second quarter continued our trend of improving company and market performance and marked a notable return of revenue growth throughout our business," said D. Keith Grossman, President and Chief Executive Officer. "We were pleased not only with improved market growth, but also with our competitive position, particularly in the U.S.," he added.
For the quarter ended July 4, 2015, Thoratec reported revenues of $128.7 million, a nine percent increase versus revenues of $118.1 million in the same period a year ago. Net income on a GAAP basis was $13.2 million, or $0.24 per diluted share, compared to GAAP net income of $17.4 million, or $0.30 per diluted share, in the same period last year. Non-GAAP net income, which is described later in this press release, was $20.2 million, or $0.37 per diluted share in the second quarter of 2015, compared to non-GAAP net income of $24.4 million, or $0.43 per diluted share, in the second quarter of 2014.
Second quarter revenue growth was driven by the HeartMate franchise, reflecting both an acceleration in worldwide market growth for chronic MCS pumps, which reached approximately 18 percent in terms of pump units sold, along with market share gains in the U.S. Year-over-year HeartMate pump unit growth of 20 percent worldwide consisted of an 18 percent increase in the U.S. and growth of 27 percent internationally.
For the first six months of fiscal 2015, revenues were $250.0 million, an increase of three percent over revenues of $243.8 million in the same period a year ago. Net income on a GAAP basis was $24.0 million, or $0.44 per diluted share, compared with GAAP net income of $35.7 million, or $0.62 per diluted share, in the same period a year ago. Non-GAAP net income was $41.1 million, or $0.75 per diluted share, compared with non-GAAP net income of $48.1 million, or $0.84 per diluted share, in the same period a year ago.
Second Quarter and First Six Months of 2015 Financial Results
Thoratec reported revenues of $128.7 million in the second quarter of 2015. The HeartMate product line contributed $113.7 million, an increase of 11 percent, while the CentriMag product line contributed $13.4 million, an increase of two percent. The negative impact of foreign currency movements reduced total revenue by $3.3 million, or three percent, compared with the second quarter of 2014.
For the first half of 2015, Thoratec reported revenues of $250.0 million, an increase of three percent, compared to the same period last year. The HeartMate product line contributed $218.8 million to revenues, an increase of three percent, while the CentriMag product line contributed $27.2 million, an increase of four percent. The negative impact of foreign currency movements reduced total revenue by $6.1 million, or three percent, during the first half of 2015 compared with the prior year period.
GAAP gross margin in the second quarter of 2015 was 69.0 percent compared to 70.9 percent in the same quarter last year. Non-GAAP gross margin, described later in this press release, was 70.0 percent compared to 72.4 percent in the same quarter last year. The decrease in GAAP and non-GAAP gross margin was due primarily to manufacturing variances and the impact of foreign exchange.
GAAP operating expenses in the second quarter of 2015 were $70.4 million compared to $58.5 million in the same quarter last year. Non-GAAP operating expenses, described later in this press release, were $61.3 million compared to $50.3 million in the same quarter last year. The increase in both GAAP and non-GAAP operating expenses was primarily due to higher personnel expenses, as well as legal and clinical trial costs. In addition, GAAP operating expenses increased in 2015 due to higher stock-based compensation and the re-measurement of contingent consideration, partially offset by lower acquisition-related transaction costs in 2015.
GAAP other income in the second quarter of 2015 was $0.7 million compared to $0.6 million in the same quarter last year. Non-GAAP other income, described later in this press release, was $0.1 million compared to $0.6 million in the same quarter last year.
The GAAP effective tax rate in the second quarter of 2015 was 30.4 percent versus 32.5 percent a year ago. The non-GAAP tax rate, which is described later in this press release, was 29.9 percent versus 32.0 percent in the same period last year. The decrease in the GAAP and non-GAAP effective tax rate was primarily due to a higher mix of income generated in lower tax jurisdictions.
Cash and investments were $278.2 million as of July 4, 2015, compared to $244.6 million as of April 4, 2015, and $234.7 million as of January 3, 2015. The company repurchased $4.8 million of stock during the second quarter of 2015.
GUIDANCE
The company is not providing 2015 financial guidance due to the definitive agreement to be acquired by St. Jude Medical.
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) 325-2320, passcode 5828271. 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, August 11, via http://www.thoratec.com, or by telephone at (719) 457-0820, passcode 5828271.
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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