PLEASANTON, Calif., Jan. 28 Thoratec Corporation (Nasdaq: THOR), a world leader in device-based mechanical circulatory support therapies to save, support and restore failing hearts, said today that a 30 percent growth in revenues from its Cardiovascular Division in fiscal 2009 led to a 19 percent increase in total 2009 revenues versus those in fiscal 2008.
For the year ended January 2, 2010, revenues were $373.9 million versus $313.6 million in the prior year. Revenues for the fourth quarter of fiscal 2009 were $104.5 million, a 22 percent increase over revenues of $85.7 million in the fourth quarter a year ago.
Net income on a GAAP basis in fiscal 2009 was $28.6 million, or $0.49 per diluted share, versus GAAP net income of $18.3 million, or $0.33 per diluted share, in fiscal 2008. Non-GAAP net income, which is described later in this press release, was $56.1 million, or $0.89 per diluted share, in fiscal 2009, versus non-GAAP net income of $36.9 million, or $0.61 per diluted share, in fiscal 2008.
"The dynamic growth we have seen in our Cardiovascular Division during the course of the year continued in the fourth quarter as we generated record revenues from that business in both North America and Europe. Total revenues from our HeartMate product line, which includes both the HeartMate II® LVAS (Left Ventricular Assist System) and HeartMate® XVE, increased 43 percent year-over-year," said Gary F. Burbach, president and chief executive officer of Thoratec.
The company said that it ended the year with 120 HeartMate II centers in North America, an increase of 19 during the year, and 91 internationally, an increase of 14 during 2009. In addition, there are now 76 centers with CMS (Centers for Medicare and Medicaid Services) certification for reimbursement for Destination Therapy (DT).
"We are looking forward to rolling out the HeartMate II for DT, based on the FDA's approval of our PMA (Pre-Market Approval) supplement on January 20, 2010. This approval creates a new opportunity for the many advanced-stage heart failure patients who are not responding to other forms of treatment to access a proven therapy. We have launched a comprehensive strategy targeted to existing and potential centers, referring cardiologists and patients to build awareness around the efficacy of the device and its ability to dramatically improve survival and quality of life versus other therapy options," Burbach noted.
With this approval, the HeartMate II can be used to provide long-term cardiac support for patients suffering from advanced-stage heart failure who are not eligible for transplantation. Under the approval, the HeartMate II can be used in patients with New York Heart Association (NYHA) Class IIIB or IV end-stage left ventricular failure who have received optimal medical therapy for at least 45 of the last 60 days, and who are not candidates for cardiac transplantation.
"We begin 2010 in an excellent position to achieve continued strong growth. The clinical community's response to the data from the DT trial has been very positive and we expect a significant number of additional data presentations and publications supporting both the clinical and economic benefits of this therapy to occur during the year. We also have a program in place to generate activity at existing centers and from referring cardiologists, and will continue our successful efforts to add new centers and help centers achieve DT reimbursement certification. We will also increase our investments in key technology initiatives, which include the ongoing introduction of the new HeartMate peripherals, enhancements to the HeartMate II platform, the development of a miniaturized pump based on the HeartMate II platform and our development program for the HeartMate III," Burbach said.
Thoratec reported revenues for 2009 of $373.9 million versus revenues of $313.6 million in 2008. Cardiovascular Division revenues in fiscal 2009 were $280.0 million versus $215.0 million a year ago. Revenues at the company's International Technidyne Corporation (ITC) division were $94.0 million versus $98.6 million a year ago.
The company provided a breakdown of sales by product for 2009 versus 2008. The HeartMate product line accounted for $229.8 million in revenues, a 43 percent increase over sales of $160.8 million a year ago. The Thoratec product line, which includes the PVAD and IVAD, accounted for sales of $34.8 million, a 16 percent decline versus sales of $41.7 million a year ago. CentriMag sales in 2009 were $12.6 million, a 28 percent increase over sales of $9.9 million a year ago. The balance of Cardiovascular Division revenues reflects contributions from the company's graft business. During 2009, pump sales accounted for $204.7 million in revenue, with $72.6 million generated by sales of equipment and accessories. This compares with pump revenues of $164.9 million and equipment and accessory revenues of $47.4 million in 2008. Cardiovascular Division revenues in North America were $234.2 million, a 35 percent increase over North American revenues of $173.1 million a year ago. International Cardiovascular Division revenues were $45.8 million, an increase of nine percent over revenues of $41.8 million a year ago. The FX adjusted growth in 2009 was 16 percent with the majority of this growth occurring in the second half of the year.
At ITC, revenues included $50.5 million for hospital point-of-care, which includes HemoChron, AVOX and IRMA. This represents a decrease of five percent over revenues of $53.3 million a year ago. Revenues for the alternate site business, which is primarily ProTime, were $30.7 million, a two percent increase over revenues of $30.0 million a year ago. Skin incision revenues were $12.7 million, a decline of 17 percent versus revenues of $15.3 million a year ago. The geographical breakout of revenues at ITC was $56.3 million in the U.S., or a decrease of 12 percent versus $64.2 million a year ago. International revenues were $37.6 million, an increase of ten percent versus revenues of $34.3 million a year ago.
GAAP gross margin in 2009 was 58.8 percent versus 59.3 percent a year ago. Non-GAAP gross margin, which is described later in this press release, was 59.3 percent versus 59.9 percent in 2008. The year-over-year decrease in gross margin is due primarily to $6.9 million in excess inventory reserves related to the declining utilization of the HeartMate XVE, unfavorable foreign exchange, and manufacturing variances at ITC offset in part by overall worldwide HeartMate II volume and the rollout of our new HeartMate external peripherals.
Operating expenses for 2009 on a GAAP basis were $172.8 million versus $160.3 million a year ago. On a non-GAAP basis, operating expenses were consistent year-over-year at $138.0 million as a result of increased Cardiovascular Division spending on product development and market development initiatives offset by lower bonus and commission expense and decreased spending at ITC. Operating expenses on a non-GAAP basis are described later in this press release.
The company's GAAP effective tax rate for 2009 was 29.9 percent versus 23.3 percent a year ago. The non-GAAP tax rate for the full year, which is described later in this press release, was 34.1 percent versus 32.6 percent in 2008. The increase in the GAAP and non-GAAP tax rates reflect an increase in pre-tax income, lower tax-exempt interest rates, and non-deductible compensation in part offset by a change in state apportionment rates.
The company's convertible debt was dilutive on a non-GAAP basis for the fourth quarter and full year 2009. The increase in dilutive shares was approximately 7.3 million shares.
Cash and investments at the end of the year were $330.2 million, an increase of $51.7 million from the end of 2008. The cash and investment balance includes $24.6 million of Auction Rate Securities classified as long-term investments.
GUIDANCE FOR FISCAL 2010
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 additional information below.
The company expects to see solid growth in 2010, with consolidated revenues expected to be in the range of $420 to $430 million.
Worldwide growth in the Cardiovascular Division is expected to be 15 to 20 percent, with the HeartMate product line expected to grow at a mid-twenties percentage rate and the combination of the Thoratec and CentriMag product lines are expected to decline at a mid-single digit percentage rate from 2009. The growth in the HeartMate product line reflects the expected positive reception in the market for DT approval and the positive outcomes generated in the trial. Continued adoption of the new HeartMate external peripherals will also be an important growth driver, although not as significantly as in 2009. ITC revenues are expected to be flat to low single digit percentage growth, with the launch of the next generation ProTime around mid-year.
Gross margins on a non-GAAP basis are expected to be in the range of 61 to 62 percent, reflecting the market expansion of HeartMate II and the benefit of the continuing adoption of our new external peripherals. GAAP gross margin is expected to be in the range of 60.5 percent and 61.5 percent.
Non-GAAP operating income, excluding the one-time $8.5 million charge for the Percutaneous Heart Pump (PHP) acquired earlier this week, is expected to increase 20 to 25 percent over the prior year while GAAP operating income excluding the one-time PHP charge is expected to increase 59 percent to 67 percent for the same period. This growth in operating income incorporates the significant investments being made to drive near and long term growth including additions to the sales organization, marketing initiatives related to the launch of the HeartMate II for DT and continuing investment in innovation related to the HeartMate II platform, cross platform technologies and next generation pumps, along with the incremental investment in the PHP program .
Non-GAAP net income per diluted share is expected to be in the range of $0.96 to $1.01 and GAAP net income per diluted share is expected to be in the range of $0.68 to $0.72. The one-time expense from the PHP technology acquisition is expected to impact net income per diluted share by approximately $0.09 on both a non-GAAP and GAAP basis in 2010. Excluding the acquisition fee, non-GAAP net income per diluted share is expected to be between $1.05 and $1.10 and between $0.77 and $0.81 on a 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 Standard Time (4:30 p.m., Eastern Standard Time) today. The teleconference can be accessed by calling (719) 325-2456, passcode 6302456. 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, February 4, via http://www.thoratec.com or by telephone at (719) 457-0820, passcode 6302456.
GAAP TO NON-GAAP RECONCILIATION
Thoratec management evaluates and makes operating decisions using various measures. These measures are generally based on revenues generated by its products and certain costs of producing that revenue, 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, 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 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 retrospective adoption of 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, HeartWare transaction costs, and unrealized gains on the equity conversion option included in the HeartWare loan agreement.
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.
Non-GAAP operating expenses consist of GAAP operating expenses excluding share-based compensation expense, amortization of purchased intangibles, and HeartWare 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, and unrealized gains or losses on the equity conversion option included in the HeartWare loan agreement.
Non-GAAP tax rate consists of the GAAP tax rate 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 HeartWare acquisition transaction costs and the unrealized gain on the equity conversion option included in the HeartWare loan agreement 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 the three and twelve month periods ending 2009 and 2008.
Thoratec is a world leader in therapies to address advanced-stage heart failure. The company's product lines include the Thoratec® VAD (Ventricular Assist Device) and HeartMate LVAS with more than 15,000 devices implanted in patients suffering from heart failure. Additionally, its International Technidyne Corporation (ITC) Division is a leader in point-of-care blood testing and skin incision products. Thoratec is headquartered in Pleasanton, California. For more information, visit the company's web sites at http://www.thoratec.com or http://www.itcmed.com.
Thoratec, the Thoratec logo, HeartMate and HeartMate II are registered trademarks of Thoratec Corporation and IVAD is a trademark of Thoratec Corporation. ITC, A-VOX Systems, AVOXimeter, HEMOCHRON, ProTime and IRMA are registered trademarks of International Technidyne Corporation. CentriMag is a registered trademark of Levitronix, LLC.
Many of the preceding paragraphs, particularly but not exclusively those addressing guidance for fiscal 2010 financial results, future performance or timelines and milestones for clinical trials, contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements can be identified by the words, "believes," "views," "expects," "plans," "projects," "hopes, "could," "will," and other similar words. Actual results, events or performance could differ materially from these forward-looking statements based on a variety of factors, many of which are beyond Thoratec's control. Therefore, readers are cautioned not to put undue reliance on these statements. Investors are cautioned that all such statements involve risks and uncertainties, including risks related to regulatory approvals, the development of new products and new markets including Destination Therapy, the growth of existing markets for our products, customer and physician acceptance of Thoratec products, changes in the mix of existing markets for our products and related gross margin for such product sales, the ability to improve financial performance, the effects of FDA regulatory requirements, our ability to address issues raised by FDA inspections adequately and on a timely basis without a resulting recall of product or interruption of manufacturing or shipment of products, the effects of healthcare reimbursement and coverage polices, the effects of seasonality on Thoratec products sales, the effects of competition and the effects of any merger and acquisition related activities. Forward-looking statements contained in this press release should be considered in light of these factors and those factors discussed from time to time in Thoratec's public reports filed with the Securities and Exchange Commission, such as those discussed under the heading, "Risk Factors," in Thoratec's most recent annual report on Form 10-K and in Thoratec's second quarter 2009 quarterly report on Form 10-Q, and as may be updated in subsequent SEC filings. These forward-looking statements speak only as of the date hereof. Thoratec undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events.
THORATEC CORPORATION Condensed Consolidated Statement of Operations (Unaudited) (in thousands, except for per share data) Three Months Ended Twelve Months Ended ------------------ ------------------- January 2, January 3, January 2, January 3, ---------- ---------- ---------- ---------- 2010 2009 As 2010 2009 As ---- Adjusted (1) ---- Adjusted (1) ------------ ------------ Product sales $104,495 $85,673 $373,937 $313,564 Cost of product sales 43,175 35,106 154,103 127,566 ------ ------ ------- ------- Gross profit 61,320 50,567 219,834 185,998 ------ ------ ------- ------- Operating expenses: Selling, general and administrative 25,470 25,804 107,927 94,142 Research and development 13,365 14,142 54,227 52,943 Amortization of purchased intangible assets 2,596 3,296 10,663 13,183 ----- ----- ------ ------ Total operating expenses 41,431 43,242 172,817 160,268 ------ ------ ------- ------- Income from operations 19,889 7,325 47,017 25,730 Other income and (expense): Interest expense (3,140) (2,735) (12,307) (10,984) Interest income and other (3,716) 2,505 6,043 9,146 ------ ----- ----- ----- Income before income taxes 13,033 7,095 40,753 23,892 Income tax expense (3,686) (1,770) (12,169) (5,561) ------ ------ ------- ------ Net income $9,347 $5,325 $28,584 $18,331 ====== ====== ======= ======= Net income per share Basic $0.16 $0.09 $0.50 $0.33 ===== ===== ===== ===== Diluted $0.16 $0.09 $0.49 $0.33 ===== ===== ===== ===== Shares used to compute net income per share: Basic 56,924 56,198 56,615 55,097 Diluted 58,374 57,578 58,027 56,196 (1) Adjusted for the retrospective adoption of 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.
SOURCE Thoratec Corporation