THOR

Thoratec Corporation (THOR)

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Thoratec (THOR)

Q1 2013 Earnings Call

May 02, 2013 4:30 pm ET

Executives

Taylor C. Harris - Chief Financial Officer, Principal Accounting Officer and Vice President

Gerhard F. Burbach - Chief Executive Officer, President and Executive Director

Analysts

Danielle Antalffy - Leerink Swann LLC, Research Division

Steven M. Lichtman - Oppenheimer & Co. Inc., Research Division

Rajeev Jashnani - UBS Investment Bank, Research Division

Jason R. Mills - Canaccord Genuity, Research Division

Lawrence Biegelsen - Wells Fargo Securities, LLC, Research Division

Robert A. Hopkins - BofA Merrill Lynch, Research Division

David H. Roman - Goldman Sachs Group Inc., Research Division

Christopher T. Pasquale - JP Morgan Chase & Co, Research Division

Brooks E. West - Piper Jaffray Companies, Research Division

Matthew Taylor - Barclays Capital, Research Division

Michael Rich

Suraj Kalia - Northland Capital Markets, Research Division

Narendra Nayak - Crédit Suisse AG, Research Division

Mimi Pham

Charles Croson - Sidoti & Company, LLC

Presentation

Operator

Good day, and welcome to the Thoratec Corporation Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Taylor Harris. Please go ahead, Sir.

Taylor C. Harris

Thanks, Nancy. Good afternoon, and thank you for joining us today. With me is Gary Burbach, President and Chief Executive Officer. Gary will discuss financial and operational highlights from the first quarter of 2013, and I will then review the financial results for the quarter, as well as our outlook for the remainder of the year. We will then open the call to your questions.

Before turning the call over to Gary, I want to remind you that during the course of today's conference call and the question-and-answer session that follows, we may make projections or other forward-looking statements that are subject to the Safe Harbor provisions of the securities laws regarding future events or the financial performance of the company. We caution you that these statements are only predictions and that actual results may differ materially.

We also alert you to the risks contained in the documents we file with the Securities and Exchange Commission, such as our annual and quarterly reports on Forms 10-K and 10-Q. We do not undertake any obligation to update or correct any forward-looking statements.

Gary?

Gerhard F. Burbach

Thank you, Taylor. And good afternoon, everyone. There are a number of important highlights on both the market development and product development fronts, which I look forward to reviewing on today's call.

As expected, Thoratec faced a challenging landscape in the first quarter of 2013, given our strong finish to 2012 in all key geographies and the advent of increased competition in the U.S. And as such, revenues declined on a year-over-year basis. That said, I believe that our team is responding well to these near-term challenges, while at the same time, we are staying focused on the long-term growth drivers that are key to success in the LVAD market.

During the first quarter, we absorbed the early competitive inroads that we had contemplated as part of our original guidance for 2013. However, we continued to support our full range of market growth initiatives; we delivered a record performance from the emerging group of open heart centers; and over the past few months, we have sharpened our competitive messaging regarding the proven clinical performance of HeartMate II.

Looking ahead to the balance of 2013, we are pleased to have begun our commercial entry into the Japanese LVAD market, and we are eagerly awaiting FDA approval of the Pocket Controller. Meanwhile, we are forging ahead with exciting product development activity, and we remain on track to begin pivotal clinical trials with both HeartMate III and PHP later this year.

All in all, Thoratec is as energized and dedicated as ever to the mission of advancing mechanical circulatory support therapies, and we continued to make progress towards that goal during the first quarter of 2013.

With respect to our financial results for the first quarter, Thoratec generated revenues of $117.7 million, a 7% decrease compared to revenues of $126.8 million in the first quarter of 2012. As a reminder, we faced a difficult comparison this quarter as Q1 was our strongest quarter last year for both the HeartMate II and PVAD franchises. For Q1 2013, HeartMate II revenues declined 8% year-over-year and PVAD revenues declined 34%, offset by strong growth in our CentriMag product family of 20%.

In terms of geographic breakdown, we recorded revenues of $92.3 million in the U.S. versus $103.9 million in the prior year, a decline of 11%; while international revenues were $25.4 million versus $22.9 million a year ago, representing an increase of 11%.

The year-over-year impact of foreign exchange was roughly neutral. Earnings for the quarter on a non-GAAP basis were $0.41 per share.

We sold 935 chronic pumps in the quarter compared to 1,057 pumps in the first quarter a year ago. Domestically, we sold 716 pumps, a decrease of 15% versus 838 in the first quarter a year ago. And internationally, we sold 219 pumps, flat versus the prior year.

PVAD and IVAD declined by approximately 30 units on a worldwide basis, with HeartMate II accounting for the balance of the decline. In the U.S. market, this decline in HeartMate II units came primarily from the larger group 1 and group 2 transplant centers, where in 2012, we saw our strongest performance of the year during the first quarter, creating a challenging comparison for Q1 of 2013. However, we achieved excellent performance from the open heart centers, which drove an upper teens increase in HeartMate II volume.

In total, group 3 centers, which include open heart centers and smaller transplant center programs, contributed approximately 23% of overall HeartMate II unit sales during the first quarter.

As for our acute product line, CentriMag and PediMag, we saw encouraging strength on a global basis during the first quarter. In the U.S. market, pump volume expanded 18%, driven by broad activity across our customer base, and we added 10 new accounts. In international markets, pump volume growth was 11%, but revenues grew over 25%, as we're realizing the pricing benefit of transitioning a large distributor territory to our direct sales force. We also added 7 new centers outside the U.S. during the first quarter.

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