THOR

Thoratec Corporation (THOR)

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Thoratec (THOR)

Q2 2013 Earnings Call

July 31, 2013 4:30 pm ET

Executives

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

Neil Meyer

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

Analysts

Lawrence Biegelsen - Wells Fargo Securities, LLC, Research Division

Matthew Taylor - Barclays Capital, Research Division

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

Brooks E. West - Piper Jaffray Companies, Research Division

Robert A. Hopkins - BofA Merrill Lynch, Research Division

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

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

Bruce M. Nudell - Crédit Suisse AG, Research Division

Jason R. Mills - Canaccord Genuity, Research Division

Danielle Antalffy - Leerink Swann LLC, Research Division

Jayson T. Bedford - Raymond James & Associates, Inc., Research Division

Suraj Kalia - Northland Capital Markets, Research Division

Presentation

Operator

Good day, everyone, and welcome to the Thoratec Corporation earnings conference call. Today's conference is being recorded. At this time, I would like to turn things over to Mr. Taylor Harris, CFO. Please go ahead, sir.

Taylor C. Harris

Thanks, Kara, and good afternoon. Before we begin today's call, I would like to introduce Neil Meyer, who has recently joined Thoratec as Director of Investor Relations. Some on this call may have interacted with Neil in the past as he comes to Thoratec with significant experience, both on the sale side and as a healthcare investor. And his contact information is contained in the earnings press release issued today. We are pleased to welcome Neil to Thoratec. Neil?

Neil Meyer

Thank you, Taylor. Good afternoon, and thank you for joining us today. Joining me is Gary Burbach, President and Chief Executive Officer; and Taylor Harris, Vice President and Chief Financial Officer. Gary will discuss highlights from the second quarter and first half of 2013, and Taylor will review the financial results for the quarter, as well as our outlook for 2013 in more detail. 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 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 filed 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 statement. Gary?

Gerhard F. Burbach

Thank you, Neil, and good afternoon.

In the second quarter, Thoratec generated strong financial and operational results, supported by our leadership positions with HeartMate II and CentriMag, as well as our ongoing efforts to develop the markets for both chronic and acute mechanical circulatory support on a global basis.

In the United States, we drove a sequential increase in HeartMate II unit volume relative to the first quarter, launched the Pocket Controller to a large number of customers and continue to drive strong growth in our CentriMag product line.

Internationally, we generated robust year-over-year revenue growth highlighted by encouraging initial adoption of HeartMate II in Japan. Additionally, we continue to advance our product pipeline, which we recently broadened through the acquisition of the DuraHeart II VAD system. We'll discuss all of these highlights in more detail later in our prepared remarks.

With respect to our financial results for the second quarter, Thoratec generated revenues of $130.5 million, a 10% increase over revenues of $118.6 million in the second quarter of 2012. As expected, HeartMate II revenues increased sequentially from the first quarter and achieved 9% year-over-year growth, while CentriMag posted very attractive year-over-year growth of 44%. These increases were partially offset by continued declines in the legacy PVAD product line.

In terms of geographic breakdown, we recorded revenues of $98.8 million in the United States versus $97.1 million in the prior year, an increase of 2%. Meanwhile, international revenues increased 47% to $31.7 million compared with $21.5 million last year, with a significant contribution from our recent successful launch in Japan. Foreign exchange had a negligible impact on revenues for the second quarter. Earnings per share on a non-GAAP basis were $0.52, an increase of 16%.

For the first 6 months of 2013, worldwide revenues of $248.2 million increased 1% versus the first 6 months of 2012 on both the reported and constant currency basis. During the first half, strong year-over-year growth of 31% for CentriMag and PediMag was balanced by stable HeartMate II revenues and the expected decline in PVAD revenues.

International growth was particularly strong at 29% during the first 6 months of 2013, while U.S. revenues declined 5%. Earnings on a non-GAAP basis for the first half of 2013 were $0.93, a decrease of 3%. During the second quarter, we shipped 1,057 chronic pumps, including 770 in the United States and 287 internationally, representing an increase of 7% year-over-year.

On a worldwide basis, HeartMate II units grew 9% compared to the second quarter of 2012 with international HeartMate II units growing 39% and domestic unit growth of 1%. In the U.S., we continue to see excellent performance from our Group 3 centers with 20% unit growth, offset by a modest decline from the Group 1 and Group 2 transplant centers collectively. As a reminder, Group 3 includes open-heart centers and smaller transplant centers that adopted HeartMate II after 2008, and this group represented approximately 22% of HeartMate II volume in the first half of the year.

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