Thoratec Corporation

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Thoratec Reports 44 Percent Increase in Second Quarter Revenues;
PERFORMANCE DRIVEN BY SUCCESSFUL U.S. COMMERCIAL LAUNCH OF HEARTMATE II(R) FOR
                          BRIDGE-TO-TRANSPLANTATION

PLEASANTON, Calif., July 31 /PRNewswire-FirstCall/ -- Thoratec Corporation (Nasdaq: THOR), a world leader in device-based mechanical circulatory support therapies to save, support and restore failing hearts, today said that revenues for the second quarter of 2008 increased 44 percent over revenues in the same period a year ago.

Revenues for the quarter ended June 28, 2008 were $82.6 million versus $57.3 million in the second quarter of 2007. Net income on a GAAP basis in the second quarter of fiscal 2008 was $8.7 million, or $0.15 per diluted share, compared with net income on a GAAP basis of $1.3 million, or $0.02 per diluted share, in the second quarter of 2007. Non-GAAP net income, which is described later in this press release, was $12.1 million, or $0.20 per diluted share, in the second quarter of 2008, compared with non-GAAP net income of $5.3 million, or $0.09 per diluted share, in the same period a year ago.

For the first six months of fiscal 2008, revenues were $147.1 million versus $114.6 million in the first six months a year ago, or an increase of 28 percent. On a GAAP basis, Thoratec reported net income of $9.0 million, or $0.16 per diluted share, versus net income of $1.0 million, or $0.02 per diluted share, a year ago. Non-GAAP net income for the first six months of fiscal 2008 was $16.7 million, or $0.28 per diluted share, compared with non- GAAP net income of $9.6 million, or $0.17 per diluted share, in the first six months of fiscal 2007.

"We were extremely pleased with our performance for the quarter, which was driven by a 68 percent increase in sales at our Cardiovascular Division year- over-year," said Gary F. Burbach, president and chief executive officer.

"The key contributor to this growth was our successful launch of the HeartMate II LVAS (Left Ventricular Assist System) for bridge-to- transplantation (BTT) following its approval by the FDA in April. Our program to bring on new centers is ahead of expectations, as we added 26 during the quarter. We have also seen increased activity at existing centers and benefited from favorable pricing for the HeartMate II. In addition, we are seeing continued strong adoption of the HeartMate II in Europe," he added.

Burbach said that the company believes that factors contributing to increased utilization of mechanical circulatory support include the ongoing flow of favorable data around the HeartMate II, increasing clinician comfort with the device-based on the patient experience and ease of the procedure-and an improved reimbursement environment.

"Our financial performance also reflects solid growth at our International Technidyne Corporation (ITC) Division. Our ProTime(R) alternate site business had strong growth, as did our HEMOCHRON(R) coagulation product line, and our AVOX co-oximetry systems," Burbach noted.

The company also updated enrollment in the Destination Therapy (DT) arm of its Pivotal clinical trial for the HeartMate II. As of July 25, 2008, there were 570 patients enrolled in the DT arm of the trial. Enrollment in the randomized portion of the DT arm was 350 patients.

FINANCIAL HIGHLIGHTS

Thoratec reported revenues of $82.6 million in the second quarter of 2008 compared with revenues of $57.3 million in the second quarter of 2007. Cardiovascular Division revenues were $57.5 million versus $34.2 million in the same period a year ago. Revenues at ITC were $25.1 million versus $23.1 million a year ago.

GAAP gross margin for the second quarter of 2008 was 61.5 percent versus 58.8 percent a year ago. Non-GAAP gross margin, which excludes SFAS No. 123R expense and is described later in this press release, was 62.1 percent versus 59.4 percent a year ago. The improvement in gross margin reflects primarily the increase in average selling prices associated with U.S. commercial approval of the HeartMate II and favorable pump mix at the Cardiovascular Division combined with favorable manufacturing variances. This was offset by lower margins at ITC primarily related to geographic and product mix and competitive pricing pressure in our skin incision business.

Operating expenses for the second quarters of 2008 and 2007 on a GAAP basis were $40.0 million and $33.0 million, respectively. On a non-GAAP basis, operating expenses in the second quarter of 2008 were $34.5 million compared with $27.6 million in the second quarter of 2007. Operating expenses on a non- GAAP basis are described later in this press release. The year-over-year increase in operating expenses is primarily due to product and market development initiatives, commercialization efforts around the HeartMate II, and higher compensation expense.

The company's GAAP effective tax rate for the second quarter of 2008 was 27.8 percent versus 6.1 percent in the second quarter of 2007. The non-GAAP tax rate for the second quarter of 2008, which is described later in this press release, was 32.4 percent versus 26.8 percent in the prior year. This increase is primarily related to an increase in projected pre tax earnings and the absence of R&D tax credits in 2008, which will be recognized in a future period upon Congressional approval.

On a GAAP and non-GAAP basis, the company's convertible debt was dilutive to the company's fully diluted weighted average shares outstanding. The increase in shares was approximately 7.3 million.

Cash and investments at the end of the quarter were $228 million, an increase of $10 million from the end of fiscal 2007. The cash and investments balance includes $32.0 million of Auction Rate Securities classified as long term investments.

The company also provided a breakdown of sales by product line year-to-date for both of its divisions. The Cardiovascular Division year-to-date revenue was $97.7 million. HeartMate II and HeartMate(R) XVE product sales were $69.0 million, an increase of 59 percent year-over-year. PVAD and IVAD product line sales were $22.0 million, a decrease of two percent year-over year. CentriMag(R) sales were $5.4 million, an increase of 108 percent year-over-year, and graft sales were $1.3 million, consistent with prior year.

The ITC Division year-to-date revenue was $49.3 million. Hospital point-of-care revenues, which include HEMOCHRON coagulation, AVOX co-oximetry and IRMA(R) blood gas products, were $27.2 million, an increase of 16 percent year-over-year. Alternate site revenues, which are primarily from ProTime sales, were $13.8 million, a seven percent increase over last year, while skin incision revenues were $8.3 million, a decrease of three percent versus last year.

GUIDANCE FOR FISCAL 2008

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 provided an update to guidance for the full year. Revenues are projected to be between $285 million and $295 million. GAAP gross margins are expected to be between 58% and 59%, with non-GAAP gross margins between 59% and 60%. GAAP EPS is expected to be between $0.20 and $0.26, while non-GAAP EPS is expected to be in a range of $0.47 to $0.52.

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 (913) 312-0379, passcode 4566478. 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, August 7, 2008, via http://www.thoratec.com or by telephone at (719) 457-0820, passcode 4566478.

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 tax rate, non-GAAP net income, and non-GAAP EPS. 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 (loss) consists of GAAP net income (loss) before taxes, excluding, as applicable, share-based compensation expense under SFAS No. 123R, amortization of purchased intangibles, the 2007 changes in the value of the make-whole provision of our convertible notes, as adjusted by the amount of additional taxes payable or tax benefit that the company would accrue if it used non-GAAP results instead of GAAP results to calculate the company's tax liability.

Non-GAAP EPS 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 under SFAS No 123R.

Non-GAAP operating expenses consist of GAAP operating expenses excluding share-based compensation expense under SFAS No. 123R and amortization of purchased intangibles

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, and in-process research and development expenses. 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. Management believes it is useful to exclude 2007 changes in the value of the make-whole provision of our convertible notes as this item is also not indicative of Thoratec's core operating business. The make-whole provision is a non- operating item that is included in other income (expense) and is part of our financing activities in 2007.

Because of varying valuation methodologies, subjective assumptions and the variety of award types that companies can use under SFAS No. 123R, 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.

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 six month periods ending in 2008 and 2007.



                             THORATEC CORPORATION
                Condensed Consolidated Statement of Operations
                                 (Unaudited)
                  (in thousands, except for per share data)

                                        Three Months Ended  Six Months Ended
                                        June 28, June 30,  June 28,  June 30,
                                          2008     2007      2008      2007


    Product sales                        $82,648  $57,333  $147,075  $114,643
    Cost of product sales                 31,825   23,648    60,415    46,445
    Gross profit                          50,823   33,685    86,660    68,198
    Operating expenses:
      Selling, general and
       administrative                     23,857   19,134    44,493    41,079
      Research and development            12,839   10,767    25,358    21,660
      Amortization of purchased
       intangible assets                   3,296    3,143     6,592     6,296
    Total operating expenses              39,992   33,044    76,443    69,035
    Income (loss) from operations         10,831      641    10,217      (837)
    Other income and (expense):
      Interest expense                    (1,131)  (1,074)   (2,021)   (2,142)
      Interest income and other            2,281    1,766     4,459     3,953
    Income before income taxes            11,981    1,333    12,655       974
      Income tax benefit (expense)        (3,330)     (80)   (3,655)        4
    Net income                            $8,651   $1,253    $9,000      $978

    Net income per share
      Basic                                $0.16    $0.02     $0.17     $0.02
      Diluted                              $0.15    $0.02     $0.16     $0.02

    Shares used to compute net income
     per share:
      Basic                               54,556   53,370    54,389    53,055
      Diluted                             62,624   54,728    62,396    54,421


The following table reconciles the specific items excluded from GAAP net income in the calculation of non-GAAP net income for the periods shown below:



                             THORATEC CORPORATION
                Reconciliation of GAAP to Non-GAAP Net Income
                                 (Unaudited)
                  (in thousands, except for per share data)

                                        Three Months Ended  Six Months Ended
                                         June 28,  June 30, June 28, June 30,
    Net income/(loss) reconciliation       2008      2007     2008     2007

    Net income on a GAAP basis            $8,651   $1,253   $9,000    $978
      Share-based compensation expense:
        - Cost of product sales              471      381      913     738
      Share-based compensation expense:
        - Selling, general and
          administrative                   1,562    1,757    3,236   4,105
        - Research and development           596      591    1,344   1,389
      Amortization of purchased
       intangibles                         3,296    3,143    6,592   6,296
      Make-whole provision                    - (B)    11      -       (80)
      Income tax effect of non-GAAP
       adjustments                        (2,471)  (1,851)  (4,433) (3,864)
    Net income on a non-GAAP basis       $12,105   $5,285  $16,652  $9,562




                                   Three Months Ended   Six Months Ended
    Diluted net income (loss) per June 28,   June 30,   June 28,  June 30,
     share reconciliation           2008       2007       2008      2007
    (in thousands, except per
     share data)
    Diluted net income per share
     on a GAAP basis               $0.15      $0.02       $0.16     $0.02
      Share-based compensation
       expense:
        - Cost of product sales     0.01       0.01        0.01      0.01
      Share-based compensation
       expense:
        - Selling, general and
         administrative             0.02       0.03        0.05      0.08
        - Research and development  0.01       0.01        0.02      0.03
      Amortization of purchased
       intangibles                  0.05       0.06        0.11      0.12
      Make-whole provision           -          -           -         -
      Income tax effect of non-GAAP
       adjustments                 (0.04)     (0.03)      (0.07)    (0.07)
      Convertible debt dilution
       impact                        - (A)    (0.01) (A)     - (A)  (0.02) (A)
    Diluted net income per share
     on a non-GAAP basis           $0.20      $0.09       $0.28     $0.17
    Shares used in calculation of
     diluted net income per share
     --GAAP                       62,624     54,728      62,396    54,421
    Shares used in calculation of
     diluted net income per share
     -- Non-GAAP                  62,624     62,018      62,396    61,711

    (A) The company's total diluted share count on a non-GAAP basis in Q2 2008
        and Q2 2007 & GAAP basis in Q2 2008 includes approximately 7.3 million
        shares underlying its convertible notes as they were dilutive for the
        quarter.

    (B) The Make-whole provision is included in Non-GAAP earnings for Q2 2008.


The following table reconciles the specific items excluded from GAAP gross profit and gross margin in the calculation of non-GAAP gross profit and gross margin for the periods shown below:



                             THORATEC CORPORATION
               Reconciliation of GAAP to Non-GAAP Gross Profit
                                 (Unaudited)
                  (in thousands, except for per share data)

                       Three Months Ended            Six Months Ended
                      June 28,     June 30,        June 28,     June 30,
                       2008         2007             2008          2007
    Gross profit
     on a GAAP
     basis           $50,823 61.5% $33,685 58.8%  $86,660 58.9% $68,198 59.5%
      Share-based
      compensation
       expense           471           381            913           738
    Gross profit on
     a non-GAAP
     basis           $51,294 62.1% $34,066 59.4%  $87,573 59.5% $68,936 60.1%


The following tables reconcile the specific items excluded from GAAP operating expenses in the calculation of non-GAAP operating expenses for the periods shown below:



                             THORATEC CORPORATION
            Reconciliation of GAAP to Non-GAAP Operating Expenses
                                 (Unaudited)
                  (in thousands, except for per share data)

                                         Three Months Ended Six Months Ended
                                          June 28, June 30, June 28, June 30,
                                            2008     2007     2008     2007

    Operating expenses on a GAAP basis     $39,992  $33,044  $76,443  $69,035
      Share-based compensation expense:
        - Selling, general and
          administrative                    (1,562)  (1,757)  (3,236)  (4,105)
        - Research and development            (596)    (591)  (1,344)  (1,389)
      Amortization of purchased intangibles (3,296)  (3,143)  (6,592)  (6,296)
    Operating expenses on a non-GAAP
     basis                                 $34,538  $27,553  $65,271  $57,245


The following table reconciles the GAAP tax rate adjusted for the tax effect of the adjustments from GAAP net income to non-GAAP net income.



                             THORATEC CORPORATION
            GAAP to Non-GAAP Tax Benefit (Expense) Reconciliation
                                 (Unaudited)
                  (in thousands, except for per share data)


                    Three Months Ended            Six Months Ended
                 June 28,         June 30,     June 28,       June 30,
                  2008             2007          2008           2007
    Tax benefit
     (expense) on
     a GAAP
      basis    $(3,330) 27.8%     $(80)  6.0%  $(3,655) 28.9%     $4   -0.4%
      Amorti-
      zation
       of
       purchased
       intan-
       gibles   (1,318)         (1,219)         (2,637)       (2,440)
      Make-whole
       pro-
       vision        -               -               -             35
      Equity plan
       review
       adjustment    -               -               -            (38)
      Share-based
       compensation
       expense and
       other    (1,153)           (632)         (1,795)        (1,421)
    Tax expense
     on a
     non-GAAP
     basis     $(5,801) 32.4%  $(1,931) 26.8%  $(8,087) 32.7% $(3,860) 28.8%


The following tables reconcile the Guidance on a GAAP and Non GAAP basis for the periods shown below:



                              THORATEC CORPORATION
          Reconciliation of GAAP to Non-GAAP  Forward-Looking Guidance
                                   (Unaudited)
                    (in thousands, except for per share data)

    Gross margin                                For the Fiscal Year Ended 2008
                                                       From               To
    (in thousands)
    Gross profit on a GAAP basis                        58%               59%
      Share-based compensation expense:
        - Cost of product sales                          1%                1%
    Gross profit on a non-GAAP basis                    59%               60%



    Diluted net income/(loss) per share
    reconciliation                              For the Fiscal Year Ended 2008
                                                      From               To
    (in thousands, except per share data)
    Diluted net income (loss) per share on a
     GAAP basis                                      $0.20             $0.26
      Share-based compensation expense                0.20              0.20
      Amortization of purchased intangibles           0.21              0.21
      Income tax effect of non-GAAP
       adjustments                                   (0.14)            (0.15)

    Diluted net income per share on a
     non-GAAP basis                                  $0.47             $0.52
    Shares used in calculation of diluted
     net income (loss) per share -- GAAP            62,801            62,801
    Shares used  in calculation of
     diluted net income per share -- non-
     GAAP (a)                                       62,801            62,801

     (a) Shares used in the per share calculation for reconciling items
         between GAAP and non-GAAP financial measures.


Thoratec is a world leader in therapies to address advanced stage heart failure. The company's product lines include the Thoratec(R) VAD and HeartMate LVAS with nearly 12,000 devices implanted in patients suffering from heart failure. Additionally, its International Technidyne Corporation (ITC) Division supplies 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 2008 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," "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 the development of 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 results of enrollment in and timing of clinical trials, including for the HeartMate II, the ability to improve financial performance, regulatory approval processes, the effects of healthcare reimbursement and coverage policies, the effects of seasonality in Thoratec product sales, the effects of price competition from any Thoratec competitors 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 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.

SOURCE Thoratec Corporation

CONTACT:
David Smith,
Executive Vice President,
Chief Financial Officer
of Thoratec Corporation,
+1-925-847-8600;
or
Neal Rosen
of Ruder-Finn,
+1-415-692-3058,
for Thoratec Corporation


Web site: http://www.thoratec.com