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SEC Filings

10-Q
HEARTWARE INTERNATIONAL, INC. filed this Form 10-Q on 11/02/2015
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Table of Contents

Cost of Revenue

Cost of revenue includes costs associated with manufacturing and distributing our products and consists of direct materials, labor and overhead expenses allocated to the manufacturing process, provisions for excess or obsolete inventory, and shipping costs. Cost of revenue totaled approximately $33.0 million and $23.0 million in the three months ended September 30, 2015 and 2014, respectively. Cost of revenue totaled approximately $80.3 million and $68.8 million in the nine months ended September 30, 2015 and 2014, respectively.

Gross profit and gross margin percentage are as follows:

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2015     2014     2015     2014  
     (in thousands)     (in thousands)  

Gross profit

   $ 32,176      $ 45,631      $ 128,498      $ 136,365   

Gross margin %

     49.4     66.5     61.6     66.5

The decrease in gross margin percentage during the three months ended September 30, 2015 compared to the same period in 2014 was primarily a result of charges associated with field actions (11.3%), unfavorable foreign exchange rates (3.5%), European customs duties charge (1.3%), customer and geographic mix (0.5%), and to a lesser extent limited competitive pricing pressures in a handful of indirect markets.

The decrease in gross margin percentage during the nine months ended September 30, 2015 compared to the same period in 2014 was primarily a result of unfavorable foreign exchange rates (2.7%), charges associated with field actions (2.4%), and to a lesser extent customer and geographic mix, European customs duties charge and limited competitive pricing pressures in a handful of indirect markets.

Selling, General and Administrative

Selling, general and administrative expenses include costs associated with selling and marketing our products and the general corporate administration of the Company. These costs are primarily related to salaries and wages and related employee costs, travel, marketing, external consultants and contractors, legal and accounting fees and general infrastructure costs, and include all operating costs not associated with or otherwise classified as research and development costs or cost of revenue.

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2015     2014     Change     2015     2014     Change  
     (in thousands)           (in thousands)        

Selling, general and administrative expenses

   $ 25,171      $ 20,584        22   $ 69,347      $ 65,765        5

% of operating expenses, excluding changes in fair value of contingent consideration

     45     41       43     42  

The increase of $4.6 million for the three months ended September 30, 2015 as compared to the three months ended September 30, 2014 reflects Valtech-related transaction fees of $3.6 million, an increase in salaries and related costs associated with headcount growth of $0.8 million, and professional fees of $0.9 million. All other expenses decreased by $0.7 million.

The increase of $3.6 million for the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014 reflects an increase in salaries and related costs associated with headcount growth of $2.7 million, legal and advisory fees related to the Valtech acquisition of $3.0 million and non-cash share-based compensation expense of $0.6 million. Offsetting decreases include approximately $2.5 million of restructuring charges in 2014 resulting from lease exit costs associated with facilities we vacated in Massachusetts and New Jersey, severance costs and asset impairment charges. Aside from the Massachusetts facility item, these charges related to our acquisition of CircuLite.

 

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