CARDIAC SCIENCE CORPORATION 
By BOTHELL, Wash., July 29 /PRNewswire-FirstCall/ -- Cardiac Science Corporation (Nasdaq: CSCX), a global leader in automated external defibrillator (AED) and diagnostic cardiac monitoring devices, today announced its financial results for the second quarter of 2010.
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Revenue for the second quarter of 2010 was $36.1 million, approximately equal to second quarter 2009 revenue. The Company's net loss of $18.5 million included a charge of $11.0 million associated with the Company's previously announced plan to replace AEDs used by certain first responders and medical providers. Excluding this charge, the Company's pro forma net loss for the second quarter was $7.5 million.
"We have resolved major uncertainties surrounding our business and are pleased to return focus to our growth initiatives," said Dave Marver, president and chief executive officer. "This month brought two major new product introductions in Cardiac Monitoring (CareCenter MD and the Quinton 9500 Series) and an exciting new partnership with Best Buy. Additional announcements are expected in the next several weeks as we build momentum toward improved financial results."
Second Quarter Financial Results
Second quarter revenue of $36.1 million consisted of $12.6 million in cardiac monitoring products revenue, $19.1 million in defibrillation products revenue and $4.4 million in service revenue. Defibrillation products revenue was up 13% compared to the prior year second quarter and was up 20% over the first quarter of 2010. Second quarter 2010 cardiac monitoring products revenue was down 15% compared to the exceptionally strong prior year second quarter, but was down only slightly compared to the first quarter of 2010. Service revenue for the second quarter of 2010 was essentially flat compared to the same quarter last year and was up slightly from the first quarter of 2010.
Gross margin was 16.3% for the second quarter of 2010, including the effect of the $11.0 million charge relating to the updated AED recall plan. Excluding this charge, pro forma gross margin was 46.7%, down compared to 48.6% for the second quarter of 2009. The decrease in pro forma gross margin compared to the prior year was primarily due to changes in product mix, cost increases in certain product components, and inefficiencies in the factory due to the Company's recent recall activities.
Operating expenses for the quarter were $24.2 million, compared to $21.2 million for the second quarter of 2009. Operating expenses for the second quarter of 2010 reflected increased spending in research and development, sales, and marketing in anticipation of upcoming planned new product releases, along with increased general and administrative expenses related to information technology, regulatory affairs and quality assurance functions.
The Company reported a net loss of $18.5 million, or $0.78 loss per share in the second quarter of 2010, inclusive of the $11.0 million charge related to the updated recall plan. Excluding this charge, the Company's pro forma net loss would have been $7.5 million. EBITDA was negative $16.8 million for the quarter and Adjusted EBITDA, which excludes stock-based compensation expense and the recall charge, was negative $5.2 million. The Company's pro forma net loss and Adjusted EBITDA loss were higher than previously announced guidance for the quarter due to lower than expected gross profit and slightly higher than expected operating costs, principally related to non-recurring legal and other professional fees associated with financing and related activities.
The Company reported net cash used in operations of $9.3 million for the second quarter of 2010, including $3.1 million used in activities relating to the Company's ongoing AED corrective actions. The Company had $10.9 million in cash and cash equivalents as of June 30, 2010.
Outlook
The Company expects revenue for the third quarter of 2010 to be in a range between $36.0 and $39.0 million, with some growth over the second quarter, attributable mostly to the recently announced and additional planned new product releases. Net loss for the third quarter is expected to be in a range between $5.5 and $6.5 million, with Adjusted EBITDA in a range between negative $3.5 and negative $4.5 million. The improvements in net loss and Adjusted EBITDA over the second quarter are expected to result from higher revenue and gross profit, combined with reduced operating expense.
The Company expects revenue for 2010 to be in a range between $145 and $150 million. This revenue range includes expected growth in cardiac monitoring revenue in the second half of the year, driven by new product releases and expected improvement in AED sales as a result of the resolution of the recall issues.
With improving revenue in the second half of 2010 continuing into 2011, and with operating expenses expected to decrease as a result of the completion of the new product launches and other initiatives, the Company expects operating losses to decrease and cash flow to improve in future periods.
"We preliminarily expect revenue growth in excess of 10% for 2011," said Mike Matysik, senior vice president and chief financial officer. "In addition, with reducing operating costs, we expect to cross back over to profitability before the end of 2011 and we expect to generate positive EBITDA for the full year 2011. With our increased line of credit in place, in combination with our existing cash, we expect to be able to fund both operations and our liabilities under the recalls and we expect to ultimately repay any borrowings under our line of credit with cash generated from operations."
Non-GAAP and Pro Forma Financial Information
This news release contains a discussion of EBITDA, Adjusted EBITDA, Pro Forma Net Loss and Pro Forma Gross Margin which are non-GAAP financial measures provided as a complement to results provided in accordance with U.S. generally accepted accounting principles ("GAAP"). We define the term "EBITDA" as earnings before net interest, income taxes, depreciation, and amortization. We define "Adjusted EBITDA" as EBITDA before stock-based compensation and corrective action costs associated with the updated AED recall plan. "Pro Forma Net Loss" refers to our Net Loss for the period excluding the costs associated with corrective actions. "Pro Forma Gross Margin" refers to Gross Profit before costs associated with corrective actions as a percentage of Total Revenues. These measures are not substitutes for measures determined in accordance with GAAP, and may not be comparable to the same measures as reported by other companies. EBITDA and Adjusted EBITDA are an integral part of the internal management reporting and planning process and are the primary measures used by management to evaluate the operating performance of the Company. The components of these measures include the key revenue and expense items for which operating managers are responsible and upon which their performance is evaluated. The Company also uses Adjusted EBITDA for planning purposes and in presentations to its board of directors. Pro Forma Net Loss and Pro Forma Gross Margin are being presented because of the impact of the extraordinary charges related to the corrective actions on the Company's Gross Margin and overall Net Loss for the three and six month periods ending June 30, 2010. Presentation of the Net Loss and Gross Margin excluding this charge allows for a comparison of the Company's performance on a basis that management believes is more consistent from period to period. Reconciliations of EBITDA and Adjusted EBITDA to Net Loss, Pro Forma Net Loss to Net Loss and Pro Forma Gross Margin to Gross Margin, the most comparable GAAP measures, are contained in this press release.
Conference Call Information
Cardiac Science will conduct a conference call today at 4:30 p.m. Eastern Daylight Time to discuss the Company's financial results for the second quarter. The call will be hosted by Dave Marver, president and chief executive officer, and Mike Matysik, senior vice president and chief financial officer.
To access the conference call, please dial 888.561.1721 and reference conference ID 4336051. Callers outside the U.S. can dial 480.629.9868. The call will also be webcast live at www.cardiacscience.com. An audio replay of the call will be available for 7 days following the call at 800.406.7325 for U.S. callers or 303.590.3030 for those calling from outside the U.S. The password required to access the replay is 4336051#. An archived webcast will also be available at www.cardiacscience.com for 90 days.
About Cardiac Science
Cardiac Science develops, manufactures, and markets a family of advanced diagnostic and therapeutic cardiology devices and systems, including automated external defibrillators (AED), electrocardiograph devices (ECG/EKG), cardiac stress treadmill and systems, PC-based diagnostic workstations, Holter monitoring systems, hospital defibrillators, vital signs monitors, cardiac rehabilitation telemetry systems, and cardiology data management systems (informatics) that connect with hospital information (HIS), electronic medical record (EMR), and other information systems. The company sells a variety of related products and consumables and provides a portfolio of training, maintenance, and support services. Cardiac Science, the successor to the cardiac businesses that established the trusted Burdick®, HeartCentrix®, Powerheart®, and Quinton® brands, is headquartered in Bothell, Washington. With customers in almost 100 countries worldwide, the company has operations in North America, Europe, and Asia. For information, call 425.402.2000 or visit http://www.cardiacscience.com.
Forward-Looking Statements
This press release contains forward-looking statements. The words "believe," "expect," "intend," "anticipate," variations of such words, and similar expressions identify forward-looking statements, but their absence does not mean that the statement is not forward-looking. Forward-looking statements in this press release include, but are not limited to, those relating to Cardiac Science Corporation's future financial results and condition, estimated costs of the company's voluntary corrective actions, including the cost of the announced updated AED recall plan, the resolution of business uncertainties, anticipated future announcements and growth initiatives, and anticipated new product introductions. These are forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results and performance may vary significantly from those expressed or implied in such statements. Factors that could cause or contribute to such varying results and other risks include the outcome of discussions or negotiations with applicable regulatory bodies in geographies outside the U.S., the extent to which AED units recovered from affected customers can be repaired and used as replacement units for other customers, factors concerning the quality of processes, products and services, additional corrective actions or recalls, challenging economic conditions, increased competition, and potential delays in or challenges impacting introductions of new products, as well as those more fully described in the Annual Report on Form 10-K filed by Cardiac Science Corporation for the year ended December 31, 2009, as updated by subsequent quarterly reports on Form 10-Q. Cardiac Science Corporation undertakes no duty or obligation to update the information provided herein.
For more information,
---------------------
Company Contact: Investor Contact: Media Contact:
---------------- ----------------- --------------
Mike Matysik Matt Clawson Christopher Gale
Cardiac Science Corporation Allen & Caron EVC Group Inc.
Senior Vice President and CFO 949.474.4300 646.201.5431
425.402.2009 matt@allencaron.com 203.570.4681
cgale@evcgroup.com
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CSCX-F
- Tables to Follow -
Cardiac Science Corporation and Subsidiaries
Condensed Consolidated Statements of Operations (unaudited)
(in thousands, except share and per share amounts)
Three Months Ended June 30,
---------------------------
2010 2009
---- ----
$ % $ %
--- --- --- ---
Revenues:
Cardiac monitoring
products $12,621 35.0% $14,800 41.0%
Defibrillation products 19,051 52.8% 16,853 46.7%
------ ---- ------ ----
Total product revenues 31,672 87.7% 31,653 87.6%
Service 4,431 12.3% 4,461 12.4%
---- ----
Total revenues 36,103 100.0% 36,114 100.0%
------ ----- ------ -----
Cost of revenues:
Products 16,047 50.7% 15,433 48.8%
Corrective action costs 11,000 34.7% - n/m
Service 3,187 71.9% 3,130 70.2%
Total cost of revenues 30,234 83.7% 18,563 51.4%
------ ---- ------ ----
Gross profit:
Products 4,625 14.6% 16,220 51.2%
Service 1,244 28.1% 1,331 29.8%
----- -----
Gross profit 5,869 16.3% 17,551 48.6%
----- ---- ------ ----
Operating expenses:
Research and development 4,629 12.8% 3,617 10.0%
Sales and marketing 12,412 34.4% 11,271 31.2%
General and
administrative 7,201 19.9% 6,349 17.6%
----- -----
Total operating expenses 24,242 67.1% 21,237 58.8%
------ ---- ------ ----
Operating loss (18,373) -50.9% (3,686) -10.2%
------- ----- ------ -----
Other income (loss):
Interest income 8 0.0% 19 0.1%
Other income (loss), net (37) -0.1% 545 1.5%
--- ---- --- ---
Total other income (loss) (29) -0.1% 564 1.6%
--- ---- --- ---
Loss before income tax
benefit (expense): (18,402) -51.0% (3,122) -8.6%
Income tax benefit
(expense) (58) -0.2% 1,194 3.3%
--- ---- ----- ---
Net loss (18,460) -51.1% (1,928) -5.3%
Less: Net income
attributable to
noncontrolling interests (50) -0.1% (178) -0.5%
--- ---- ---- ----
Net loss attributable to
Cardiac Science
Corporation $(18,510) -51.3% $(2,106) -5.8%
======== ===== ======= ====
Net loss per share
attributable to Cardiac
Science Corporation:
Basic $(0.78) $(0.09)
Diluted $(0.78) $(0.09)
Weighted average shares
outstanding:
Basic 23,723,268 23,198,352
Diluted 23,723,268 23,198,352
Cardiac Science Corporation and Subsidiaries
Condensed Consolidated Statements of Operations (unaudited)
(in thousands, except share and per share amounts)
Six Months Ended June 30,
-------------------------
2010 2009
---- ----
$ % $ %
--- --- --- ---
Revenues:
Cardiac monitoring
products $25,526 36.9% $27,127 35.8%
Defibrillation products 34,913 50.4% 39,791 52.5%
------ ---- ------ ----
Total product revenues 60,439 87.3% 66,918 88.3%
Service 8,771 12.7% 8,860 11.7%
---- ----
Total revenues 69,210 100.0% 75,778 100.0%
------ ----- ------ -----
Cost of revenues:
Products 31,075 51.4% 32,067 47.9%
Corrective action costs 11,000 18.2% - n/m
Service 6,350 72.4% 6,281 70.9%
Total cost of revenues 48,425 70.0% 38,348 50.6%
------ ---- ------ ----
Gross profit:
Products 18,364 30.4% 34,851 52.1%
Service 2,421 27.6% 2,579 29.1%
----- -----
Gross profit 20,785 30.0% 37,430 49.4%
------ ---- ------ ----
Operating expenses:
Research and development 8,834 12.8% 7,088 9.4%
Sales and marketing 25,214 36.4% 22,469 29.7%
General and
administrative 13,594 19.6% 11,965 15.8%
------ ------
Total operating expenses 47,642 68.8% 41,522 54.8%
------ ---- ------ ----
Operating loss (26,857) -38.8% (4,092) -5.4%
------- ----- ------ ----
Other income:
Interest income 18 0.0% 32 0.0%
Other income, net 94 0.1% 397 0.5%
--- --- --- ---
Total other income 112 0.2% 429 0.6%
--- --- --- ---
Loss before income tax
benefit (expense): (26,745) -38.6% (3,663) -4.8%
Income tax benefit
(expense) (191) -0.3% 1,360 1.8%
---- ---- ----- ---
Net loss (26,936) -38.9% (2,303) -3.0%
Less: Net income
attributable to
noncontrolling interests (161) -0.2% (341) -0.4%
---- ---- ---- ----
Net loss attributable to
Cardiac Science
Corporation $(27,097) -39.2% $(2,644) -3.5%
======== ===== ======= ====
Net loss per share
attributable to Cardiac
Science Corporation:
Basic $(1.15) $(0.11)
Diluted $(1.15) $(0.11)
Weighted average shares
outstanding:
Basic 23,658,886 23,127,742
Diluted 23,658,886 23,127,742
Cardiac Science Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)
(in thousands)
December 31,
June 30, 2010 2009
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $10,885 $26,866
Accounts receivable, net 23,784 24,228
Inventories 24,476 23,581
Prepaid expenses and other current
assets 3,240 3,702
----- -----
Total current assets 62,385 78,377
Other assets 666 872
Machinery and equipment, net of
accumulated depreciation 8,418 8,406
Deferred income taxes 31 31
Intangible assets, net of accumulated
amortization 25,999 27,988
Investments in unconsolidated entities 400 386
--- ---
Total assets $97,899 $116,060
======= ========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $12,499 $11,030
Accrued liabilities 12,619 12,216
Warranty liability 3,981 4,028
Deferred revenue 7,799 7,919
Corrective action liabilities 21,452 15,249
------ ------
Total current liabilities 58,350 50,442
Deferred income taxes 5,389 5,389
Total liabilities 63,739 55,831
------ ------
Equity:
Cardiac Science Corporation
shareholders' equity 32,884 58,936
Noncontrolling interests 1,276 1,293
----- -----
Total equity 34,160 60,229
------ ------
Total liabilities and equity $97,899 $116,060
======= ========
Cardiac Science Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
(in thousands)
Three Months Ended
June 30,
--------
2010 2009
---- ----
Operating Activities:
Net loss $(18,460) $(1,928)
Adjustments to reconcile net
loss
to net cash provided by (used in)
operating activities:
Stock-based compensation 635 554
Depreciation and amortization 1,620 1,542
Deferred income taxes - (1,398)
Changes in operating assets and
liabilities, net of businesses
acquired:
Accounts receivable, net (2,662) 730
Inventories 1,021 (89)
Prepaid expenses and other assets 86 (392)
Accounts payable 1,593 (118)
Accrued liabilities (390) 1,045
Warranty liability (72) 111
Corrective action liabilities 7,947 -
Deferred revenue (649) 426
Net cash provided by (used in)
operating activities (9,331) 483
------ ---
Investing Activities:
Purchases of machinery and equipment (669) (769)
Proceeds from repayment of notes - 10
Net cash used in investing activities (669) (759)
---- ----
Financing Activities:
Proceeds from exercise of stock
options and issuance of
shares under employee stock purchase
plan 57 502
Minimum tax withholding on restricted
stock awards (64) -
Net cash provided by (used in)
financing activities (7) 502
--- ---
Effect of exchange rate changes on
cash and cash equivalents (113) 79
Net change in cash and cash
equivalents (10,120) 305
Cash and cash equivalents, beginning
of period 21,005 37,563
------ ------
Cash and cash equivalents, end
of period $10,885 $37,868
======= =======
Cardiac Science Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
(in thousands)
Six Months Ended
June 30,
--------
2010 2009
---- ----
Operating Activities:
Net loss $(26,936) $(2,303)
Adjustments to reconcile net loss
to net cash provided by (used in) operating
activities:
Stock-based compensation 1,220 1,213
Depreciation and amortization 3,208 3,067
Deferred income taxes - (1,765)
Changes in operating assets and
liabilities, net of businesses acquired:
Accounts receivable, net (18) 8,717
Inventories (997) (1,330)
Prepaid expenses and other assets 660 36
Accounts payable 1,726 (2,457)
Accrued liabilities 579 (291)
Warranty liability (15) 9
Corrective action liabilities 6,203 -
Deferred revenue (120) (670)
Net cash provided by (used in) operating
activities (14,490) 4,226
------- -----
Investing Activities:
Purchases of machinery and equipment (1,345) (1,654)
Proceeds from repayment of notes 2 83
Cash paid for acquisitions - (54)
Net cash used in investing activities (1,343) (1,625)
------ ------
Financing Activities:
Proceeds from exercise of stock options and
issuance of
shares under employee stock purchase plan 152 736
Minimum tax withholding on restricted stock
awards (94) (97)
Net cash provided by financing activities 58 639
--- ---
Effect of exchange rate changes on cash and
cash equivalents (206) (27)
Net change in cash and cash equivalents (15,981) 3,213
Cash and cash equivalents, beginning of
period 26,866 34,655
------ ------
Cash and cash equivalents, end of period $10,885 $37,868
======= =======
Cardiac Science Corporation and Subsidiaries
Reconciliation of GAAP Results to Non-GAAP Results (unaudited)
(in thousands)
Reconciliation of Net Loss Attributable to Cardiac
Science
Corporation to Adjusted EBITDA
Three Months Ended Three Months Ended
June 30, 2010 June 30, 2009
------------- -------------
% of revenue % of revenue
------------ ------------
Net loss
attributable
to Cardiac
Science
Corporation $(18,510) -51.3% $(2,106) -5.8%
Depreciation
and
amortization 1,620 4.5% 1,542 4.3%
Interest income (8) 0.0% (19) -0.1%
Income tax
(benefit)
expense 58 0.2% (1,194) -3.3%
--- --- ------ ----
EBITDA (16,840) -46.6% (1,777) -4.9%
Stock-based
compensation 635 1.8% 554 1.5%
Corrective
action costs 11,000 30.5% - n/m
------ ---- --- ---
Adjusted EBITDA $(5,205) -14.4% $(1,223) -3.4%
======= ===== ======= ====
Reconciliation of Net Loss Attributable to Cardiac
Science
Corporation to Adjusted EBITDA
Six Months Ended Six Months Ended
June 30, 2010 June 30, 2009
------------- -------------
% of revenue % of revenue
------------ ------------
Net loss
attributable
to Cardiac
Science
Corporation $(27,097) -39.2% $(2,644) -3.5%
Depreciation
and
amortization 3,208 4.6% 3,067 4.0%
Interest income (18) 0.0% (32) 0.0%
Income tax
(benefit)
expense 191 0.3% (1,360) -1.8%
--- --- ------ ----
EBITDA (23,716) -34.3% (969) -1.3%
Stock-based
compensation 1,220 1.8% 1,213 1.6%
Corrective
action costs 11,000 15.9% - n/m
Adjusted EBITDA $(11,496) -16.6% $244 0.3%
======== ===== ==== ===
Reconciliation of Gross Margin to Pro Forma Gross
Margin
Three Months Ended Three Months Ended
June 30, 2010 June 30, 2009
------------- -------------
% of revenue % of revenue
------------ ------------
Gross profit $5,869 16.3% $17,551 48.6%
Corrective
action costs 11,000 30.5% - n/m
------ ---- --- ---
Pro forma gross
profit $16,869 46.7% $17,551 48.6%
======= ==== ======= ====
Reconciliation of Gross Margin to Pro Forma Gross
Margin
Six Months Ended Six Months Ended
June 30, 2010 June 30, 2009
------------- -------------
% of revenue % of revenue
------------ ------------
Gross profit $20,785 30.0% $37,430 49.4%
Corrective
action costs 11,000 15.9% - n/m
------ ---- --- ---
Pro forma gross
profit $31,785 45.9% $37,430 49.4%
======= ==== ======= ====
Reconciliation of Net Loss Attributable to Cardiac
Science Corporation to
Pro Forma Net Loss Attributable to Cardiac Science
Corporation
--------------------------------------------------
Three Months Ended Three Months Ended
June 30, 2010 June 30, 2009
------------- -------------
% of revenue % of revenue
------------ ------------
Net loss
attributable
to Cardiac
Science
Corporation $(18,510) -51.3% $(2,106) -5.8%
Corrective
action costs 11,000 30.5% - 0.0%
Tax effect - n/m - n/m
--- --- --- ---
Pro forma net
loss
attributable
to Cardiac
Science
Corporation $(7,510) -20.8% $(2,106) -5.8%
======= ===== ======= ====
CSCX-F
SOURCE Cardiac Science Corporation
