CARDIAC SCIENCE CORPORATION 
By BOTHELL, Wash., Nov. 9, 2010 /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 third quarter of 2010.
The Company's third quarter revenue of $34.5 million consisted of $11.8 million in cardiac monitoring products revenue, $18.1 million in defibrillation products revenue and $4.5 million in service revenue.
Defibrillation products revenue was down 16% compared to the prior year third quarter, due principally to the absence of any Japanese AED revenue in the current quarter as a result of the previously announced termination of our Japanese distribution arrangement, compared to approximately $2.9 million in the third quarter of last year. As previously announced, the Company has signed an agreement with a new Japanese distributor, but does not expect meaningful AED sales in Japan until the second half of 2011.
Third quarter 2010 cardiac monitoring products revenue was down 9% compared to the prior year third quarter, due primarily to market softness and a temporary delay in availability of newly released products near quarter end. The Company was not able to ship approximately $1.0 million in recently introduced cardiac monitoring products that were ordered for delivery during the quarter due to initial delays in availability of components in quantities sufficient to meet demand. The Company expects to ship the backordered products during the fourth quarter.
Service revenue for the third quarter of 2010 was up 6% compared to the same quarter last year.
Gross margin was 46.7% for the third quarter of 2010. Gross margin for the third quarter of the prior year was 0.2%, including the effect of a charge of $18.5 million for estimated costs relating to a corrective AED field action. Excluding this charge, Pro Forma Gross Margin in the third quarter of 2009 would have been 47.8%. The slight decline in gross margin in the third quarter of 2010 compared to pro forma gross margin in the third quarter of 2009 was primarily the result of a lower proportion of defibrillation products revenue in the current year, as AEDs generally yield higher gross margins than cardiac monitoring products and services.
Operating expenses for the quarter were $22.5 million, compared to $22.8 million for the third quarter of 2009. Operating expenses in the current quarter included approximately $0.8 million in costs relating to the Company's efforts to sell all or a portion of the Company, including costs relating to the recently announced agreement with Opto Circuits (India) Ltd.
The Company reported a net loss of $6.4 million, or $0.27 loss per share, in the third quarter of 2010. This compares to a net loss of $66.5 million, or $2.85 per share, in the third quarter of 2009. Our net loss for the third quarter of 2009 included an initial charge of $18.5 million related to our AED corrective and a charge of $44.0 million to increase the valuation allowance against the Company's deferred income tax assets. EBITDA for the third quarter of 2010 was negative $4.7 million and Adjusted EBITDA, which excludes stock-based compensation expense, was negative $4.1 million.
The Company reported net cash used in operations of $4.0 million for the third quarter of 2010, including $2.7 million used in activities relating to the Company's ongoing AED corrective actions. The Company had $6.7 million in cash and cash equivalents as of September 30, 2010.
Pending Acquisition by Opto Circuits (India) Ltd
On October 19, 2010 the Company announced that it had entered into an Agreement and Plan of Merger with Opto Circuits (India) Ltd. ("Opto Circuits"), pursuant to which Opto Circuits has agreed to acquire all of the outstanding shares of Cardiac Science common stock for $2.30 per share. The transaction, which has been unanimously approved by the boards of directors of both companies, will take the form of an all-cash tender offer by a wholly-owned subsidiary of Opto Circuits, followed by a second-step merger of that subsidiary with Cardiac Science, as a result of which any shares that have not been validly tendered into the offer will be converted into the right to receive cash equal to the offer price of $2.30 per share. The tender offer by Opto Circuits, which was commenced on November 1, 2010, is subject to customary conditions, including that shares representing at least sixty percent (60%) of Cardiac Science's outstanding shares of common stock are validly tendered into the offer. The companies are targeting a fourth quarter 2010 closing, assuming satisfaction of closing conditions and successful execution of the tender offer process. Upon completion of the merger, Cardiac Science will become a wholly-owned subsidiary of Opto Circuits.
Non-GAAP and Pro Forma Financial Information
This news release contains a discussion of EBITDA, Adjusted EBITDA 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, in the case of the third quarter of 2009, before corrective action costs associated with a corrective AED field action. "Pro Forma Gross Margin" for the third quarter of 2009 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 Gross Margin for the third quarter of 2009 is being presented because of the impact of the extraordinary charges related to the corrective actions on the Company's Gross Margin for the three month period ended September 30, 2009. Presentation of 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 and Pro Forma Gross Margin to Gross Margin, the most comparable GAAP measures, are contained in this press release.
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 AED sales in Japan, expected shipments of backordered products in the fourth quarter of 2010, and expectations regarding the closing of the transaction with Opto Circuits. 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 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
LOGO: http://www.cardiacscience.com/images/main_logo.gif
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- 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 September 30,
--------------------------------
2010
----
$ %
--- ---
Revenues:
Cardiac monitoring products $11,836 34.3%
Defibrillation products 18,149 52.6%
------ ----
Total product revenues 29,985 87.0%
Service 4,495 13.0%
----- ----
Total revenues 34,480 100.0%
------ -----
Cost of revenues:
Products 15,244 50.8%
Corrective action costs - n/m
Service 3,149 70.1%
----- ----
Total cost of revenues 18,393 53.3%
------ ----
Gross profit:
Products 14,741 49.2%
Service 1,346 29.9%
----- ----
Gross profit 16,087 46.7%
------ ----
Operating expenses:
Research and development 4,266 12.4%
Sales and marketing 11,215 32.5%
General and administrative 7,058 20.5%
----- ----
Total operating expenses 22,539 65.4%
------ ----
Operating loss (6,452) -18.7%
------ -----
Other income:
Interest income 7 0.0%
Other income, net 229 0.7%
--- ---
Total other income 236 0.7%
--- ---
Loss before income tax expense: (6,216) -18.0%
Income tax expense (117) -0.3%
---- ----
Net loss (6,333) -18.4%
Less: Net income attributable to
noncontrolling interests (43) -0.1%
--- ----
Net loss attributable to
Cardiac Science Corporation $(6,376) -18.5%
======= =====
Net loss per share attributable to
Cardiac Science Corporation:
Basic $(0.27)
Diluted $(0.27)
Weighted average shares outstanding:
Basic 23,831,807
Diluted 23,831,807
Three Months Ended September 30,
--------------------------------
2009
----
$ %
--- ---
Revenues:
Cardiac monitoring products $13,000 33.4%
Defibrillation products 21,646 55.7%
------ ----
Total product revenues 34,646 89.1%
Service 4,238 10.9%
----- ----
Total revenues 38,884 100.0%
------ -----
Cost of revenues:
Products 17,194 49.6%
Corrective action costs 18,500 47.6%
Service 3,095 73.0%
----- ----
Total cost of revenues 38,789 99.8%
------ ----
Gross profit:
Products 17,452 50.4%
Service 1,143 27.0%
----- ----
Gross profit 95 0.2%
--- ---
Operating expenses:
Research and development 4,270 11.0%
Sales and marketing 11,923 30.7%
General and administrative 6,571 16.9%
----- ----
Total operating expenses 22,764 58.5%
------ ----
Operating loss (22,669) -58.3%
------- -----
Other income:
Interest income 23 0.1%
Other income, net 158 0.4%
--- ---
Total other income 181 0.5%
--- ---
Loss before income tax expense: (22,488) -57.8%
Income tax expense (43,923) -113.0%
------- ------
Net loss (66,411) -170.8%
Less: Net income attributable to
noncontrolling interests (135) -0.3%
---- ----
Net loss attributable to Cardiac Science
Corporation $(66,546) -171.1%
======== ======
Net loss per share attributable to
Cardiac Science Corporation:
Basic $(2.85)
Diluted $(2.85)
Weighted average shares outstanding:
Basic 23,368,778
Diluted 23,368,778
Cardiac Science Corporation and Subsidiaries
Condensed Consolidated Statements of Operations (unaudited)
(in thousands, except share and per share amounts)
Nine Months Ended September 30,
-------------------------------
2010
----
$ %
--- ---
Revenues:
Cardiac monitoring products $37,362 36.0%
Defibrillation products 53,062 51.2%
------ ----
Total product revenues 90,424 87.2%
Service 13,266 12.8%
------ ----
Total revenues 103,690 100.0%
------- -----
Cost of revenues:
Products 46,319 51.2%
Corrective action costs 11,000 12.2%
Service 9,499 71.6%
----- ----
Total cost of revenues 66,818 64.4%
------ ----
Gross profit:
Products 33,105 36.6%
Service 3,767 28.4%
----- ----
Gross profit 36,872 35.6%
------ ----
Operating expenses:
Research and development 13,100 12.6%
Sales and marketing 36,429 35.1%
General and administrative 20,652 19.9%
------ ----
Total operating expenses 70,181 67.7%
------ ----
Operating loss (33,309) -32.1%
------- -----
Other income:
Interest income 25 0.0%
Other income, net 323 0.3%
--- ---
Total other income 348 0.3%
--- ---
Loss before income tax expense: (32,961) -31.8%
Income tax expense (308) -0.3%
---- ----
Net loss (33,269) -32.1%
Less: Net income attributable to
noncontrolling interests (204) -0.2%
---- ----
Net loss attributable to
Cardiac Science Corporation $(33,473) -32.3%
======== =====
Net loss per share attributable to
Cardiac Science Corporation:
Basic $(1.41)
Diluted $(1.41)
Weighted average shares
outstanding:
Basic 23,717,287
Diluted 23,717,287
Nine Months Ended September 30,
-------------------------------
2009
----
$ %
--- ---
Revenues:
Cardiac monitoring products $40,151 35.0%
Defibrillation products 61,413 53.6%
------ ----
Total product revenues 101,564 88.6%
Service 13,098 11.4%
------ ----
Total revenues 114,662 100.0%
------- -----
Cost of revenues:
Products 49,261 48.5%
Corrective action costs 18,500 16.1%
Service 9,376 71.6%
----- ----
Total cost of revenues 77,137 67.3%
------ ----
Gross profit:
Products 52,303 51.5%
Service 3,722 28.4%
----- ----
Gross profit 37,525 32.7%
------ ----
Operating expenses:
Research and development 11,358 9.9%
Sales and marketing 34,392 30.0%
General and administrative 18,536 16.2%
------ ----
Total operating expenses 64,286 56.1%
------ ----
Operating loss (26,761) -23.3%
------- -----
Other income:
Interest income 55 0.0%
Other income, net 555 0.5%
--- ---
Total other income 610 0.5%
--- ---
Loss before income tax
expense: (26,151) -22.8%
Income tax expense (42,563) -37.1%
------- -----
Net loss (68,714) -59.9%
Less: Net income attributable to
noncontrolling interests (476) -0.4%
---- ----
Net loss attributable to
Cardiac Science Corporation $(69,190) -60.3%
======== =====
Net loss per share
attributable to Cardiac
Science Corporation:
Basic $(2.98)
Diluted $(2.98)
Weighted average shares
outstanding:
Basic 23,209,181
Diluted 23,209,181
Cardiac Science Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)
(in thousands)
September 30, December 31,
2010 2009
-------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $6,690 $26,866
Accounts receivable, net 20,781 24,228
Inventories 23,902 23,581
Prepaid expenses and other current
assets 2,775 3,702
----- -----
Total current assets 54,148 78,377
Other assets 687 872
Machinery and equipment, net of
accumulated depreciation 8,019 8,406
Deferred income taxes 31 31
Intangible assets, net of accumulated
amortization 25,183 27,988
Investments in unconsolidated
entities 308 386
--- ---
Total assets $88,376 $116,060
======= ========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $10,568 $11,030
Accrued liabilities 13,323 12,216
Warranty liability 3,933 4,028
Deferred revenue 7,744 7,919
Corrective action liabilities 18,757 15,249
------ ------
Total current liabilities 54,325 50,442
Deferred income taxes 5,389 5,389
----- -----
Total liabilities 59,714 55,831
Equity:
Cardiac Science Corporation
shareholders' equity 27,211 58,936
Noncontrolling interests 1,451 1,293
----- -----
Total equity 28,662 60,229
------ ------
Total liabilities and equity $88,376 $116,060
======= ========
Cardiac Science Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
(in thousands)
Three Months
Ended
September 30,
-------------
2010 2009
---- ----
Operating Activities:
Net loss $(6,333) $(66,411)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Stock-based compensation 577 674
Depreciation and amortization 1,516 1,595
Amortization of debt issuance costs 45 -
Deferred income taxes - 43,996
Changes in operating assets and
liabilities, net of businesses
acquired:
Accounts receivable, net 3,237 (5,552)
Inventories 634 9
Prepaid expenses and other assets 553 509
Accounts payable (1,976) 1,672
Accrued liabilities 593 (672)
Warranty liability (48) 56
Corrective action liabilities (2,695) 18,500
Deferred revenue (55) 539
--- ---
Net cash used in operating activities (3,952) (5,085)
------ ------
Investing Activities:
Purchases of machinery and equipment (289) (1,034)
Proceeds from repayment of note 80 27
Purchase of intangible assets - (370)
--- ----
Net cash used in investing activities (209) (1,377)
---- ------
Financing Activities:
Proceeds from exercise of stock options
and issuance of
shares under employee stock purchase
plan 73 161
Minimum tax withholding on restricted
stock awards (12) (13)
Debt issuance costs (181) -
---- ---
Net cash provided by (used in)
financing activities (120) 148
---- ---
Effect of exchange rate changes on cash
and cash equivalents 86 74
Net change in cash and cash equivalents (4,195) (6,240)
Cash and cash equivalents, beginning of
period 10,885 37,868
------ ------
Cash and cash equivalents, end of
period $6,690 $31,628
====== =======
Cardiac Science Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
(in thousands)
Nine Months Ended
September 30,
-------------
2010 2009
---- ----
Operating Activities:
Net loss $(33,269) $(68,714)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Stock-based compensation 1,797 1,887
Depreciation and amortization 4,724 4,662
Amortization of debt issuance costs 45 -
Deferred income taxes - 42,231
Changes in operating assets and
liabilities, net of businesses
acquired:
Accounts receivable, net 3,219 3,165
Inventories (363) (1,321)
Prepaid expenses and other assets 1,213 545
Accounts payable (250) (785)
Accrued liabilities 1,172 (963)
Warranty liability (63) 65
Corrective action liabilities 3,508 18,500
Deferred revenue (175) (131)
---- ----
Net cash used in operating activities (18,442) (859)
------- ----
Investing Activities:
Purchases of machinery and equipment (1,634) (2,688)
Proceeds from repayment of note 82 110
Purchase of intangible assets - (370)
Cash paid for acquisitions - (54)
--- ---
Net cash used in investing activities (1,552) (3,002)
------ ------
Financing Activities:
Proceeds from exercise of stock options
and issuance of
shares under employee stock purchase
plan 225 897
Minimum tax withholding on restricted
stock awards (106) (110)
Debt issuance costs (181) -
---- ---
Net cash provided by (used in)
financing activities (62) 787
--- ---
Effect of exchange rate changes on cash
and cash equivalents (120) 47
Net change in cash and cash equivalents (20,176) (3,027)
Cash and cash equivalents, beginning of
period 26,866 34,655
------ ------
Cash and cash equivalents, end of
period $6,690 $31,628
====== =======
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
September 30, 2010
------------------
% of
revenue
--------
Net loss attributable to
Cardiac Science Corporation $(6,376) -18.5%
Depreciation and amortization 1,561 4.5%
Interest income (7) 0.0%
Income tax expense 117 0.3%
--- ---
EBITDA (4,705) -13.6%
Stock-based compensation 577 1.7%
Corrective action costs -
---
Adjusted EBITDA $(4,128) -12.0%
======= =====
Reconciliation of Net Loss Attributable
to Cardiac Science Corporation to
Adjusted EBITDA
---------------------------------------
Three Months Ended
September 30, 2009
------------------
% of
revenue
--------
Net loss attributable to
Cardiac Science Corporation $(66,546) -171.1%
Depreciation and amortization 1,595 4.1%
Interest income (23) -0.1%
Income tax expense 43,923 113.0%
------ -----
EBITDA (21,051) -54.1%
Stock-based compensation 674 1.7%
Corrective action costs 18,500
------
Adjusted EBITDA $(1,877) -4.8%
======= ====
Reconciliation of
Gross Margin to
Pro Forma Gross
Margin
-----------------
Three Months Ended
September 30, 2009
------------------
% of
revenue
-------
Gross profit $95 0.2%
Corrective action costs 18,500 47.6%
------ ----
Pro forma gross profit $18,595 47.8%
======= ====
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SOURCE Cardiac Science Corporation
