Cardiac Science Announces Q4 and Full Year 2009 Results
Q4 Revenue of $42.2 Million Exceeds Guidance
BOTHELL, Wash., March 11 /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 fourth quarter and the full year ended December 31, 2009.
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Revenue for the fourth quarter of 2009 was $42.2 million, down 17% from the fourth quarter of 2008, but up 8% sequentially from the third quarter of 2009. Revenue for 2009 was $156.8 million, down 24% from 2008.
"We were pleased that fourth quarter revenue was stronger than our guidance and we surpassed our expectations in sales of both AEDs and monitoring products. This bodes well for our ability to drive revenue growth once we get through our current quality and regulatory challenges," said Dave Marver, president and chief executive officer.
In the fourth quarter of 2009, the Company recorded a $2.5 million charge to cost of revenues relating to a previously announced voluntary recall of approximately 12,200 AEDs manufactured between October 2009 and January 2010. Including this charge, the Company recorded a net loss for the quarter of $7.8 million, or $0.33 per share.
Fourth Quarter Financial Results
Revenue of $42.2 million for the fourth quarter represented a decrease of 17% compared to revenue of $51.1 million reported in the fourth quarter of 2008. Cardiac monitoring revenue was $13.2 million and defibrillation products revenue was $24.5 million for the quarter. As anticipated, AED sales in Japan were approximately $5.8 million less than in the comparable period in 2008, due primarily to market weakness and a competing AED product introduction by the Company's current exclusive distribution partner. North American AED sales were comparable to the fourth quarter of 2008 and AED sales in the rest of the world, excluding Japan, were up 9%. Cardiac monitoring revenue decreased 22% compared to the fourth quarter of the prior year, driven by slowed demand in the hospital and physician office markets.
Including a $2.5 million charge relating to the voluntary recall noted above, fourth quarter gross margin was 41.9%. Excluding this charge, pro forma gross margin would have been 47.8%, a decrease from reported fourth quarter 2008 gross margin, which was 50.9%. This decrease was due primarily to diseconomies of scale resulting from lower volumes, changes in product mix and increased component costs in certain products.
Operating expenses for the quarter were $24.8 million, a decrease from $131.7 million during the fourth quarter of 2008, which included a pre-tax charge of $107.7 million related to the impairment of all previously acquired goodwill. Excluding the prior year goodwill impairment charge, 2009 operating expenses were up slightly over the prior year, due primarily to increased spending on regulatory affairs and quality assurance functions, which are included in general and administrative expenses.
Inclusive of the $2.5 million charge relating to the voluntary recall of certain of the Company's AEDs, the Company reported a net loss of $7.8 million, or $0.33 per share in the fourth quarter of 2009.
EBITDA was negative $6.3 million for the quarter. Adjusted EBITDA, which excludes stock-based compensation expense and the costs relating to the voluntary recall of certain AEDs, was negative $3.0 million.
The Company reported net cash used in operations of $4.1 million for the fourth quarter. This net use of cash resulted primarily from $5.8 million of cash expenditures during the quarter related to the voluntary field software update, which was announced in November 2009. The Company had $26.9 million in cash and cash equivalents as of December 31, 2009, down from $31.6 million at the end of the third quarter.
Full Year 2009 Financial Results
Revenue for 2009 was $156.8 million, down 24% from 2008. The decrease was due primarily to reduced AED sales in Japan and the effects of the weakened global economy on demand for our products.
In 2009, in addition to the $2.5 million voluntary recall charge recorded in the fourth quarter, the Company recorded a charge of $18.5 million for a voluntary AED field software update and a non-cash charge of $42.2 million to increase its valuation allowance against deferred income tax assets. Including these charges, the Company reported a net loss for the year of $77.0 million, or $3.31 per share.
EBITDA for 2009 was negative $28.3 million and Adjusted EBITDA, which excludes stock-based compensation expense and the costs relating to the voluntary corrective actions noted above, was negative $4.7 million.
The Company reported net cash used in operations of $4.9 million for 2009.
Marver continued, "Our results for the quarter and year are reflective of a challenging period for the medical equipment business, compounded by a series of enterprise-specific challenges for Cardiac Science, including the erosion of our AED franchise in Japan and the costs associated with our voluntary corrective actions. These obstacles did not deter us from making progress toward turning the Company around and positioning ourselves for better performance in 2010 and beyond."
2009 Highlights
During 2009, the Company made significant progress in transforming and positioning itself for improved performance:
- Several new leaders were recruited to join Cardiac Science, including a new CEO, new sales leadership, new R&D and operations leadership, a new general counsel and a new IT leader. All of these individuals have the skills and experience to guide Cardiac Science into a significantly larger organization.
- The Company effected widespread operational improvements. These included dramatically improved R&D productivity, stronger Quality and Regulatory systems, new IT systems, and new Sales and Marketing capabilities.
- The Company was very active in Corporate Development during 2009, forging a host of new partnerships and alliances that will contribute to future growth and profitability. These included pacts with Patni and Syncroness to improve R&D productivity; the creation of the Bardy Innovation Center in concert with Gust Bardy, MD to drive breakthroughs in Primary Care medicine; partnerships with Omron and Cambridge Heart to bolster the Company's product portfolio; and development agreements with eClinicalWorks, Epic, Medent, and Sage to broaden the Company's interoperability with leading electronic medical record systems (EMRs).
Outlook
The Company expects revenue for 2010 to be in a range between $150 and $170 million. This revenue range includes expected robust growth in cardiac monitoring revenue in the second half of the year, driven by several new product releases. These gains may be partially offset by a possible decline in AED revenue due to recent quality issues, the market re-entry of a significant competitor and reduced sales in Japan until a new distributor is in place.
The Company expects revenue in the first quarter of 2010 to be in a range between $32 and $35 million. As previously announced, first quarter revenues have been adversely impacted by recently announced voluntary corrective actions relating to the Company's AED products. Based on this range of revenue, the Company expects to incur a net loss for the first quarter in a range between $8.0 and $9.0 million. Adjusted EBITDA for the first quarter of 2010 is expected to be in a range between negative $5.5 and negative $6.5 million.
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"). The term "EBITDA" refers to a financial measure defined as earnings before net interest, income taxes, depreciation, and amortization. "Adjusted EBITDA" refers to EBITDA before stock-based compensation, impairment of goodwill and costs associated with the voluntary corrective actions. "Pro Forma Gross Margin" refers to Gross Profit before costs associated with the voluntary corrective actions as a percentage of Total Revenues. These measures are a substitute 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 is being presented because of the impact of the extraordinary charges related to the voluntary corrective actions on the Company's Gross Margin for 2009. Presentation of the 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 income, 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 at 4:30 p.m. Eastern Standard Time today to discuss the Company's financial results for the fourth 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 888-549-7880 and reference conference ID 4252130. 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 4252130#. 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 test treadmills and systems, Holter monitoring systems, hospital defibrillators, 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. The Company distributes its products in nearly 100 countries worldwide, with 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, actual costs of the voluntary corrective actions, potential negative impact on future sales of AED products resulting from the announced voluntary corrective actions 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 those with respect to the quality of processes, products and services and the implementation of voluntary corrective actions or those taken at the request of regulatory authorities relating to the business, 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, 2008, 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, |
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Company Contact: |
Investor Contact: |
Media Contact: |
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Mike Matysik Cardiac Science Corporation Senior Vice President and CFO 425.402.2009 |
Matt Clawson Allen & Caron 949.474.4300 |
Christopher Gale EVC Group Inc. 646.201.5431 203.570.4681 |
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LOGO: http://www.cardiacscience.com/images/main_logo.gif
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 December 31,
-------------------------------
2009 2008
---- ----
$ % $ %
--- --- --- ---
Revenues:
Cardiac monitoring
products $13,216 31.3% $16,943 33.2%
Defibrillation products 24,456 58.0% 29,575 57.9%
------ ---- ------ ----
Total product revenues 37,672 89.3% 46,518 91.1%
Service 4,514 10.7% 4,538 8.9%
----- ---- ----- ---
Total revenues 42,186 100.0% 51,056 100.0%
------ ----- ------ -----
Cost of revenues:
Products 18,847 50.0% 21,929 47.1%
Corrective action costs 2,500 5.9% - 0.0%
Service 3,181 70.5% 3,124 68.8%
----- ---- ----- ----
Total cost of revenues 24,528 58.1% 25,053 49.1%
------ ---- ------ ----
Gross profit:
Products 16,325 43.3% 24,589 52.9%
Service 1,333 29.5% 1,414 31.2%
------ ---- ----- ----
Gross profit 17,658 41.9% 26,003 50.9%
------ ---- ------ ----
Operating expenses:
Research and development 3,592 8.5% 4,664 9.1%
Sales and marketing 13,655 32.4% 12,563 24.6%
General and administrative 7,598 18.0% 6,849 13.4%
Impairment of goodwill - 0.0% 107,671 210.9%
--- --- ------- -----
Total operating expenses 24,845 58.9% 131,747 258.0%
------ ---- ------- -----
Operating loss (7,187) -17.0% (105,744) -207.1%
------ ----- -------- ------
Other income (loss):
Interest income 11 0.0% 55 0.1%
Other income (loss), net (453) -1.1% 529 1.0%
---- ---- --- ---
Total other income (loss) (442) -1.0% 584 1.1%
---- ---- --- ---
Loss before income tax benefit: (7,629) -18.1% (105,160) -206.0%
Income tax benefit 101 0.2% 152 0.3%
--- --- --- ---
Net loss (7,528) -17.8% (105,008) -205.7%
Less: Net income attributable
to noncontrolling interests (279) -0.7% (194) -0.4%
---- ---- ---- ----
Net loss attributable to
Cardiac Science Corporation $(7,807) -18.5% $(105,202) -206.1%
======= ===== ========= ======
Net loss per share attributable
to Cardiac Science Corporation:
Basic $(0.33) $(4.58)
Diluted $(0.33) $(4.58)
Weighted average shares
outstanding:
Basic 23,472,451 22,957,378
Diluted 23,472,451 22,957,378
Cardiac Science Corporation and Subsidiaries
Condensed Consolidated Statements of Operations (unaudited)
(in thousands, except share and per share amounts)
Twelve Months Ended December 31,
--------------------------------
2009 2008
---- ----
$ % $ %
--- --- --- ---
Revenues:
Cardiac monitoring products $53,378 34.0% $65,556 31.8%
Defibrillation products 85,858 54.7% 121,946 59.2%
------ ---- ------- ----
Total product revenues 139,236 88.8% 187,502 91.0%
Service 17,612 11.2% 18,651 9.0%
------ ---- ------ ---
Total revenues 156,848 100.0% 206,153 100.0%
------- ----- ------- -----
Cost of revenues:
Products 68,108 48.9% 91,189 48.6%
Corrective action costs 21,000 13.4% - 0.0%
Service 12,557 71.3% 12,681 68.0%
------ ---- ------ ----
Total cost of revenues 101,665 64.8% 103,870 50.4%
------- ---- ------- ----
Gross profit:
Products 50,128 36.0% 96,313 51.4%
Service 5,055 28.7% 5,970 32.0%
------ ---- ----- ----
Gross profit 55,183 35.2% 102,283 49.6%
------ ---- ------- ----
Operating expenses:
Research and development 14,950 9.5% 16,426 8.0%
Sales and marketing 48,047 30.6% 50,733 24.6%
General and administrative 26,134 16.7% 22,417 10.9%
Impairment of goodwill - 0.0% 107,671 52.2%
--- --- ------- ----
Total operating expenses 89,131 56.8% 197,247 95.7%
------ ---- ------- ----
Operating loss (33,948) -21.6% (94,964) -46.1%
------- ----- ------- -----
Other income:
Interest income 66 0.0% 489 0.2%
Other income, net 102 0.1% 635 0.3%
--- --- --- ---
Total other income 168 0.1% 1,124 0.5%
--- --- ----- ---
Loss before income tax expense: (33,780) -21.5% (93,840) -45.5%
Income tax expense (42,462) -27.1% (4,093) -2.0%
------- ----- ------ ----
Net loss (76,242) -48.6% (97,933) -47.5%
Less: Net income attributable
to noncontrolling interests (755) -0.5% (451) -0.2%
---- ---- ---- ----
Net loss attributable to
Cardiac Science Corporation $(76,997) -49.1% $(98,384) -47.7%
======== ===== ======== =====
Net loss per share attributable
to Cardiac Science Corporation:
Basic $(3.31) $(4.30)
Diluted $(3.31) $(4.30)
Weighted average shares
outstanding:
Basic 23,263,717 22,869,920
Diluted 23,263,717 22,869,920
Cardiac Science Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)
(in thousands)
December 31, 2009 December 31, 2008
----------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $26,866 $34,655
Accounts receivable, net 24,228 31,665
Inventories 23,581 24,692
Deferred income taxes - 8,366
Prepaid expenses and other
current assets 3,702 3,144
----- -----
Total current assets 78,377 102,522
Other assets 872 428
Machinery and equipment, net of
accumulated depreciation 8,406 6,994
Deferred income taxes 31 28,452
Intangible assets, net of accumulated
amortization 27,988 31,278
Investments in unconsolidated entities 386 534
--- ---
Total assets $116,060 $170,208
======== ========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable 11,030 12,711
Accrued liabilities 12,216 13,535
Warranty liability 4,028 3,796
Deferred revenue 7,919 7,918
Corrective action liabilities 15,249 -
------ ---
Total current liabilities $50,442 $37,960
Deferred income taxes 5,389 -
Total liabilities $55,831 $37,960
------- -------
Equity:
Cardiac Science Corporation
shareholders' equity 58,936 131,703
Noncontrolling interests 1,293 545
----- ---
Total equity 60,229 132,248
------ -------
Total liabilities and equity $116,060 $170,208
======== ========
Cardiac Science Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
(in thousands)
Three Months Ended
December 31,
------------------
2009 2008
---- ----
Operating Activities:
Net loss $(7,528) $(105,008)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Stock-based compensation 758 658
Depreciation and amortization 1,632 1,550
Impairment of goodwill - 107,671
Deferred income taxes (16) (862)
Changes in operating assets and liabilities,
net of businesses acquired:
Accounts receivable, net 5,774 (1,326)
Inventories 2,421 (1,199)
Prepaid expenses and other assets (3,090) (530)
Accounts payable (726) 284
Accrued liabilities (357) 2,211
Warranty liability 167 (578)
Corrective action liabilities (3,251) -
Deferred revenue 132 (288)
--- ----
Net cash provided by (used in) operating
activities (4,084) 2,583
------ -----
Investing Activities:
Maturities of short-term investments - 845
Purchases of machinery and equipment (1,168) (1,486)
Cash paid for acquisitions - (159)
--- ----
Net cash used in investing activities (1,168) (800)
------ ----
Financing Activities:
Proceeds from exercise of stock options
and issuance of shares under employee stock
purchase plan 95 216
Minimum tax withholding on restricted
stock awards (18) (95)
Purchase of shares from noncontrolling interest - (90)
--- ---
Net cash provided by financing activities 77 31
--- ---
Effect of exchange rate changes on cash
and cash equivalents 413 246
Net change in cash and cash equivalents (4,762) 2,060
Cash and cash equivalents, beginning of period 31,628 32,595
Cash and cash equivalents, end of period $26,866 $34,655
======= =======
Cardiac Science Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
(in thousands)
Twelve Months Ended
December 31,
-------------------
2009 2008
---- ----
Operating Activities:
Net loss $(76,242) $(97,933)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Stock-based compensation 2,645 2,173
Depreciation and amortization 6,294 6,327
Impairment of goodwill - 107,671
Deferred income taxes 42,215 3,093
Changes in operating assets and liabilities,
net of businesses acquired:
Accounts receivable, net 8,939 (2,825)
Inventories 1,100 (2,877)
Prepaid expenses and other assets (2,545) (645)
Accounts payable (1,511) (543)
Accrued liabilities (1,320) 2,940
Warranty liability 232 585
Corrective action liabilities 15,249 -
Deferred revenue 1 (223)
--- ----
Net cash provided by (used in)
operating activities (4,943) 17,743
------ ------
Investing Activities:
Purchases of short-term investments - (845)
Maturities of short-term investments - 1,195
Purchases of machinery and equipment (3,856) (3,911)
Purchases of intangibles (370) -
Proceeds from repayment of notes 110 38
Cash paid for acquisitions (54) (739)
--- ----
Net cash used in investing activities (4,170) (4,262)
------ ------
Financing Activities:
Proceeds from exercise of stock options and issuance
of shares under employee stock purchase plan 992 1,103
Minimum tax withholding on restricted stock awards (128) (244)
Purchase of shares from noncontrolling interest - (90)
--- ---
Net cash provided by financing activities 864 769
--- ---
Effect of exchange rate changes on
cash and cash equivalents 460 246
Net change in cash and cash equivalents (7,789) 14,496
Cash and cash equivalents, beginning of period 34,655 20,159
------ ------
Cash and cash equivalents, end of period $26,866 $34,655
======= =======
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
December 31, 2009 December 31, 2008
----------------- -----------------
% of % of
revenue revenue
------- -------
Net loss attributable
to Cardiac Science
Corporation $(7,807) -18.5% $(105,202) -206.1%
Depreciation and
amortization 1,632 3.9% 1,550 3.0%
Interest income (11) 0.0% (55) -0.1%
Income tax benefit (101) -0.2% (152) -0.3%
---- ---- ---- ----
EBITDA (6,287) -14.9% (103,859) -203.4%
Stock-based
compensation 758 1.8% 658 1.3%
Corrective action costs 2,500 n/m - n/m
Impairment of goodwill - n/m 107,671 n/m
Adjusted EBITDA $(3,029) -7.2% $4,470 8.8%
======= ==== ====== ===
Reconciliation of Net Loss Attributable to
Cardiac Science Corporation to Adjusted EBITDA
----------------------------------------------
Twelve Months Ended Twelve Months Ended
December 31, 2009 December 31, 2008
------------------- -------------------
% of % of
revenue revenue
------- -------
Net loss attributable to
Cardiac Science
Corporation $(76,997) -49.1% $(98,384) -47.7%
Depreciation and
amortization 6,294 4.0% 6,327 3.1%
Interest income (66) 0.0% (489) -0.2%
Income tax expense 42,462 27.1% 4,093 2.0%
------ ---- ----- ---
EBITDA (28,307) -18.0% (88,453) -42.9%
Stock-based
compensation 2,645 1.7% 2,173 1.1%
Corrective action costs 21,000 n/m - n/m
Impairment of goodwill - n/m 107,671 n/m
Adjusted EBITDA $(4,662) -3.0% $21,391 10.4%
======= ==== ======= ====
Reconciliation of Gross Margin to Pro Forma
Gross Margin
-------------------------------------------
Three Months Ended Three Months Ended
December 31, 2009 December 31, 2008
------------------ ------------------
% of % of
revenue revenue
------- -------
Gross profit $17,658 41.9% $26,003 50.9%
Corrective action
costs 2,500 5.9% - 0.0%
----- --- --- ---
Pro forma gross profit $20,158 47.8% $26,003 50.9%
======= ==== ======= ====
Reconciliation of Gross Margin to Pro Forma
Gross Margin
-------------------------------------------
Twelve Months Ended Twelve Months Ended
December 31, 2009 December 31, 2008
------------------- -------------------
% of % of
revenue revenue
------- -------
Gross profit $55,183 35.2% $102,283 49.6%
Corrective action costs 21,000 13.4% - 0.0%
------ ---- --- ---
Pro forma gross profit $76,183 48.6% $102,283 49.6%
======= ==== ======== ====
CSCX-F
SOURCE Cardiac Science Corporation
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