11/10/2010 7:22:47 AM
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.
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,
Cardiac Science Corporation
Senior Vice President and CFO
Allen & Caron
EVC Group Inc.
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,
Cardiac monitoring products
Total product revenues
Cost of revenues:
Corrective action costs
Total cost of revenues