BOTHELL, Wash., July 27 /PRNewswire-FirstCall/ -- Cardiac Science Corporation , a global leader in advanced cardiac monitoring and defibrillation products, today announced its financial results for the second quarter ended June 30, 2006.
Revenue for the quarter was $39.2 million, up slightly from $39.1 million in the first quarter of 2006. Net income for the second quarter was $0.1 million, or $0.01 per diluted share, compared with net income for the first quarter of $0.3 million, or $0.01 per diluted share. Second quarter net income was affected by litigation-related expenses of $1.3 million. The Company generated cash from operations during the quarter of $3.2 million.
“Our defibrillation business continues to generate increasing revenue momentum,” said John Hinson, president and chief executive officer. “AED sales growth of 17% over the first quarter was especially significant, as it accelerated both domestically and internationally. Given our current momentum in AED sales and the expected release of the GE “crash cart” defibrillator in the third quarter, we continue to believe we will experience significant sales growth for the remainder of the year,” Mr. Hinson added.
Second Quarter Results
Cardiac Science Corporation’s second quarter 2006 performance includes the results of two predecessor companies, Quinton Cardiology Systems, Inc. (Quinton) and Cardiac Science, Inc. (CSI), which combined through a merger completed on September 1, 2005. Results for the second quarter of 2005 include only the performance of Quinton, affecting the comparability of financial results on a year-over-year basis.
Second quarter 2006 revenue was up 79% over second quarter 2005 revenue of $22.0 million, due primarily to the effect of the merger. Second quarter 2006 revenue was up 4.7% over pro forma revenue for the second quarter of 2005, which would have been $37.4 million had Quinton and CSI been combined during that period.
Gross margin also improved slightly from the first quarter to 47.4%, as higher margins in cardiac monitoring, driven by more favorable product mix, were moderated by lower margins in defibrillation products and services. The lower gross margin from defibrillation product sales resulted from certain lower margin international sales as well as lower than expected average selling prices domestically resulting from our increasing success in tender situations. In services, higher margins in cardiac monitoring were more than offset by lower margins in defibrillation resulting from the cancellation of legacy contracts which are no longer a part of the core service offerings.
During the second quarter, the Company recorded expense totaling $1.3 million related to ongoing patent litigation. These costs were slightly above earlier expectations.
During the quarter, the Company recorded stock-based compensation charges of $0.6 million, depreciation of $0.7 million and amortization of $0.9 million. EBITDA for the second quarter was $1.7 million. Excluding stock- based compensation expense, adjusted EBITDA was $2.3 million, or 5.8% of revenue.
Cardiac Science generated net cash from operating activities in the second quarter of $3.2 million and the Company had $8.7 million in cash as of June 30, 2006.
First Half Results
Through the first half of 2006, the Company generated revenue of $78.3 million compared with $43.3 million in revenue for the first half of 2005, an increase of 81%. Year to date revenue is up 7% over pro forma revenue for the first half of 2005, which would have been $73.2 million had Quinton and CSI been combined during that period. This includes growth of 20% for defibrillation products over the corresponding prior year amounts.
Gross margin for the first six months of 2006 was 47.2% compared with 45.4% for the comparable period a year ago. The Company posted net income of $0.4 million, or $0.02 per diluted share, through the first half of 2006. This compares to net income of $1.9 million, or $0.16 per diluted share, for the first half of 2005. Cash flow from operations through the first half of 2006 totaled $6.7 million. This compares to cash flow from operations of $2.4 million for the first half of 2005.
Outlook
“As we look ahead to the remainder of the year, we have revised guidance for the top end of our revenue range and adjusted our earnings range,” said Mike Matysik, chief financial officer. “Our revenue outlook has changed primarily due to the current uncertainty of securing two large international AED orders that the Company had previously anticipated. The change in our profitability outlook for the second half is related to this reduction, as well as the combined impact of anticipated product mix, average selling prices in the domestic AED market, service margins and litigation expense for the full year,” Mr. Matysik added.
While revenue for the full year is still expected to exceed $160 million, management believes it is now unlikely to exceed $170 million, compared to the previous higher end of $175 million. Gross margin for the full year is now expected to be in the range of 47% to 48%. Fully taxed net income for 2006 is expected to be in the range of $2.5 to $4.0 million, or between $0.11 and $0.18 per diluted share. Adjusted EBITDA for the full year, which excludes stock-based compensation, is now expected to be in the range of 8% to 9% of revenues.
“Our year-over-year improvement to date has been quite significant. We have realized the merger savings and we’ve re-ignited double-digit growth in defibrillation products, the two activities which have been our primary focus this year. During the second half of the year, revenue growth will continue to be the major focus of our management team,” said Mr. Hinson. “As we look toward future periods, we would expect to drive further margin improvement across our entire business through economies of scale and cost reduction efforts, as we did previously in cardiac monitoring,” Mr. Hinson concluded.
Non-GAAP Financial Information
This news release contains discussion of Adjusted EBITDA, which is a non- GAAP financial measure provided as a complement to results provided in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The term “Adjusted EBITDA” refers to a financial measure that we define as earnings before net interest, income taxes, depreciation, amortization and stock-based compensation. Adjusted EBITDA is not a substitute for measures determined in accordance with GAAP, and may not be comparable to Adjusted EBITDA as reported by other companies. We believe Adjusted EBITDA to be relevant and useful information to our investors as this measure is an integral part of our internal management reporting and planning process and is the primary measure used by our management to evaluate the operating performance of our operations. The components of Adjusted EBITDA include the key revenue and expense items for which our operating managers are responsible and upon which we evaluate their performance, and we also use Adjusted EBITDA for planning purposes and in presentations to our board of directors. See below for a reconciliation of net income, the most comparable GAAP measure, to Adjusted EBITDA.
Conference Call Information
Cardiac Science has scheduled a conference call for 4:30 p.m. Eastern Standard Time today to discuss the Company’s financial results for the second quarter. The call will be hosted by John Hinson, chief executive officer, and Mike Matysik, chief financial officer.
To access the conference call, please dial (800) 257-6566. International participants can call (303) 262-2006. The call will also be webcast live on the web at www.cardiacscience.com. An audio replay of the call will be available for 7 days following the call at (800) 405-2236 for U.S. callers or (303) 590-3000 for those calling outside the U.S. The password required to access the replay is 11066360#. An audio archive will be available at www.cardiacscience.com for one month following the call.
About Cardiac Science Corporation
Cardiac Science Corporation develops, manufactures, and markets a family of advanced diagnostic and therapeutic cardiology devices and systems, including AEDs, electrocardiographs, stress test systems, Holter monitoring systems, hospital defibrillators, cardiac rehabilitation telemetry systems, patient monitor -- defibrillators and cardiology data management systems. Cardiac Science Corporation also sells a variety of related products and consumables, and provides a comprehensive portfolio of training, maintenance and support services. The Company is the successor to various entities that have owned and operated cardiology-related businesses that sold products under the trusted brand names Burdick(R), Powerheart(R), and Quinton(R). Cardiac Science Corporation is headquartered in Bothell, WA, and also has operations in Lake Forest, California; Deerfield, Wisconsin; Shanghai, China and Manchester, United Kingdom.
Forward Looking Statements
This press release contains forward-looking statements. The word “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 revenue, earnings, earnings per share, litigation related expenses, and adjusted EBITDA. These are forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may vary significantly from the results expressed or implied in such statements. Factors that could cause or contribute to such varying results and other risks are more fully described in the Annual Report on Form 10-K filed by Cardiac Science Corporation for the year ended December 31, 2005. Cardiac Science Corporation undertakes no duty or obligation to update the information provided herein.
Contact: Mike Matysik, Sr. Vice President and CFO of Cardiac Science Corporation, +1-425-402-2009; or Doug Sherk, or Jenifer Kirtland, both of EVC Group, Inc., +1-415-896-6820, for Cardiac Science Corporation.
Cardiac Science Corporation and Subsidiaries Condensed Consolidated Statements of Operations (unaudited) (in thousands, except share and per share amounts) Three Months Ended June 30, 2006 2005 $ % $ % Revenues: Products $35,007 89.3% $19,073 86.8% Service 4,214 10.7% 2,895 13.2% Total revenues 39,221 100.0% 21,968 100.0% Cost of Revenues: Products 17,511 50.0% 10,198 53.5% Service 3,120 74.0% 1,895 65.5% Total cost of revenues 20,631 52.6% 12,093 55.0% Gross Profit: Products 17,496 50.0% 8,875 46.5% Service 1,094 26.0% 1,000 34.5% Gross profit 18,590 47.4% 9,875 45.0% Operating Expenses: Research and development 2,875 7.3% 1,908 8.7% Sales and Marketing 9,914 25.3% 4,592 20.9% General and administrative 5,916 15.1% 2,266 10.4% Total operating expenses 18,705 47.7% 8,766 40.0% Operating income (loss) (115) -0.3% 1,109 5.0% Other Income (Expense): Interest income (expense) (5) 0.0% 145 0.7% Other income, net 274 0.7% 53 0.2% Total other income 269 0.7% 198 0.9% Income before income taxes and minority interest 154 0.4% 1,307 5.9% Income taxes (49) -0.1% (434) -1.9% Income before minority interest in loss of consolidated entity 105 0.3% 873 4.0% Minority interest in loss of consolidated entity 13 0.0% 6 0.0% Net income $118 0.3% $879 4.0% Income per share - basic $0.01 $0.08 Income per share - diluted $0.01 $0.08 Weighted average shares outstanding - basic 22,486,564 10,876,303 Weighted average shares outstanding - diluted 22,522,902 11,319,497 Cardiac Science Corporation and Subsidiaries Condensed Consolidated Statements of Operations (unaudited) (in thousands, except share and per share amounts) Six Months Ended June 30, 2006 2005 $ % $ % Revenues: Products $69,576 88.8% $37,417 86.4% Service 8,760 11.2% 5,881 13.6% Total revenues 78,336 100.0% 43,298 100.0% Cost of Revenues: Products 35,191 50.6% 19,880 53.1% Service 6,162 70.3% 3,777 64.2% Total cost of revenues 41,353 52.8% 23,657 54.6% Gross Profit: Products 34,385 49.4% 17,537 46.9% Service 2,598 29.7% 2,104 35.8% Gross profit 36,983 47.2% 19,641 45.4% Operating Expenses: Research and development 5,845 7.5% 3,717 8.6% Sales and Marketing 19,297 24.6% 9,249 21.4% General and administrative 11,727 15.0% 4,311 10.0% Total operating expenses 36,869 47.1% 17,277 39.9% Operating income 114 0.1% 2,364 5.5% Other Income (Expense): Interest income (expense) (55) 0.0% 258 0.5% Other income, net 505 0.6% 114 0.3% Total other income 450 0.6% 372 0.8% Income before income taxes and minority interest 564 0.7% 2,736 6.3% Income taxes (208) -0.2% (904) -2.1% Income before minority interest in loss of consolidated entity 356 0.5% 1,832 4.2% Minority interest in loss of consolidated entity 26 0.0% 26 0.1% Net income $382 0.5% $1,858 4.3% Income per share - basic $0.02 $0.17 Income per share - diluted $0.02 $0.16 Weighted average shares outstanding - basic 22,458,843 10,867,145 Weighted average shares outstanding - diluted 22,565,413 11,362,952 Cardiac Science Corporation and Subsidiaries Condensed Consolidated Balance Sheets (unaudited) (in thousands) June 30, December 31, 2006 2005 ASSETS Current Assets: Cash and cash equivalents $8,746 $3,546 Accounts receivable, net 24,884 25,738 Inventories 18,765 22,052 Deferred income taxes 12,113 12,115 Prepaid expenses and other current assets 2,274 2,511 Total current assets 66,782 65,962 Machinery and equipment, net of accumulated depreciation 6,986 7,631 Intangibles assets, net of accumulated amortization 33,603 35,338 Goodwill 108,648 111,215 Investment in unconsolidated entities 461 462 Other assets 508 100 Deferred income taxes 30,258 27,849 Total assets $247,246 $248,557 LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities: Accounts payable $12,228 $11,642 Accrued liabilities 9,036 11,918 Warranty liability 2,690 2,348 Deferred revenue 7,485 7,924 Total current liabilities 31,439 33,832 Other liabilities 1,024 1,806 Total liabilities 32,463 35,638 Minority interest in consolidated entity 103 128 Shareholders’ Equity 214,680 212,791 Total liabilities and shareholders’ equity $247,246 $248,557 Cardiac Science Corporation and Subsidiaries Condensed Consolidated Statements of Cash Flows (unaudited) (in thousands) Three Months Ended June 30, 2006 2005 Operating Activities: Net income $118 $879 Adjustments to reconcile net income to cash from operating activities: Depreciation and amortization 1,543 410 Stock-based compensation expense 567 15 Deferred taxes 49 398 Minority interest in consolidated entity (13) (6) Gain on sale of marketable equity securities -- (15) Changes in operating assets and liabilities, net of business acquired: Accounts receivable 864 (786) Inventories (280) 307 Prepaid expenses and other current assets 370 (148) Accounts payable 760 (500) Accrued and other liabilities (751) 447 Warranty liability 52 43 Deferred revenue (104) 333 Net cash flows from operating activities 3,175 1,377 Investing Activities: Purchases of machinery and equipment, net (400) (140) Payments of acquisition related costs (441) (1,018) Proceeds from sale of marketable equity securities -- 625 Net cash flows used in investing activities (841) (533) Financing Activities: Proceeds from exercise of stock options and employee stock purchase plan 243 165 Net cash flows from financing activities 243 165 Net change in cash and cash equivalents 2,577 1,009 Cash and cash equivalents, beginning of period 6,169 22,821 Cash and cash equivalents, end of period $8,746 $23,830 Cardiac Science Corporation and Subsidiaries Condensed Consolidated Statements of Cash Flows (unaudited) (in thousands) Six Months Ended June 30, 2006 2005 Operating Activities: Net income $382 $1,858 Adjustments to reconcile net income to cash from operating activities: Depreciation and amortization 3,100 814 Stock-based compensation expense 1,016 39 Deferred taxes 112 832 Minority interest in consolidated entity (25) (26) Gain on sale of marketable equity securities -- (15) Changes in operating assets and liabilities, net of business acquired: Accounts receivable 898 641 Inventories 1,774 (385) Prepaid expenses and other current assets 986 (135) Accounts payable 878 (103) Accrued and other liabilities (2,349) (1,417) Warranty liability 63 (34) Deferred revenue (91) 308 Net cash flows from operating activities 6,744 2,377 Investing Activities: Purchases of machinery and equipment, net (796) (327) Payments of acquisition related costs (1,214) (1,097) Proceeds from sale of marketable equity securities -- 625 Net cash flows used in investing activities (2,010) (799) Financing Activities: Proceeds from exercise of stock options and employee stock purchase plan 466 350 Net cash flows from financing activities 466 350 Net change in cash and cash equivalents 5,200 1,928 Cash and cash equivalents, beginning of period 3,546 21,902 Cash and cash equivalents, end of period $8,746 $23,830 Cardiac Science Corporation and Subsidiaries Reconciliation of GAAP Results to Non-GAAP Results Reconciliation of Net Income to Adjusted EBITDA (in thousands) Three Months Ended Three Months Ended June 30, 2006 June 30, 2005 % of % of revenue revenue Net income $118 0.3% $879 4.0% Depreciation and amortization 1,543 4.0% 410 1.9% Interest (income) expense 5 0.0% (145) -0.7% Income taxes 49 0.1% 434 2.0% EBITDA 1,715 4.4% 1,578 7.2% Stock-based compensation (net of $29 capitalized in inventory) 567 1.4% 15 0.1% Adjusted EBITDA $2,282 5.8% $1,593 7.3% Reconciliation of Net Income to Adjusted EBITDA (in thousands) Six Months Ended Six Months Ended June 30, 2006 June 30, 2005 % of % of revenue revenue Net income $382 0.5% $1,858 4.3% Depreciation and amortization 3,100 4.0% 814 1.9% Interest (income) expense 55 0.1% (258) -0.6% Income taxes 208 0.2% 904 2.1% EBITDA 3,745 4.8% 3,318 7.7% Stock-based compensation (net of $30 capitalized in inventory) 1,016 1.3% 39 0.1% Pro forma merger related adjustments 419 0.5% -- 0.0% Adjusted EBITDA $5,180 6.6% $3,357 7.8%
Cardiac Science Corporation
CONTACT: Mike Matysik, Sr. Vice President and CFO of Cardiac ScienceCorporation, +1-425-402-2009; or Doug Sherk, or Jenifer Kirtland,+1-415-896-6820, or media, Steve DiMattia, +1-646-277-8706, all of EVCGroup, Inc., for Cardiac Science Corporation
Web site: http://www.cardiacscience.com//
