Cardiac Science reports revenues of $36.1 million for second-quarter 2010

Jul 30 2010

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.

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."