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Cardiac Science Reports Record Fourth Quarter and Full Year 2007 Results
Date:2/28/2008

Fourth Quarter Revenue up 29% to $50.4 Million

Strong Revenue Growth in both Defibrillation and Cardiac Monitoring

Full Year Revenue Growth of 17% to $182 Million and EPS of $0.37

BOTHELL, Wash., Feb. 28 /PRNewswire-FirstCall/ -- Cardiac Science Corporation (Nasdaq: CSCX), a global leader in advanced cardiac diagnosis, resuscitation, rehabilitation, and informatics products, today announced record results for the fourth quarter and full year ended December 31, 2007.

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Revenue for the quarter was $50.4 million, an increase of 29% over the prior year period. The growth reflected an increase in defibrillation and cardiac monitoring sales of 48% and 16%, respectively. Domestic automated external defibrillator (AED) sales grew 30% from the prior year's fourth quarter, while international AED sales rose 68% for the quarter, driven by strong growth throughout Europe and Asia. The Company reported net income of $2.4 million, or $0.10 per diluted share in the fourth quarter, compared to a small net loss of $35,000, or $0.00 per share in the fourth quarter of 2006.

For the full year 2007, revenue totaled $182.1 million, an increase of 17% compared to revenue of $155.4 million for 2006. The Company reported net income of $8.5 million for the year, or $0.37 per diluted share. Net income for the year included a non-cash benefit and related cash expenses associated with litigation that was settled in 2007. Excluding these litigation-related items, pro forma net income would have been $7.1 million, or $0.31 per diluted share.

2007 Accomplish 3,752 23.3% 4,661 27.4%

Gross profit 88,416 48.5% 73,234 47.1%

Operating Expenses:

Research and development 13,020 7.1% 11,733 7.5%

Sales and marketing 46,195 25.4% 39,960 25.7%

General and administrative 19,176 10.5% 19,072 12.3%

Litigation and related expenses 3,808 2.1% 3,855 2.5%

Licensing income and

litigation settlement (6,000) -3.3% - 0.0%

Total operating expenses 76,199 41.8% 74,620 48.0%

Operating income (loss) 12,217 6.7% (1,386) -0.9%

Other Income (Expense):

Interest income (expense), net 402 0.2% (16) 0.0%

Other income, net 799 0.4% 782 0.5%

Total other income 1,201 0.7% 766 0.5%

Income before income tax benefit

(expense) and minority interest 13,418 7.4% (620) -0.4%

Income tax benefit (expense) (4,924) -2.7% 615 0.4%

Income before minority interest 8,494 4.7% (5) 0.0%

Minority interests (4) 0.0% 54 0.0%

Net income $8,490 4.7% $49 0.0%

Net income per share - basic $0.37 $0.00

Net income per share - diluted $0.37 $0.00

Weighted average shares

outstanding - basic 22,697,113 22,502,040

Weighted average shares

outstanding - diluted 23,197,911 22,555,326

Cardiac Science Corporation and Subsidiaries

Condensed Consolidated Balance Sheets (unaudited)

(in thousands)

December 31, December 31,

2007 2006

ASSETS

Current Assets:

Cash and cash equivalents $20,159 $9,819

Short-term investments 350 547

Accounts receivable, net 29,439 26,971

Inventories 21,794 17,617

Deferred income taxes, net 9,558 3,902

Prepaid expenses and other current assets 2,509 2,121

Total current assets 83,809 60,977

Other assets 125 209

Machinery and equipment, net of

accumulated depreciation 5,056 5,956

Deferred income taxes, net 30,288 40,525

Intangible assets, net of

accumulated amortization 35,053 31,869

Investment in unconsolidated entities 727 496

Goodwill 107,613 107,613

Total assets $262,671 $247,645

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:

Accounts payable $12,792 $11,761

Accrued liabilities 11,075 9,890

Warranty liability 3,211 2,532

Deferred revenue 8,141 7,111

Total current liabilities 35,219 31,294

Other liabilities 54 679

Total liabilities 35,273 31,973

Minority interests 127 75

Shareholders' Equity 227,271 215,597

Total liabilities and shareholders' equity $262,671 $247,645

Cardiac Science Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)

(in thousands)

Three Months Ended

December 31

2007 2006

Operating Activities:

Net income (loss) $2,367 $(35)

Adjustments to reconcile net income (loss)

to cash provided by operating activities:

Depreciation and amortization 1,672 1,600

Deferred income taxes 1,630 (548)

Stock-based compensation 484 490

Minority interests 31 (15)

(Gain) Loss on disposal of machinery

and equipment (15) 58

Changes in operating assets and liabilities,

net of business acquired:

Accounts receivable, net (2,351) (4,325)

Inventories (1,353) 2,259

Prepaid expenses and other assets 90 (145)

Accounts payable 365 (534)

Accrued liabilities 726 1,355

Warranty liability 42 (134)

Deferred revenue 402 2

Net cash flows provided by (used in)

operating activities 4,090 28

Investing Activities:

Purchases of short-term investments (350) (839)

Maturities of short-term investments 346 292

Purchases of machinery and equipment (326) (316)

Payments related to the purchase

of Cardiac Science, Inc. (194) (219)

Net cash flows used in

investing activities (524) (1,082)

Financing Activities:

Proceeds from exercise of stock options and

issuance of shares under employee purchase plan 173 255

Minimum tax withholding on restricted stock awards (141) (81)

Net cash flows provided by

financing activities 32 174

Net change in cash and cash equivalents 3,598 (880)

Cash and cash equivalents, beginning of period 16,561 10,699

Cash and cash equivalents, end of period $20,159 $9,819

Cardiac Science Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)

(in thousands)

Twelve Months Ended

December 31

2007 2006

Operating Activities:

Net income $8,490 $49

Adjustments to reconcile net income to cash

provided by operatingactivities:

Licensing income and litigation settlement (6,000) -

Depreciation and amortization 6,746 6,261

Deferred income taxes 4,494 (781)

Stock-based compensation 2,233 2,028

Minority interests 55 (54)

(Gain) Loss on disposal of machinery

and equipment (16) 58

Changes in operating assets and liabilities,

net of business acquired:

Accounts receivable, net (2,468) (1,189)

Inventories (4,153) 2,956

Prepaid expenses and other assets (304) 1,189

Accounts payable 1,031 411

Accrued liabilities 1,531 (1,604)

Warranty liability 679 (95)

Deferred revenue 1,030 (465)

Net cash flows provided by

operating activities 13,348 8,764

Investing Activities:

Purchases of short-term investments (1,240) (839)

Maturities of short-term investments 1,437 292

Purchase of patents as part of litigation

settlement (1,000) -

Purchases of machinery and equipment (2,014) (1,249)

Payments related to the purchase

of Cardiac Science, Inc. (971) (1,749)

Proceeds from collection of note - 238

Net cash flows used in

investing activities (3,788) (3,307)

Financing Activities:

Proceeds from exercise of stock options

and issuance of shares under employee

purchase plan 921 897

Minimum tax withholding on restricted

stock awards (141) (81)

Net cash flows provided by

financing activities 780 816

Net change in cash and cash equivalents 10,340 6,273

Cash and cash equivalents, beginning of period 9,819 3,546

Cash and cash equivalents, end of period $20,159 $9,819

Cardiac Science Corporation and Subsidiaries

Reconciliation of GAAP Results to Non-GAAP Results (unaudited)

(in thousands)

Reconciliation of Net Income

(loss) to Adjusted EBITDA

Three Months Three Months

Ended Ended

December 31, December 31,

2007 2006

% of % of

revenue revenue

Net income (loss) $2,367 4.7% $(35) -0.1%

Depreciation and amortization 1,672 3.3% 1,600 4.1%

Interest income (203) -0.4% (21) -0.1%

Income tax (benefit) expense 1,821 3.6% (614) -1.6%

EBITDA 5,657 11.2% 930 2.4%

Stock-based compensation 484 1.0% 490 1.3%

Litigation and related expenses - 0.0% 625 1.6%

Adjusted EBITDA $6,141 12.2% $2,045 5.2%

Reconciliation of Net Income (loss)

to Adjusted EBITDA

YTD Months YTD Months

Ended Ended

December 31, December 31,

2007 2006

% of % of

revenue revenue

Net income $8,490 4.7% $49 0.0%

Depreciation and amortization 6,746 3.7% 6,261 4.0%

Interest (income) expense (402) -0.2% 16 0.0%

Income tax (benefit) expense 4,924 2.7% (615) -0.4%

EBITDA 19,758 10.8% 5,711 3.7%

Stock-based compensation 2,233 1.2% 2,028 1.3%

Litigation and related expenses 3,808 2.1% 3,855 2.5%

Licensing income and litigation

settlement (6,000) -3.3% - 0.0%

Pro forma merger related adjustments - 0.0% 419 0.3%

Adjusted EBITDA $19,799 10.9% $12,013 7.7%

Reconciliation of Net Income (loss)

to Pro Forma Net Income

Three Months Three Months

Ended Ended

December 31, December 31,

2007 2006

% of % of

revenue revenue

Net income (loss) $2,367 4.7% $(35) -0.1%

Litigation and related expenses - 0.0% 625 1.6%

Tax effect - 0.0% (219) -0.6%

Pro forma net income $2,367 4.7% $371 1.0%

Reconciliation of Net Income to

Pro Forma Net Income

YTD Months YTD Months

Ended Ended

December 31, December 31,

2007 2006

% of % of

revenue revenue

Net income $8,490 4.7% $49 0.0%

Litigation and related expenses 3,808 2.1% 3,855 2.5%

Licensing income and litigation

settlement (6,000) -3.3% - 0.0%

Tax effect 805 0.4% (1,401) -0.9%

Pro forma net income $7,103 3.9% $2,503 1.6%

ments

During 2007 the Company:

-- Posted record revenue of $182 million, representing 17% growth over

2006

-- Completed the year with four consecutive quarters of record revenue,

with the fourth quarter exceeding $50 million

-- Restructured the US cardiac monitoring sales team to take advantage of

all revenue opportunities in that market

-- Released a new hospital defibrillator in the fourth quarter, marking

the beginning of a long-term strategic selling alliance with GE Medical

to distribute these products worldwide

-- Introduced new and updated products, including a new cardiac

rehabilitation system, an updated electrocardiograph platform,

increased connectivity options for stress systems and new non-English

language versions of a number of products

-- Announced the creation of Nevada Project Heartbeat, the first statewide

public access defibrillation program in the U.S.

-- Renewed its partnership with San Diego Project Heartbeat, where we

remain the preferred AED supplier for their leading-edge public access

defibrillation program

-- Expanded global AED distribution, particularly in North America, and

achieved significant market share increases

-- Received the Award for Global Excellence in ECG Monitoring from Frost

and Sullivan

-- Settled all major litigation, eliminating substantial expense,

uncertainty and management distraction

-- Attained record profit and operating cash flow

Fourth Quarter Financial Results

Fourth quarter revenue of $50.4 million represented an increase of 29% from the $39.0 million in revenue reported in the fourth quarter of 2006. Fourth quarter gross margin was 48.8%, an increase over the gross margin from the fourth quarter of 2006 of 46.7%, driven by favorable product mix and manufacturing efficiencies in the current period.

Operating expenses in the fourth quarter of 2007 were $20.6 million, compared to $19.1 million for the fourth quarter of 2006, an increase of 8%. Prior year operating expenses included approximately $0.6 million in litigation related expenses. There were no comparable expenses in the current period. The year to year increase in operating expenses is primarily related to sales commissions and other costs associated with the significant growth in revenue.

EBITDA was $5.7 million for the fourth quarter of 2007. Adjusted EBITDA, which excludes stock-based compensation expense, was $6.1 million, or 12% of revenue. The Company generated $4.1 million in cash from operating activities during the quarter and had $20.5 million in cash and short-term investments as of December 31, 2007.

Fiscal 2007 Financial Results

For 2007, the Company generated revenue of $182.1 million, compared with $155.4 million in 2006, an increase of 17%.

Gross margin for 2007 was 48.5% compared to 47.1% for the prior year. The increase in gross margin was the result of favorable product mix and manufacturing efficiencies in the current year.

The Company reported net income of $8.5 million for the year, or $0.37 per diluted share. Net income for the year included a non-cash benefit and cash expenses relating to litigation that was settled in 2007. Excluding these litigation-related items, pro forma net income would have been $7.1 million, or $0.31 per diluted share.

The Company generated $13.3 million in cash from operations for the full year, despite spending $3.8 million on litigation that was ultimately settled in 2007.

Outlook

"Our focus in 2008 will reflect an emphasis on the growth areas for the next few years," explained John Hinson, president and CEO. "These areas include commercial and medical AEDs, hospital defibrillation, international cardiac monitoring, AED program management, and connectivity solutions. We intend to expand our AED distribution globally and to increase investment in product development to help achieve our growth potential. In addition, with a strong balance sheet, growing cash reserves and no debt, we expect to accelerate efforts to seek acquisition opportunities, particularly those which can leverage our existing service and distribution capabilities," he continued.

The Company expects revenue growth for 2008 to be in a range around 10%, driven by continued growth in global AED revenues, meaningful revenue from the hospital defibrillator product and modest improvement in the cardiac monitoring line.

For 2008, gross margin is expected to be in a range between 47% and 49%, depending on several factors, including product pricing, the mix of sales through different distribution channels, and the timing of the impact of planned productivity increases and cost reductions.

The Company expects to increase its investment in research and development in 2008, increasing related expenses to between 7.5% and 8% of revenue. Other operating expenses are expected to grow in 2008 also, but at rates generally less than the rate of revenue growth, which would result in increased operating income in 2008.

The Company expects net income, inclusive of an estimated income tax rate of 37%, to be in a range between $8 and $9 million, or between $0.34 and $0.39 per share, representing earnings growth of 13% to 27%. Adjusted EBITDA is expected to be in a range between 11% and 12% of revenue.

Michael Matysik, senior vice president and chief financial officer, stated, "A number of factors may affect our actual results relative to the ranges we've provided. These include GE's level of success in selling our new hospital defibrillator, the tempo and results of our continued effort to revitalize our cardiac monitoring line and our ability to continue to capture share of the international AED market as it rapidly evolves." Mr. Matysik added, "Our revenue guidance also includes continued growth in our domestic AED sales, muted somewhat by the possible impact of Physio's return to the market. To the extent that their return is later than we expect or that the impact is less significant than we expect, there may be upside to our guidance."

Non-GAAP and Pro Forma Financial Information

This news release contains a discussion of EBITDA, Adjusted EBITDA and Pro Forma Net Income, which are non-GAAP financial measures provided as a complement to results provided in accordance with accounting principles generally accepted in the United States of America ("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, merger related expenses, and litigation expense. Pro Forma Net Income refers to Net Income before litigation expenses, licensing income and litigation settlement and the related tax effect of these items. None of these measures are a substitute for measures determined in accordance with GAAP, and may not be comparable to as the same measures as reported by other companies. EBITDA, Adjusted EBITDA and Pro Forma Net Income 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's operations. 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. Reconciliations of net income, the most comparable GAAP measure, to EBITDA, Adjusted EBITDA and Pro Forma Net Income are contained in this press release.

Conference Call Information

Cardiac Science will conduct a conference call for 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 John Hinson, chief executive officer, and Mike Matysik, senior vice president and chief financial officer. To access the conference call, please dial (866) 250-2351. International participants can call (303) 262-2131. The call will also be webcast live on the web at http://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 11109221#. An audio archive will be available at http://www.cardiacscience.com for 90 days following the call.

About Cardiac Science Corporation

Cardiac Science develops, manufactures, and markets a family of advanced diagnostic and therapeutic cardiology devices and systems, including automated external defibrillators (AEDs), electrocardiograph devices (ECGs), cardiac stress systems and treadmills, 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(R), HeartCentrix(R), Powerheart(R), and Quinton(R) brands, is headquartered in Bothell, Washington. With customers in more than 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 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, cash flow, gross margins, Adjusted EBITDA, its ability to expand its distribution partnerships and revenue derived from them, product releases and revenue derived from them and possible acquisitions. 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, 2006. Cardiac Science Corporation undertakes no duty or obligation to update the information provided herein.

Company Contact Investor Group

Mike Matysik EVC Group, Inc.

Cardiac Science Corporation Douglas Sherk/Jenifer Kirtland

Sr. Vice President and CFO (415) 896-6820

(425) 402-2009

Media Contact

Christopher Gale

EVC Group, Inc.

(201) 646-5431

(203) 570-4681

cgale@evcgroup.com

(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

2007 2006

$ % $ %

Revenues:

Cardiac monitoring products $19,554 38.8% $16,786 43.1%

Defibrillation products 26,829 53.2% 18,178 46.6%

Total product revenues 46,383 92.0% 34,964 89.7%

Service 4,045 8.0% 4,013 10.3%

Total revenues 50,428 100.0% 38,977 100.0%

Cost of Revenues:

Products 22,807 49.2% 17,756 50.8%

Service 2,994 74.0% 3,038 75.7%

Total cost of revenues 25,801 51.2% 20,794 53.3%

Gross Profit:

Products 23,576 50.8% 17,208 49.2%

Service 1,051 26.0% 975 24.3%

Gross profit 24,627 48.8% 18,183 46.7%

Operating Expenses:

Research and development 3,557 7.1% 3,096 7.9%

Sales and marketing 11,729 23.3% 10,618 27.2%

General and administrative 5,269 10.4% 4,712 12.1%

Litigation and related expenses - 0.0% 625 1.6%

Total operating expenses 20,555 40.8% 19,051 48.9%

Operating income (loss) 4,072 8.1% (868) -2.2%

Other Income (Expense):

Interest income, net 203 0.4% 21 0.1%

Other income (expense), net (59) -0.1% 183 0.5%

Total other income 144 0.3% 204 0.5%

Income (loss) before income tax

benefit (expense) and minority

interest 4,216 8.4% (664) -1.7%

Income tax benefit (expense) (1,821) -3.6% 614 1.6%

Income (loss) before minority

interest 2,395 4.7% (50) -0.1%

Minority interests (28) -0.1% 15 0.0%

Net income (loss) $2,367 4.7% $(35) -0.1%

Net income (loss) per share - basic $0.10 $(0.00)

Net income (loss) per share - diluted $0.10 $(0.00)

Weighted average shares

outstanding - basic 22,758,776 22,565,801

Weighted average shares

outstanding - diluted 23,235,035 22,565,801

Cardiac Science Corporation and Subsidiaries

Condensed Consolidated Statements of Operations (unaudited)

(in thousands, except share and per share amounts)

Twelve Months Ended December 31

2007 2006

$ % $ %

Revenues:

Cardiac monitoring products $68,624 37.7% $71,016 45.7%

Defibrillation products 97,382 53.5% 67,414 43.4%

Total product revenues 166,006 91.1% 138,430 89.1%

Service 16,125 8.9% 16,999 10.9%

Total revenues 182,131 100.0% 155,429 100.0%

Cost of Revenues:

Products 81,342 49.0% 69,857 50.5%

Service 12,373 76.7% 12,338 72.6%

Total cost of revenues 93,715 51.5% 82,195 52.9%

Gross Profit:

Products 84,664 51.0% 68,573 49.5%

Service
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SOURCE Cardiac Science Corporation
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