Cardiac Science Corporation (Cardiac Science), a cardiovascular monitoring and diagnostic devices company, has reported revenues of $206.2 million for the full year of 2008, up 13%, compared with the revenues of $182.1 million in the previous year-end. It has posted a net loss of $98.4 million, or $4.30 per share, for the full year of 2008, compared with the net income of $8.4 million, or $0.37 per share, in the previous year-end.
Revenue for the fourth quarter of 2008 was $51.1 million, 1% above last year’s fourth quarter revenue of $50.4 million.
As a result of required annual impairment tests, the company incurred a fourth quarter non-cash charge of $107.7 million ($107.4 million net of tax benefits) related to the impairment of earlier recorded goodwill in accordance with Statement of Financial Accounting Standards No. 142. Similar to the experience of many companies, Cardiac Science’s market capitalization has eroded to a level significantly below book value, due in large part to the depressed macroeconomic environment and volatility in the equity markets, creating the necessity for the impairment charge.
Including the charge for the impairment of goodwill, the company reported a loss for the fourth quarter of $105.2 million, or $4.58 per share.
Excluding the goodwill impairment charge and related income taxes, pro-forma net income would have been $2.2 million, or $0.09 per fully diluted share for the fourth quarter, and a record $9.0 million, or $0.39 per fully diluted share, for full year 2008, compared with fourth quarter 2007 reported GAAP net income of $2.4 million, or $0.10 per diluted share, and full year 2007 reported GAAP net income of $8.5 million, or $0.37 per fully diluted share.
Recorded net income for 2007 included exceptional litigation-related items that increased net income by $1.4 million. Excluding these items, pro forma net income in 2007 was $7.1 million, or $0.31 per fully diluted share.
“Despite the challenging economy, our overall business remained strong through the fourth quarter, resulting in a record year for Cardiac Science,” said John Hinson, president and chief executive officer. “We crossed the $200 million revenue threshold in 2008, an important milestone for our company, and, excluding the goodwill impairment charge, we also had a record year in terms of profitability and operating cash flow.”
Fourth Quarter Financial Results
Fourth quarter revenue of $51.1 million, up 1% , over the $50.4 million in revenue reported in the fourth quarter of 2007.
Total defibrillation revenue up by 10%, driven by strong growth in the international markets. International Automated External Defibrillator (“AED”) sales were up 54%, reflecting higher sales in Japan and Europe. North American AED sales decreased 26%, largely due to a slowdown in demand as well as a lengthening of the sales cycle related to general weakness in the US economy. The cardiac monitoring business declined 13% from the prior year, reflecting the impact of continued constraints on capital spending on the buying activity of US hospitals.
Service revenue increased 12%, due to growth in both global AED training and maintenance programs and cardiac monitoring contract sales.
Fourth quarter gross margin was 50.9%, an up of 2.1 percentage points over the year-ago gross margin of 48.8%. Contributing to the increase were favorable product mix, increased margin associated with recurring service revenue and ongoing product cost reductions.
Operating expenses in the fourth quarter of 2008 totaled $131.7 million, including the $107.7 million non-cash goodwill impairment charge. Further, the company incurred $1.2 million in severance charges, mostly related to the reduction in force (“RIF”) implemented in January 2009. Although the company had previously announced that the RIF charges would be recorded in the first quarter of 2009, during the preparation of the year end financial statements the company determined that the RIF charges were more appropriately included in the 2008 results.
The company reported an operating loss in the fourth quarter of $105.7 million. Excluding the goodwill impairment charge, pro forma operating income would have been $1.9 million.
Net loss in the fourth quarter was $105.2 million, or $4.58 per share. Excluding the goodwill impairment charge and related income taxes, pro-forma net income would have been $2.2 million, or $0.09 per fully diluted share.
The company generated $2.6 million in cash from operating activities during the quarter and had $34.7 million in cash and short-term investments as of December 31, 2008.
The company projects revenue for the first quarter of 2009 to be in a range between $39 million and $40 million, reflecting significant softness in both North American and Japanese defibrillation sales, as well as worldwide softness in cardiac monitoring sales, partially offset by continued growth in defibrillation sales in other areas and service revenue similar to the prior year. Net income is expected to be positive, with fully diluted earnings per share in a range around $0.01. Despite normally higher seasonal cash payment requirements, the company also expects to report positive operating cash flow for the first quarter.
“We took steps earlier in the quarter to reduce costs to provide flexibility and allow us to remain profitable under a range of economic scenarios,” said Mike Matysik, chief financial officer. These actions will provide a clear benefit as we expect to see the impact of the weakened global economy reflected on our first quarter revenues,” he concluded.