CardioNet, Inc. (NASDAQ:BEAT), a leading wireless medical
technology company with an initial focus on the diagnosis and
monitoring of cardiac arrhythmias, today reported results for the
quarter ended March 31, 2008. Q1 2008 Highlights Highlights of the
first quarter of 2008 included: Reported Q1 2008 revenue growth of
67.9% compared to the same period last year adjusted to include the
impact of the acquisition of PDSHeart, Inc. (�PDSHeart�) as if the
acquisition occurred on January 1, 2007 (1A), and 129.4% revenue
growth for the same period last year on a GAAP basis. Achieved the
third consecutive quarter of profitability. Completed our $82.8
million initial public offering at $18.00 per share (inclusive of
the underwriters� partial exercise of its over-allotment option),
raising net proceeds to CardioNet of $46.9 million. Secured a new
direct contract with a national commercial payor representing over
16 million lives, bringing the total number of lives covered by the
CardioNet System to 176 million covered by 170 commercial contracts
and Medicare. Celebrated the one year anniversary of the March 2007
publication of a 300-patient randomized clinical trial finding that
the CardioNet System detected clinically significant arrhythmias
nearly three times as often as traditional loop event monitors in
patients who had previously experienced negative or non-diagnostic
Holter monitoring. Initiated final integration plans related to the
March 2007 PDSHeart acquisition, including the elimination of
redundant operations, overhead and facilities. We currently expect
this plan to be substantially implemented by mid-2008. Bolstered
our senior management team with the hiring of experienced
executives in key management positions in Sales, Marketing and
R&D. President and Chief Executive Officer (�CEO�) Commentary
Arie Cohen, President and CEO, commented: �We are pleased to report
a record first quarter that exceeded our expectations. Our
performance reflects continued recognition by physicians and payors
of the benefits of utilizing the CardioNet System. We believe that
CardioNet only has approximately 5% penetration of an estimated $2
billion market, and that the future growth opportunities for our
company are quite compelling. �We have seen significant payor
momentum since the publication of a 300-patient randomized clinical
trial in March 2007, which illustrated a three times higher
diagnostic yield of the CardioNet System versus event monitoring
for patients who previously had negative or non-diagnostic Holter
monitoring. From March 2007, we have signed 28 new commercial payor
contracts representing over 34.9 million lives, including two
significant national payors, one of which was signed late in the
first quarter of 2008. We believe this momentum of payor acceptance
will continue and that we will secure additional new contracts
going forward.� Financial Results Revenues for the first quarter of
2008 increased to $25.5 million compared to $11.1 million in the
first quarter of 2007, an increase of $14.4 million, or 129.4%.
After taking into account the acquisition of PDSHeart, the $25.5
million of first quarter 2008 revenue compares to adjusted revenue
of $15.2 million for first quarter 2007 (1A), an increase of $10.3
million, or 67.9%. Gross profit increased to $15.9 million in the
first quarter of 2008, or 62.6% of revenues, compared to $7.3
million in the first quarter of 2007, or 65.9% of revenues. After
taking into account the acquisition of PDSHeart, the 62.6% gross
profit in the first quarter of 2008 compares to 64.0% adjusted
gross profit in the first quarter of 2007 (1A). Marty Galvan,
CardioNet�s Chief Financial Officer, commented: �The adjusted gross
profit of 64.0% for the first quarter of 2007 is lower than the
reported GAAP gross profit of 65.9% due to the impact of the
inclusion of an entire quarter of the lower margin PDSHeart event
and Holter monitoring products. Year over year, the reduction in
gross profit to 62.6% is primarily due to a fuel surcharge on
device shipments to and from patients. Although we expect this
charge to continue in 2008, we have identified manufacturing cost
and operating expense reductions to offset its impact on our 2008
results.� On a GAAP basis, operating income increased to $0.3
million in the first quarter of 2008 compared to an operating loss
of $2.2 million in the same period last year. Excluding the impact
of $0.4 million of integration and restructuring charges primarily
related to integration of PDSHeart (1B), adjusted operating income
increased to $0.6 million in the first quarter of 2008 compared to
an operating loss of $2.2 million in the first quarter of 2007. The
PDSHeart integration plan is expected to be substantially
implemented by mid-2008 with additional integration charges
anticipated in the second and third quarters of 2008. Marty Galvan
commented: �We are very excited to report our third consecutive
quarter of profitability. In the first quarter of 2008, CardioNet
invested heavily in sales and marketing, additional management
talent, research and development and other operating expenses that
will help drive our future growth. As our revenue continues to grow
over the balance of 2008, we will be able to leverage these
expenses over a larger revenue base. The first quarter 2008
adjusted operating income exceeded our expectations and the
sequential decline from the fourth quarter 2007 to the first
quarter 2008 reflects the investments outlined above. We expect
operating margin to increase substantially over the next several
quarters.� On a GAAP basis, net income for the first quarter of
2008 increased to $0.2 million compared to a net loss of $3.2
million for the same period last year. Adjusted net income for the
first quarter of 2008 increased to $0.4 million, or $0.02 per
diluted share, excluding the impact of integration and
restructuring costs (1B), compared to a net loss of $3.2 million,
or a loss of $1.06 per diluted share, for the same period last
year. Net loss available to common shares, which is derived by
reducing net income by the accrued dividends and accretion on
mandatorily redeemable convertible preferred stock, was $2.4
million, or a loss of $0.50 per diluted share, compared to a net
loss of $3.6 million, or a loss of $1.22 per diluted share, for the
same period last year. The mandatorily redeemable convertible
preferred stock, which was issued to finance the March 2007
PDSHeart acquisition, was converted to common stock in connection
with CardioNet�s March 2008 initial public offering. 2008 Outlook
CardioNet CEO Arie Cohen noted, �Looking ahead, we believe that we
are well-positioned to deliver sustained revenue and earnings
growth and have set a revenue target for 2008 of $117.0 to $120.0
million. We expect to leverage our strong balance sheet to invest
in sales and marketing resources to drive revenue growth, R&D
projects to enhance our product portfolio, and opportunistic
strategic acquisitions that we believe will further strengthen our
performance in 2008 and beyond.� Conference Call CardioNet, Inc.
will host an earnings conference call on Tuesday, April 29, 2008,
at 8:00 AM Eastern Time. The call will be simultaneously webcast on
the investor information page of our website, www.CardioNet.com.
The call will be archived on our website and will also be available
for two weeks via phone at 888-286-8010, access code 50515401.
CardioNet, Inc. is a leading provider of ambulatory, continuous,
real-time outpatient management solutions for monitoring relevant
and timely clinical information regarding an individual�s health.
CardioNet�s initial efforts are focused on the diagnosis and
monitoring of cardiac arrhythmias with a solution that it markets
as the CardioNet System. More information can be found at
http://www.CardioNet.com. Forward Looking Statements This press
release includes certain forward-looking statements within the
meaning of the �Safe Harbor� provisions of the Private Securities
Litigation Reform Act of 1995 regarding, among other things, our
ability to deliver sustained revenue and earnings growth, our
ability to implement manufacturing cost and expense reductions, our
ability to increase our operating margin, the performance of our
recent acquisition of PDSHeart, our ability to integrate it into
our operations during mid-2008, its affect on earnings and whether
it will contribute to higher rates of revenue and earnings growth
in the future, our ability to secure additional contracts in 2008,
our outlook for our businesses, our expectations regarding the
integration and restructuring charges and our ability to recover
the costs relating to our acquisition of PDSHeart, our expectations
for our research and development pipeline and new product
introductions, our ability to create stockholder value, our 2008
revenue target, our prospects for continued growth, our ability to
successfully execute on our business strategies and our confidence
in the Company�s future. These statements may be identified by
words such as �expect,� �anticipate,� �estimate,� �project,�
�intend,� �plan,� �believe,� and other words and terms of similar
meaning. Such forward-looking statements are based on current
expectations and involve inherent risks and uncertainties,
including important factors that could delay, divert, or change any
of them, and could cause actual outcomes and results to differ
materially from current expectations. These factors include, among
other things, the integration of our recent acquisition of
PDSHeart, the continued implementation of the company�s
restructuring plans, sales and marketing initiatives, our ability
to attract and retain talented sales personnel, the
commercialization of new products, market factors, internal
research and development initiatives, partnered research and
development initiatives, competitive product development, changes
in governmental regulations and legislation, the continued
consolidation of payors, acceptance of our new products and
services, patent protection and litigation, a successful mergers
and acquisitions strategy, the ability to locate and acquire
companies, the existence of businesses and products that are
strategic to the Company and accretive to earnings, and the market
for mergers and acquisitions. For further details and a discussion
of these and other risks and uncertainties, please see our public
filings with the Securities and Exchange Commission, including our
final prospectus filed on March 19, 2008 in connection with our
initial public offering. We undertake no obligation to publicly
update any forward-looking statement, whether as a result of new
information, future events, or otherwise. � � Three Months Ended
Consolidated Statements of Operations (unaudited) (In Thousands,
Except Per Share Amounts) � March 31, 2008 March 31, 2007 �
Revenues $ 25,463 $ 11,101 Cost of revenues � 9,519 � 3,790 Gross
Profit 15,944 7,311 Gross Profit % 62.6% 65.9% � Operating
Expenses: Research and development expense 1,141 990 General and
administrative expense 8,820 5,141 Sales and marketing expense
5,115 3,320 Amortization of intangibles 246 61 Integration and
restructuring charges � 356 � - Total Operating Expense 15,678
9,512 � � Operating Income (Loss) � 266 � (2,201) Interest Income
(Expense), net 112 (953) � Income (Loss) Before Income Taxes 378
(3,154) Provision for Income Taxes � (151) � - Net Income (Loss) $
227 $ (3,154) Dividends on and accretion of mandatorily redeemable
convertible preferred stock � (2,597) � (483) Net Loss available to
common shares $ (2,370) $ (3,637) � Loss per Share: Basic and
Diluted $ (0.50) $ (1.22) � Weighted Average Shares Outstanding:
Basic and Diluted 4,695 2,993 � The following table presents detail
of the stock-based compensation expense that is included in each
functional line item in the Condensed Statement of Operations above
(000's): � Three Months Ended Stock based compensation expense
(unaudited) (In Thousands) � March 31, 2008 March 31, 2007 � Stock
based compensation expense included in: Cost of revenues $ 9 $ -
Research and development expense 14 - General and administrative
expense 238 69 Sales and marketing expense � 99 � - � Total stock
based compensation expense $ 360 $ 69 � Summary Consolidated
Balance Sheet Data (In Thousands) � March 31, 2008 December 31,
2007 (unaudited) � Cash and cash equivalents $ 61,973 $ 18,091
Accounts receivable, net 25,766 22,854 Working capital 72,636
29,375 Total assets 154,386 103,040 Total debt 2,872 2,744
Mandatorily redeemable convertible preferred stock - 115,302 Total
shareholders� equity (deficit) 135,918 (26,865) Reconciliation of
Non-GAAP Financial Measures (In Thousands, Except Per Share
Amounts) � In accordance with Regulation G of the Securities and
Exchange Commission, the tables set forth below reconcile certain
financial measures used in this press release that were not
calculated in accordance with generally accepted accounting
principles, or GAAP, with the most directly comparable financial
measure calculated in accordance with GAAP. � (1A) The following
table provides a reconciliation of first quarter 2007 results as if
the PDSHeart acquisition had been completed as of January 1, 2007.
� Three Months Ended March 31, 2007 Total Revenue � GAAP $ 11,101
PDSHeart Revenue prior to acquisition � January 1 to March 7, 2007
� 4,069 Adjusted Revenue $ 15,170 Total Gross Profit � GAAP $ 7,311
PDSHeart Gross Profit prior to acquisition � January 1 to March 7,
2007 � 2,402 Adjusted Gross Profit $ 9,713 Adjusted Gross Profit %
64.0% � (1B) The following table reconciles certain financial
measures used in this press release that were not calculated in
accordance with GAAP. � � Three Months Ended � Three Months Ended
March 31, 2008 March 31, 2007 Operating Income (Loss) � GAAP $ 266
$ (2,201) Integration and Restructuring Charges (a) � 356 � -
Adjusted Operating Income (Loss) $ 622 $ (2,201) � Net (Loss)
applicable to common shares � GAAP $ (2,370) $ (3,637) Dividends on
and accretion of mandatorily redeemable convertible preferred stock
which converted to common stock in the first quarter of 2008 �
2,597 � 483 Net Income (Loss) � GAAP $ 227 $ (3,154) Integration
and Restructuring Charges (net of income taxes of $142) (a) � 214 �
- Adjusted Net Income (Loss) $ 441 $ (3,154) � Diluted Earnings
(Loss) per Share � GAAP $ (0.50) $ (1.22) � Dividends on and
accretion of mandatorily redeemable convertible preferred stock
which converted to common stock in the first quarter of 2008 and
Integration and Restructuring Charges per Share (a) � 0.52 � 0.16
Adjusted Earnings (Loss) per Share $ 0.02 $ (1.06) � (a) In the
first quarter of 2008, we incurred $0.4 million of expense
primarily to integrate the PDSHeart acquisition consummated in
March 2007.
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