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 June 30, 2008. Q2 2008 Highlights Reported revenue of
$29.3 million, up 68.4%, compared to $17.4 million in the same
period last year. Experienced a profitable quarter with an 8.7%
operating margin in Q2 2008 compared to a loss in Q2 2007.
Continued to build on the momentum of payor acceptance generated
from the publication of our clinical trial results in March 2007,
securing 9 new direct payor contracts in the second quarter
representing approximately 1 million additional lives, bringing the
total number of covered lives to approximately 177 million covered
by 181 commercial contracts and Medicare. Expanded our direct sales
force by 11.0% from the end of Q1 2008, broadening our footprint as
the largest arrhythmia monitoring sales force. Appointed Randy
Thurman, former Chairman and CEO of VIASYS Healthcare (acquired by
Cardinal Health for $1.5 billion in June 2007), as Executive
Chairman to replace founder Jim Sweeney. Bolstered our senior
management team with the hiring of additional experienced
executives in key management positions in Operations and Human
Resources. Entered into a settlement agreement with LifeWatch
Corp., in the amicable resolution of a lawsuit with dismissal by
both sides of all claims asserted in the litigation. President and
CEO Commentary Arie Cohen, President and CEO, commented: �We are
excited to report a record second quarter that builds on our market
momentum. The CardioNet System has demonstrated a 3x higher yield
in diagnosing cardiac arrhythmias versus event monitoring for
patients who previously had negative or non-diagnostic Holter
monitoring. We believe that the enhanced ability to diagnose and
manage patients with cardiac arrhythmias results in superior
clinical outcomes and reduced health care costs. Accordingly, the
momentum we are experiencing in payor adoption continues,
demonstrated by CardioNet reaching the milestone of approximately
70% of lives under coverage from commercial payors and Medicare.
During the first six months of 2008, we secured 14 new contracts
representing 19 million covered lives. �Our recent appointment of
Randy Thurman as Executive Chairman further enhances CardioNet�s
leadership team, as we seek to expand our penetration in the $2
billion arrhythmia monitoring opportunity. Annualizing our Q2
revenue suggests that we have achieved less than 6% penetration,
underscoring the significant growth opportunity going forward in
our core business. We believe our wireless medicine platform also
can be leveraged in the future for other new applications and
markets and remain excited about the potential for this innovative
and scalable technology.� Financial Results Revenues for the second
quarter of 2008 increased to $29.3 million compared to $17.4
million in the second quarter of 2007, an increase of $11.9
million, or 68.4%. Revenues for the six months ended June 30, 2008
increased to $54.8 million compared to $28.5 million in the
comparable period in the prior year. After taking into account the
acquisition of PDSHeart, Inc. (�PDSHeart�), which the Company
acquired in March 2007, revenue in the first half of 2008 increased
68.2% to $54.8 million compared to $32.6 million in the same period
last year(1A). Gross profit increased to $19.5 million in the
second quarter of 2008, or 66.5% of revenues, compared to $11.5
million in the second quarter of 2007, or 65.8% of revenues. The
66.5% gross margin in second quarter of 2008 also compares
favorably to the 62.6% gross margin in the first quarter of 2008.
For the first half of 2008, gross profit increased to $35.5
million, or 64.7% of revenues, compared to $18.8 million, or 65.8%
of revenues, in the comparable period in the prior year. After
taking into account the acquisition of PDSHeart, the 64.7% gross
profit in the year to date period compares to 65.0% gross profit in
the same period last year, a decrease of 30 basis points due to
first quarter performance(1A). Marty Galvan, CardioNet�s Chief
Financial Officer commented: �Our second quarter gross profit
reflects cost reductions and productivity improvements that
successfully offset the negative factors experienced in the first
quarter of 2008, primarily a fuel surcharge. In addition, our
revenue mix continues to shift towards our proprietary CardioNet
System, away from legacy event and Holter monitoring products based
on the strength of its superior diagnostic yield. It is important
to emphasize that the gross margin for the CardioNet System is
higher than the gross margin for the legacy event and Holter
monitoring products, thereby contributing to the gross margin
improvement.� On a GAAP basis, operating income increased to $2.5
million in the second quarter of 2008 compared to an operating loss
of $1.0 million in the second quarter of 2007. Excluding $0.6
million of expense related to the integration of PDSHeart and other
restructuring efforts(1B), adjusted operating income increased to
$3.1 million in the second quarter of 2008, or 10.7% of revenue,
compared to an operating loss of $1.0 million in the second quarter
of 2007. On a GAAP basis, operating income for the year to date
period increased to $1.9 million compared to an operating loss of
$3.2 million in the comparable period in the prior year. Excluding
the impact of $1.9 million of integration, restructuring and other
nonrecurring charges(1B), adjusted operating income increased to
$3.8 million in the first half of 2008, or 6.9% of revenue,
compared to an operating loss of $3.2 million in the first half of
2007. Marty Galvan remarked: �As previously discussed, we expect to
record approximately $1.3 million in PDSHeart integration charges
in 2008. In the first half of the year, we have reported
approximately $1.0 million in charges, with the balance expected
primarily in the third quarter of 2008. The litigation settlement
charges with LifeWatch announced in May 2008 were included in Q1
2008 results and did not impact the second quarter results.� On a
GAAP basis, net income for the second quarter of 2008 increased to
$1.6 million, or $0.07 per diluted share, compared to a net loss of
$1.1 million, or a loss of $0.36 per diluted share, for the same
period last year. Adjusted net income for the second quarter of
2008 increased to $2.0 million, or $0.08 per diluted share,
excluding the impact of integration, restructuring and other
nonrecurring charges(1B), compared to a net loss of $1.1 million,
or a loss of $0.36 per diluted share, for the same period last
year. On a GAAP basis, net income for the first half of 2008
increased to $1.3 million, or $0.06 per diluted share, compared to
a net loss of $4.3 million, or a loss of $1.41 per diluted share,
for the first half of 2007. Adjusted net income for the first half
of 2008 increased to $2.4 million, or $0.11 per diluted share,
excluding the impact of integration, restructuring and other
nonrecurring charges(1B), compared to a net loss of $4.3 million,
or a loss of $1.41 per diluted share, for the same period last
year. Net income available to common shareholders, which is derived
by reducing net income by the accrued dividends and accretion on
mandatorily redeemable convertible preferred stock, was $1.6
million, or $0.07 per diluted share, for the second quarter of 2008
compared to a net loss of $3.5 million, or a loss of $1.13 per
diluted share, for the second quarter of 2007. Net loss available
to common shareholders for the six month period ending June 30,
2008 was $1.3 million, or a loss of $0.10 per diluted share,
compared to a loss of $7.1 million, or a loss of $2.35 per diluted
share, for the same period last year. The mandatorily redeemable
convertible preferred stock, which was issued in part to finance
the March 2007 PDSHeart acquisition, was converted to common stock
in connection with CardioNet�s March 2008 initial public offering.
Marty Galvan noted: �During our first quarter 2008 earnings
release, CardioNet announced 2008 revenue guidance of $117 to $120
million. The strength of our second quarter increases our level of
comfort toward the high-end of that range. We believe that the
third quarter will be impacted by seasonality related to physician
and patient schedules over the summer months, which will moderate
our sequential growth. In regard to expenses, today we also
announced a secondary offering and we expect to incur charges
related to the offering in the third quarter of 2008. We also
expect to make continued investments in sales and marketing
resources, infrastructure to support our growth and R&D
projects to enhance our product portfolio over the second half of
2008, positioning the Company for growth in 2009 and beyond. Going
forward, we firmly believe that we remain well-positioned to
deliver sustained revenue and earnings growth and will continue to
maintain a very strong balance sheet.� Conference Call CardioNet,
Inc. will host an earnings conference call on Tuesday, July 22,
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 61950613. 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, to maintain a strong balance sheet, the momentum in payor
acceptance, the ability of our products and services to deliver
superior clinical outcomes and reduced heath care costs, our
ability to increase our market penetration, the size of our
potential markets and growth opportunities, our ability to leverage
our platform for other applications and markets, our expectations
with respect to our revenue mix or the continued shift from legacy
products to the CardioNet System, the amount of our integration
charges related to the PDSHeart acquisition, our expectations with
respect to future financial performance and seasonality in our
business, expectations with respect to charges relating to the
planned secondary offering, expectations with respect to future
investments, our outlook for our businesses, our 2008 revenue
target, our prospects for continued growth 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 our 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, changes to
reimbursement levels for our products, the continued consolidation
of payors, acceptance of our new products and services and patent
protection and litigation. 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
latest periodic report on Form 10-K or 10-Q. 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) �
June 30, June 30, 2008 2007 � Revenues $ 29,340 $ 17,419 Cost of
revenues � 9,834 � � 5,953 � Gross Profit 19,506 11,466 Gross
Profit % 66.5 % 65.8 % � Operating Expenses: Research and
development expense 931 1,019 General and administrative expense
9,768 6,834 Sales and marketing expense 5,412 4,377 Amortization of
intangibles 246 246 Integration, restructuring and other
nonrecurring charges � 610 � � - � Total Operating Expenses 16,967
12,476 � � � � � � Operating Income (Loss) � 2,537 � � (1,010 )
Interest Income (Expense), net 267 (94 ) � Income (Loss) before
Income Taxes 2,804 (1,104 ) Provision for Income Taxes � (1,172 ) �
- � Net Income (Loss) $ 1,632 $ (1,104 ) Dividends on and accretion
of mandatorily redeemable convertible preferred stock � - � �
(2,362 ) Net Income (Loss) available to common shareholders $ 1,632
� $ (3,466 ) � Earnings (Loss) per Share: Basic $ 0.07 $ (1.13 )
Diluted $ 0.07 $ (1.13 ) � � Weighted Average Shares Outstanding:
Basic 23,098 3,054 Diluted 24,191 3,054 � � � � � Six Months Ended
� Consolidated Statements of Operations (unaudited) (In Thousands,
Except Per Share Amounts) June 30, June 30, 2008 2007 � Revenues $
54,803 $ 28,519 Cost of revenues � 19,353 � � 9,743 � Gross Profit
35,450 18,776 Gross Profit % 64.7 % 65.8 % � Operating Expenses:
Research and development expense 2,073 2,010 General and
administrative expense 18,589 11,974 Sales and marketing expense
10,527 7,696 Amortization of intangibles 492 307 Integration,
restructuring and other nonrecurring charges � 1,916 � � - � Total
Operating Expenses 33,597 21,987 � � � � � � Operating Income
(Loss) � 1,853 � � (3,211 ) Interest Income (Expense), net 379
(1,047 ) � Income (Loss) before Income Taxes 2,232 (4,258 )
Provision for Income Taxes � (940 ) � - � Net Income (Loss) $ 1,292
$ (4,258 ) Dividends on and accretion of mandatorily redeemable
convertible preferred stock � (2,597 ) � (2,845 ) Net Income (Loss)
available to common shareholders $ (1,305 ) $ (7,103 ) � Earnings
(Loss) per Share: Basic and Diluted $ (0.10 ) $ (2.35 ) � Weighted
Average Shares Outstanding: Basic and Diluted 13,368 3,024 � 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)
� June 30, June 30, 2008 2007 � Stock based compensation expense
included in: Cost of revenues $ 8 $ - Research and development
expense 17 - General and administrative expense 227 132 Sales and
marketing expense � 139 � � - � � Total stock based compensation
expense $ 391 $ 132 � � � � Six Months Ended � Stock based
compensation expense (unaudited) (In Thousands) June 30, June 30,
2008 2007 � Stock based compensation expense included in: Cost of
revenues $ 15 $ - Research and development expense 32 - General and
administrative expense 466 201 Sales and marketing expense � 238 �
� - � � Total stock based compensation expense $ 751 $ 201 � � � �
Summary Consolidated Balance Sheet Data (In Thousands) June 30,
December 31, 2008 2007 (unaudited) � Cash and cash equivalents $
54,572 $ 18,091 Accounts receivable, net 29,301 22,854 Working
capital 71,031 29,375 Total assets 152,842 103,040 Total debt 346
2,744 Mandatorily redeemable convertible preferred stock - 115,302
Total shareholders� equity (deficit) 137,255 (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 year to date 2007
results as if the PDSHeart acquisition had been completed as of
January 1, 2007. � � Six Months Ended � (unaudited) � June 30, 2007
� Total Revenue � GAAP $ 28,519 PDSHeart Revenue prior to
acquisition � January 1 to March 7, 2007 � 4,069 � Adjusted Revenue
$ 32,588 � Total Gross Profit � GAAP $ 18,776 PDSHeart Gross Profit
prior to acquisition � January 1 to March 7, 2007 � 2,423 �
Adjusted Gross Profit $ 21,199 � Adjusted Gross Profit % 65.0 % � �
(1B) The following tables reconcile certain financial measures used
in this press release that were not calculated in accordance with
GAAP. � � Three Months Ended � (unaudited) � June 30, 2008 � June
30, 2007 Operating Income (Loss) � GAAP $ 2,537 $ (1,010 )
Integration, Restructuring and Other Nonrecurring Charges(a) � 610
� � - � Adjusted Operating Income (Loss) $ 3,147 � $ (1,010 ) � Net
Income (Loss) available to common shareholders � GAAP $ 1,632 $
(3,466 ) Dividends on and accretion of mandatorily redeemable
convertible preferred stock which converted to common stock in the
first quarter of 2008 � - � � 2,362 � Net Income (Loss) � GAAP $
1,632 $ (1,104 ) Integration, Restructuring and Other Nonrecurring
Charges (net of income taxes of $255) (a) � 355 � � - � Adjusted
Net Income (Loss) $ 1,987 � $ (1,104 ) � Diluted Earnings (Loss)
per Share � GAAP $ 0.07 $ (1.13 ) � Dividends on and accretion of
mandatorily redeemable convertible preferred stock which converted
to common stock in the first quarter of 2008 and Integration,
Restructuring and Other Nonrecurring Charges per Share (a) � 0.01 �
� 0.77 � Adjusted Diluted Earnings (Loss) per Share $ 0.08 � $
(0.36 ) � � (a) In the second quarter of 2008, we incurred $0.6
million of integration and restructuring charges. � � Six Months
Ended � (unaudited) � June 30, 2008 � June 30, 2007 Operating
Income (Loss) � GAAP $ 1,853 $ (3,211 ) Integration, Restructuring
and Other Nonrecurring Charges(a) � 1,916 � � - � Adjusted
Operating Income (Loss) $ 3,769 � $ (3,211 ) � Net Income (Loss)
available to common shareholders � GAAP $ (1,305 ) $ (7,103 )
Dividends on and accretion of mandatorily redeemable convertible
preferred stock which converted to common stock in the first
quarter of 2008 � 2,597 � � 2,844 � Net Income (Loss) � GAAP $
1,292 $ (4,258 ) Integration, Restructuring and Other Nonrecurring
Charges (net of income taxes of $807) (a) � 1,109 � � - � Adjusted
Net Income (Loss) $ 2,401 � $ (4,258 ) � Diluted Earnings (Loss)
per Share � GAAP $ (0.10 ) $ (2.35 ) � Dividends on and accretion
of mandatorily redeemable convertible preferred stock which
converted to common stock in the first quarter of 2008 and
Integration, Restructuring and Other Nonrecurring Charges per Share
(a) � 0.21 � � 0.94 � Adjusted Diluted Earnings (Loss) per Share $
0.11 � $ (1.41 ) � � (a)�For the six month period ending June 30,
2008, we incurred $0.9 million of integration and restructuring
expense and $1.0 million of expense related to the resolution of
litigation. �
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