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
third quarter and nine months ended September 30, 2009.
Highlights and Recent Developments
- Increased patient volume in the
third quarter by 46.8% over the third quarter of 2008
- Monitored over 260,000 patients
nationally since the Company’s inception
- Increased revenue to $33.3
million in the third quarter, up 6.8% over the third quarter of
2008
- Signed 42 new payor contracts
year-to-date, covering approximately 7 million lives and bringing
the total number of covered lives to nearly 200 million
- Recognized as a Deloitte Fast 50
Company in Philadelphia and Fast 500 Company Nationally
- Awarded 15th U.S. Patent which
covers Biological Signal Management (12 additional U.S. patents are
pending; 12 international patents have been issued and 29 are
pending)
- Rebilled 100% of older net
receivables; experienced positive trends in the collection of
current receivables
- $43 million in cash and no debt
as of September 30, 2009
Chairman, President and CEO Commentary
Randy Thurman, Chairman, President and Chief Executive Officer
of CardioNet, stated, “In the quarter, CardioNet continued to
experience significant growth with patient volume up 47% over the
prior year third quarter and 9% over the second quarter of 2009.
This growth demonstrates the positive acceptance by physicians and
leading institutions of CardioNet’s MCOTTM technology and the
significant benefit brought to cardiac patients. Practices and
institutions are selecting CardioNet’s MCOTTM over the competition
citing exceptional customer service, superior clinical reporting
and the unparalleled quality of our clinical research. As a result,
physician practices and institutions are selecting CardioNet’s
MCOTTM 7 out of 10 times.
“Expanding our patient reports and value-added clinical
applications continues to be a successful strategy in improving
patient care and in generating demand. For example, in the second
quarter, we introduced SomNetTM, CardioNet’s clinical indicator for
sleep disorders, which has been adopted by nearly 8,000 physicians
to date. In the third quarter, we introduced clinical arrhythmia
indicator reporting, which enhances the ability of physicians to
diagnose and treat patients. These reporting enhancements, along
with our growing library of patents, provide evidence of our
commitment to innovation and substantially advancing the field of
wireless medicine and improving the monitoring and diagnosis of
cardiac patients.
“CardioNet is the only mobile cardiac outpatient telemetry
company to have a significant portfolio of clinical evidence
supporting the MCOTTM technology. Included in this portfolio are
studies for various applications of the technology including post
AF ablation, sleep disorder indicator, neurology and arrhythmia
diagnosis. Physician surveys indicate that our growth and success
against competitors is driven in part by our outstanding clinical
research, which includes 29 published abstracts or studies.
Physicians have also cited CardioNet’s superior patient reporting
and customer service. Complementing this research-based and strong
service-oriented strategy is our expanded sales force which now
exceeds 140 trained account executives, the largest sales
organization focused on wireless medicine.
“We are very disappointed by the CMS decision for MCOT
reimbursement to continue to be carrier priced by Highmark Medicare
Services (“HMS”) at $754. The mobile cardiac outpatient telemetry
industry has now served over 400,000 patients nationally, of which
37% were Medicare patients. The industry provided CMS and HMS
substantial data that we strongly believe justifies a significantly
higher national rate. As previously stated, this decision has
serious implications for the economic viability of the current
CardioNet business model. CardioNet will continue to work with CMS
and HMS to achieve an appropriate national rate.
“Despite the unexpected reimbursement reduction by HMS on July
10, 2009 and the commercial reimbursement trends that we previously
disclosed, we believe that CardioNet’s path forward is clear.
First, we remain committed to our sales effort in its key role in
driving volume, market share and competitive success. Second,
CardioNet must become more cost efficient and there are a number of
current programs and strategies under development to achieve
greater efficiencies. To date, CardioNet has cut costs that we
expect to deliver approximately $8 million in expense reductions in
2010. CardioNet also has a strong cash position which assures us
the time and resources to execute on this plan as well as evaluate
other strategic options. As we implement these programs, we will
ensure that patients and physicians continue to receive the
outstanding benefits of CardioNet’s MCOTTM technology.
“In addition to the unexpected HMS reimbursement cut, earnings
in Q3 reflect certain incremental investments aimed at building
market share and supporting the larger selling organization. Bad
debt continues to negatively impact earnings and we are taking
aggressive steps to address this issue. The bad debt issue is
partly attributable to the billing and collections practices
stemming from the Company’s entrepreneurial past which have taken
longer than expected to correct. In 2009, CardioNet reorganized the
billing and collections area and has recently rebilled 100% of the
net receivables over 120 days. As a result of our efforts, we are
now seeing favorable trends with our current receivables. Despite
this progress, we remain unsatisfied with the results to date.
Therefore, we recently moved the entire revenue cycle organization,
from order entry to collections, under one management team creating
a structure for improved transaction flow and enhanced
productivity. We also engaged an outside collections firm to focus
on older receivables and implemented an electronic revenue cycle
management platform, transitioning from a largely paper-based
billing system.
“To summarize, the CardioNet MCOTTM technology continues to
provide outstanding clinical value to physicians and patients. Our
volume growth and success against competitors clearly demonstrate
that point. Receivables and collections have taken longer than
anticipated to correct but specific actions have been taken as
discussed. All of that said the most significant matter affecting
CardioNet is the unexpected decrease in reimbursement by HMS, which
has negatively impacted profitability and, without significant
restructuring, has put the Company and MCOTTM technology in
jeopardy. All stakeholders should know that we are taking every
step necessary to address these issues while we simultaneously
pursue technology advancements and strategic options that will
ensure physicians and patients continued access to CardioNet’s
revolutionary technology. CardioNet’s strong cash position and lack
of debt provides us with time to effect these changes. I would
anticipate that, as developments warrant, we will communicate with
stakeholders to provide an update on our efforts and the outlook
for CardioNet’s future.”
Financial Results
Revenues for the third quarter of 2009 increased to $33.3
million compared to $31.2 million in the third quarter of 2008, an
increase of $2.1 million, or 6.8%. For the third quarter, the
Company’s payor mix was 38% Medicare and 62% commercial. While the
increased patient volume drove additional revenue, it was offset by
the September 1, 2009 decrease in Medicare reimbursement as well as
the declining commercial reimbursement trends as disclosed in the
Company’s June 30, 2009 press release. Gross profit increased to
$21.5 million in the third quarter of 2009, or 64.5% of revenues,
compared to $21.2 million in the third quarter of 2008, or 67.9% of
revenues.
On a GAAP basis, operating loss was $5.9 million in the third
quarter of 2009 compared to operating income of $1.4 million in the
third quarter of 2008. Excluding $1.3 million of expense primarily
related to restructuring, adjusted operating loss was $4.6 million
in the third quarter of 2009. This compares to adjusted operating
income of $4.3 million in the third quarter of 2008, which excludes
$2.9 million of expense related to the integration of PDSHeart and
other restructuring efforts in the prior year period.
On a GAAP basis, net loss for the third quarter of 2009 was $5.4
million, or a loss of $0.23 per diluted share, compared to net
income of $1.0 million, or $0.04 per diluted share, for the third
quarter of 2008. Adjusted net loss for the third quarter of 2009
was $2.4 million, or a loss of $0.10 per diluted share, excluding
expenses primarily related to restructuring. This compares to
adjusted net income of $2.6 million, or $0.11 per diluted share,
for the third quarter of 2008, which excludes the impact of
integration, restructuring and other nonrecurring charges.
Revenues for the nine months ended September 30, 2009 increased
to $107.3 million compared to $86.0 million in the comparable
period in the prior year. For the nine months of 2009, gross profit
increased to $71.7 million, or 66.8% of revenues, compared to $56.7
million, or 65.9% of revenues, in the comparable period in the
prior year.
On a GAAP basis, operating loss for the first nine months of the
year was $5.1 million compared to operating income of $3.3 million
in the comparable period in the prior year. Excluding $4.5 million
of expense related to restructuring and costs incurred in
connection with the since-terminated merger agreement to acquire
Biotel Inc., adjusted operating loss was $0.7 million in the first
nine months of 2009. This compares to adjusted operating income of
$8.1 million in the first nine months of 2008, which excludes $4.8
million of integration, restructuring and other nonrecurring
charges.
Net loss for the first nine months of 2009 was $4.6 million, or
a loss of $0.19 per diluted share, compared to net income of $2.3
million, or $0.10 per diluted share, for the first nine months of
2008. Adjusted net loss for the first nine months of 2009 was $0.1
million excluding expenses related to restructuring and costs
incurred in connection with the since-terminated merger agreement
to acquire Biotel Inc. This compares to adjusted net income of $5.0
million, or $0.23 per diluted share, for the first nine months of
2008, which excludes the impact of integration, restructuring and
other nonrecurring charges.
On a GAAP basis, net loss available to common shareholders,
which is derived by reducing net income by the accrued dividends
and accretion on mandatorily redeemable convertible preferred stock
was a loss of $4.6 million, or a loss of $0.19 per diluted share,
for the nine month period ended September 30, 2009, compared to a
net loss of $0.3 million, or a loss of $0.02 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, CardioNet's Chief Financial Officer, commented:
“While our patient volume in the quarter increased by 47% over the
prior year, our total revenue grew by 7%. This rate of revenue
growth reflects the impact of lower commercial rates as well as the
September 1, 2009 reduction in Medicare reimbursement to $754.
“As Randy noted, our accounts receivables continue to be a
challenge and our days sales outstanding (“DSO”) grew to 138 days
in the quarter. This increase was largely driven by our older
receivables. In order to prevent these issues in the future, we are
currently implementing new processes for greater effectiveness and
efficiency. To assist in our efforts to collect these older
receivables, we have recently retained the services of an outside
collections firm to directly manage collections in relation to
specific accounts.
“We are beginning to see the positive impact of the increased
focus on accounts receivable with third quarter collections up 49%
over the third quarter of 2008 and up 9% over the second quarter.
Collections outpaced our revenue growth of 7% over the third
quarter of 2008 and the revenue decline as compared to the second
quarter. To build on these positive trends, we are implementing an
electronic solution provided by Emdeon which will automate key
functions throughout the revenue cycle and which will streamline
our interactions with the payors. We expect to have this system
fully implemented by mid-November.
“At this point, we believe that we are fully reserved for
uncollectable receivables and we remain optimistic about our
ability to positively impact our receivables and DSO by year-end
based on the implementation of streamlined processes and continuing
positive collection trends.
“During the quarter, we implemented a restructuring program
aimed at reducing support costs and driving efficiencies without
impacting patient care or physician support. As part of the
program, we closed one of the legacy PDS facilities, allowing us to
consolidate several monitoring groups into one location, driving
operational synergies. The cost savings are expected to reach
approximately $8 million in 2010.
“Despite the reimbursement challenges facing CardioNet, we
continue to have a strong balance sheet with $43 million in cash
and no debt. We continue to invest in the Company and our devices
with capital spending of $5.1 million in the quarter.”
Conference Call
CardioNet has suspended its investor calls. Should the Company
determine to recommence these calls in the future, it will so
announce.
About CardioNet
CardioNet is the 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, or heart rhythm disorders, with
a solution that it markets as Mobile Cardiac Outpatient TelemetryTM
(MCOT™). 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 growth prospects, the prospects for our products and
our confidence in the Company’s future. These statements may be
identified by words such as “expect,” “anticipate,” “estimate,”
“intend,” “plan,” “believe,” “promises” 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, our efforts to address the operational issues and
strategic options described in this press release, the success of
our sales and marketing initiatives, our ability to attract and
retain talented executive management and sales personnel, our
ability to identify acquisition candidates, acquire them on
attractive terms and integrate their operations into our business,
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 reports on Form 10-K and 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) September
30, September 30, 2009 2008
Revenues $ 33,340 $ 31,223 Cost of revenues 11,829
10,014 Gross profit 21,511 21,209 Gross profit % 64.5
% 67.9 % Operating expenses: General and administrative
expense 15,165 10,511 Sales and marketing expense 9,562 5,216
Research and development expense 1,325 943 Amortization of
intangibles 215 246 Integration, restructuring and other charges
1,150 2,859 Total operating expenses
27,417 19,775 Operating income (loss) (5,906 )
1,434 Interest income, net 10 323 Income
(loss) before income taxes (5,896 ) 1,757 (Provision ) benefit from
income taxes 474 (770 ) Net income (loss) $
(5,422 ) $ 987
Earnings (loss) per Share:
Basic $ (0.23 ) $ 0.04 Diluted $ (0.23 ) $ 0.04 Weighted
Average Shares Outstanding: Basic 23,813 23,171 Diluted 23,813
24,039
Nine Months Ended
Consolidated Statements of Operations (unaudited)
(In Thousands, Except Per Share Amounts) September
30, September 30, 2009 2008
Revenues $ 107,324 $ 86,026 Cost of revenues 35,661
29,367 Gross profit 71,663 56,659 Gross profit % 66.8
% 65.9 % Operating expenses: General and administrative
expense 43,172 29,101 Sales and marketing expense 25,548 15,743
Research and development expense 4,310 3,015 Amortization of
intangibles 668 738 Integration, restructuring and other charges
3,109 4,775 Total operating expenses
76,807 53,372 Operating income (loss) (5,144 )
3,287 Interest income, net 168 702 Income
(loss) before income taxes (4,976 ) 3,989 Provision for income
taxes 395 (1,710 ) Net income (loss) $ (4,581
) $ 2,279 Dividends on and accretion of mandatorily redeemable
convertible preferred stock - (2,597 ) Net
income (loss) available to common shareholders $ (4,581 ) $ (318 )
Earnings (loss) per Share: Basic $ (0.19 ) $ (0.02 ) Diluted
$ (0.19 ) $ (0.02 ) Weighted Average Shares Outstanding:
Basic 23,742 16,644 Diluted 23,742 16,644 The following
table presents detail of the stock based compensation expense that
is included in each functional line item in the Condensed
Statements of Operations above (000’s):
Three Months Ended
Stock based compensation expense (unaudited)
(In Thousands) September 30, September
30, 2009 2008 Stock based compensation
expense included in: Cost of revenues $ 23 $ 8 Research and
development expense 19 18 General and administrative expense 1,539
807 Sales and marketing expense 115 125 Integration, restructuring
and other charges - 768 Total stock based
compensation expense $ 1,696
$ 1,726
Nine Months Ended
Stock based compensation expense (unaudited)
(In Thousands) September 30, September 30,
2009 2008 Stock based compensation expense
included in: Cost of revenues $ 77 $ 23 Research and development
expense 65 50 General and administrative expense 4,926 1,230 Sales
and marketing expense 390 363 Integration, restructuring and other
charges - 768 Total stock based compensation
expense $ 5,458
$ 2,434
Summary Consolidated
Balance Sheet Data (In Thousands) September 30,
December 31, 2009 2008 (unaudited)
Cash and cash equivalents $ 42,873 $ 58,171 Accounts
receivable, net 49,393 39,431 Working capital 80,248 84,003 Total
assets 169,018 165,773 Total debt - 72 Total shareholders’ equity
154,072 150,117 Reconciliation of Non-GAAP Financial
Measures (In Thousands, Except Per Share Amounts) In
accordance with Regulation G of the Securities and Exchange
Commission, the table set forth below reconciles 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.
Three Months Ended
(unaudited)
September
30,2009
September
30,2008
Operating income (loss) – GAAP $ (5,906 ) $ 1,434 Nonrecurring
charges (a) 1,290 2,859
Adjusted operating income
(loss)
$ (4,616 ) $ 4,293 Net
income (loss) available to common shareholders – GAAP
$
(5,422 ) $ 987 Nonrecurring charges (net of income taxes of
($352) and $1,253, respectively) (a) 1,642
1,606
Adjusted net income (loss)
$
(3,780 ) $ 2,593
Expected impact of NOL
utilization
1,337 -
Adjusted net income (loss)
excluding NOL utilization $ (2,443 )
$ 2,593
Diluted earnings (loss) available to common shareholders per basic
and diluted share – GAAP $ (0.23 ) $ 0.04 Nonrecurring
charges per share (a) 0.07 0.07
Adjusted
earnings (loss) per diluted share $ (0.16
) $ 0.11
Expected impact of NOL
utilization
0.06 -
Adjusted earnings (loss) per diluted
share excluding NOL utilization $ (0.10 )
$ 0.11 (a) In the third quarter of
2009, we incurred $0.1 million of costs in connection with the
since-terminated definitive merger agreement to acquire Biotel,
Inc. and $1.2 million of integration, restructuring and other
charges. In the third quarter of 2008, we incurred $2.9 million of
integration, restructuring and other charges.
Nine Months Ended
(unaudited)
September
30,2009
September
30,2008
Operating income (loss) – GAAP $ (5,144 ) $ 3,287 Nonrecurring
charges (a) 4,478 4,775
Adjusted operating income
(loss)
$ (666 ) $ 8,062
Net income (loss) available to common shareholders – GAAP $ (4,581
) $ (318 )
Dividends on and accretion of
mandatorily redeemable convertible preferred stock which converted
to common stock in the first quarter of 2008
- 2,597
Net income (loss)
$ (4,581 ) $ 2,279
Nonrecurring charges (net of income taxes of $0 and $2,047
respectively) (a) 4,478 2,728
Adjusted net income (loss) $ (103 )
$ 5,007
Expected impact of NOL
utilization
- -
Adjusted net income (loss)
excluding NOL utilization
$ (103 ) $ 5,007
Income (loss) available to common shareholders per basic and
diluted share – GAAP $ (0.19 ) $ (0.02 )
Dividends on and accretion of
mandatorily redeemable convertible preferred stock which converted
to common stock in the first quarter of 2008
- 0.12
Diluted earnings (loss) per
share
$ (0.19 ) $ 0.10
Nonrecurring charges per share (a) 0.19 0.13
Adjusted earnings (loss) per diluted share $
(0.00 ) $ 0.23 Expected impact of NOL
utilization - -
Adjusted earnings
(loss) per diluted share excluding NOL utilization $
(0.00 ) $ 0.23 (a)
In the first nine months of 2009, we incurred $0.9 million of costs
in connection with the since-terminated definitive merger agreement
to acquire Biotel, Inc., $0.5 million for special bonus paid to
incoming CEO and $3.1 million of integration, restructuring and
other charges. In the first nine months of 2008, we incurred $4.8
million of integration, restructuring and other charges.
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