CardioNet, Inc. (NASDAQ:BEAT), a leading wireless medical
technology company with a current focus on the diagnosis and
monitoring of cardiac arrhythmias, today reported results for the
second quarter ended June 30, 2010.
Second Quarter Highlights
- Appointed Joseph H. Capper as
President and Chief Executive Officer
- Achieved gross margin of 63% on
revenues of $32 million
- Improved operating results with
a loss of $0.09 per diluted share, a $0.14 improvement over the
first quarter 2010. On an adjusted basis, the loss per diluted
share was $0.02, an $0.11 improvement over the first quarter
2010
- Increased MCOTTM patient volume
12% as compared to the second quarter 2009, bringing the total
number of patients monitored by MCOTTM since inception to over
350,000
- Commercial reimbursement rates
in the first half of 2010 remained stable with the year-end 2009
rates
- Reduced DSO to 104 days, a
reduction of 9 days compared to the first quarter 2010
- Completed initiatives that will
yield previously announced $15 million in cost reductions
- EBITDA positive ahead of
schedule
- $50 million in cash and
investments with no outstanding debt as of June 30, 2010
President and CEO Commentary
Joseph Capper, President and Chief Executive Officer of
CardioNet, commented: “For the second quarter, we reported revenues
of $32 million, MCOTTM volume growth of 12% as compared to 2009 and
bottom line results that reflect progress in our numerous
operational initiatives. We achieved these results largely through
aggressive cost cutting in response to the unexpected 33% reduction
in Medicare reimbursement last year. However, some of these cost
reductions had an unfavorable impact on our volume growth which was
lower than anticipated.
“In addition, there were several other factors that may have
contributed to the lower volume growth, including a year-over-year
increase in the number of patients deferring service due to higher
levels of insurance deductibles and co-pays, as well as increasing
competition from new small regional companies.
“While the Company has experienced stable commercial rates over
the past few quarters, we continue to face reimbursement
challenges. Recently, the Company received notification from both
United Healthcare and Wellpoint that, at this time, they are
maintaining their position categorizing MCOTTM as an experimental
technology. Also, last month the Centers for Medicare and Medicaid
Services (“CMS”) published in its Proposed Rule that the MCOTTM
technology will remain carrier priced for 2011. We believe that CMS
is interested in establishing a national price but continues to
struggle with valuing our unique service offering which does not
necessarily fit into its traditional valuation methodologies.
Despite this challenge, it is imperative that CMS establishes a
valuation that will ensure all Medicare beneficiaries have
appropriate access to this life-saving technology. The Proposed
Rule is currently in a comment period and we will continue to
provide CMS with information to help them understand the costs
associated with the MCOTTM service and the benefits it provides to
patients and physicians. CMS’ Final Rule for 2011 rates is expected
by early November. Additionally, the lack of national pricing may
create confusion among commercial payors on how to value our
service. We will continue to work with CMS to achieve national
pricing and with commercial payors to ensure that their patients
gain access to the clinically proven benefits of CardioNet’s
MCOTTM.
“Even with these challenges, we believe that the market
potential for MCOTTM remains strong. With an estimated 1.5 million
event tests performed annually according to a recent Frost &
Sullivan analysis, less than 10% of the market is currently
benefiting from the MCOT™ technology. We are focused on growing the
business and will leverage our strong balance sheet with $50
million in cash and investments and no debt. While the cost
reductions that we made were necessary in light of the
reimbursement environment, we are reviewing our operations to
determine where we should strategically invest in order to drive
volume and increase market penetration. This strategic review, in
combination with the many outside variables impacting our business,
makes it difficult to predict our full year volume growth. As a
result, we believe that it is prudent to withdraw our previously
provided 2010 volume growth target of 30% to 40%. However, we
remain committed to growing volume and achieving our operational
goals. We have made significant progress toward these goals as we
have turned EBITDA positive ahead of our previously announced
target to do so during the second half of 2010. We have completed
initiatives that will yield $15 million in cost reductions and are
planning to launch our next generation device this year.”
Financial Results
Revenues for the second quarter 2010 were $31.9 million, a
decrease of 16.5% compared to $38.3 million in the second quarter
2009. Increased MCOTTM patient volume during the second quarter
2010 drove additional revenues, but was offset by the impact of the
2009 Medicare and commercial rate reductions. For the three months
ended June 30, 2010, payor revenue mix was 34% Medicare and 66%
commercial and volume mix was 43% Medicare and 57% commercial.
Gross profit for the second quarter 2010 decreased to $20.1
million, or 62.9% of revenues, compared to $26.3 million, or 68.7%
of revenues, in the second quarter 2009. Second quarter 2010 gross
profit margin was impacted by the 2009 Medicare and commercial rate
reductions, partially offset by increased MCOT™ patient volume and
efficiency improvements that reduced the cost of services.
On a GAAP basis, operating expenses for the second quarter 2010
were $22.3 million, a decrease of 7.8% compared to $24.2 million in
the second quarter 2009. Operating expenses on an adjusted basis
declined by 14.3% compared to the prior year quarter, excluding
$1.7 million in the second quarter 2010 and $0.2 million in the
second quarter 2009 related to restructuring and other nonrecurring
charges. The decrease in operating expenses was driven by the
Company’s cost reduction initiatives across all of the Company’s
expense line items in response to the Medicare rate reduction.
On a GAAP basis, net loss for the second quarter 2010 was $2.1
million, or a loss of $0.09 per diluted share, compared to net
income of $1.6 million, or $0.07 per diluted share, for the second
quarter 2009. Excluding expenses related to restructuring and other
charges, adjusted net loss for the second quarter 2010 was $0.4
million, or a loss of $0.02 per diluted share. This compares to
adjusted net income of $2.7 million, or $0.11 per diluted share,
for second quarter 2009, which excludes the impact of restructuring
and other charges.
Total cash and investments were $50.2 million as of June 30,
2010, compared with total cash and investments of $49.2 million as
of December 31, 2009, an increase of $1.0 million. Net accounts
receivable declined $6.7 million compared to year end 2009. As a
result, the second quarter DSO declined to 104 days, an 18 day
reduction compared to year end 2009.
Conference Call
CardioNet, Inc. will host an earnings conference call on
Wednesday, July 28, 2010, at 5:00 PM 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 52900588.
About CardioNet
CardioNet 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, 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,” ”potential,” “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, the potential for CMS’
re-evaluation of its proposal for carrier pricing of mobile
cardiovascular telemetry during the public comments period prior to
CMS’ final ruling, the success of our efforts to address the
operational issues, including cost savings initiatives, changes to
reimbursement levels for our products and the success of our
attempts to work with CMS to achieve a national rate for mobile
cardiovascular telemetry, 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, 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)
June 30,2010
June 30,2009
Revenues $ 31,939 $ 38,264 Cost of revenues 11,835
11,993 Gross profit 20,104 26,271 Gross profit
% 62.9 % 68.7 % Operating expenses: General and
administrative expense 8,548 9,507 Sales and marketing expense
6,876 8,440 Bad debt expense 4,484 4,627 Research and development
expense 1,230 1,768 Integration, restructuring and other charges
1,128 (180 ) Total operating expenses 22,266
24,162 (Loss) income from operations (2,162 )
2,109 Interest and other income, net 20 40
(Loss) income before income taxes (2,142 ) 2,149 Provision for
income taxes - (584 ) Net (loss) income $
(2,142 ) $ 1,565
(Loss) earnings per Share:
Basic $ (0.09 ) $ 0.07 Diluted $ (0.09 ) $ 0.07 Weighted
Average Shares Outstanding: Basic 24,083 23,792 Diluted 24,083
23,795
Six Months Ended
Consolidated Statements of Operations (unaudited)
(In Thousands, Except Per Share Amounts)
June 30,2010
June 30,2009
Revenues $ 63,755 $ 73,985 Cost of revenues 23,584
23,831 Gross profit 40,171 50,154 Gross profit
% 63.0 % 67.8 % Operating expenses: General and
administrative expense 18,225 20,016 Sales and marketing expense
14,873 15,987 Bad debt expense 9,124 8,444 Research and development
expense 2,473 2,984 Integration, restructuring and other charges
3,073 1,959 Total operating expenses
47,768 49,390 (Loss) income from operations
(7,597 ) 764 Interest and other income, net 24 158
(Loss) income before income taxes (7,573 ) 922 Provision for
income taxes - (79 ) Net (loss) income $
(7,573 ) $ 843
(Loss) earnings per Share:
Basic $ (0.32 ) $ 0.04 Diluted $ (0.32 ) $ 0.04 Weighted
Average Shares Outstanding: Basic 24,011 23,696 Diluted 24,011
23,827
Summary Financial Data
(In Thousands)
June 30,2010
December 31,2009
(unaudited) Cash and investments $ 50,182 $ 49,152
Accounts receivable, net 34,214 40,885 Days sales outstanding 104
122 Working capital 74,158 75,383 Total assets 160,579 168,322
Total debt - - Total shareholders’ equity 144,809 149,353
Three Months Ended
June 30, 2010 June 30, 2009 Cash
provided by (used in) operating activities $ 5,624 $ (61 ) Capital
expenditures (1,248 ) (5,825 ) Free cash flow 4,376
(5,886 ) Stock compensation expense 948 2,130
Depreciation and amortization expense 3,185 2,893
Six Months Ended
June 30, 2010 June 30, 2009 Cash
provided by (used in) operating activities $ 2,672 $ (4,690 )
Capital expenditures (2,726 ) (11,419 ) Free cash flow (54 )
(16,109 ) Stock compensation expense 1,866 3,790
Depreciation and amortization expense 6,382 5,413
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) June 30, 2010 June 30, 2009
Operating (loss) income – GAAP $ (2,162 ) $ 2,109 Nonrecurring
charges (a) 1,726 201
Adjusted operating (loss)
income
$ (436 ) $ 2,310 Net
(loss) income – GAAP $ (2,142 ) $ 1,565 Nonrecurring charges
(net of income taxes of $0 and ($955), respectively) (a)
1,726 1,156
Adjusted net (loss) income
$ (416 ) $ 2,721
(Loss) earnings per diluted share – GAAP $ (0.09 ) $ 0.07
Nonrecurring charges per share (a) 0.07 0.04
Adjusted (loss) earnings per diluted share $
(0.02 ) $ 0.11 (a) In the
second quarter of 2010, we incurred $1.1 million of severance and
other exit cost related to the restructuring of our sales and
service organizations, as well as $0.6 million of other
nonrecurring charges. In the second quarter of 2009, we incurred
$0.4 million of costs in connection with the since terminated
definitive merger agreement to acquire Biotel, Inc., ($0.2) million
of integration, restructuring and other charges.
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.
Six Months Ended
(unaudited) June 30, 2010 June 30, 2009
Operating (loss) income – GAAP $ (7,597 ) $ 764 Nonrecurring
charges (a) 4,147 3,188
Adjusted operating (loss)
income
$ (3,450 ) $ 3,952 Net
(loss) income– GAAP $ (7,573 ) $ 843 Nonrecurring charges
(net of income taxes of $0 and ($955), respectively) (a)
4,147 2,915
Adjusted net (loss) income
$ (3,426 ) $ 3,758
(Loss) earnings per diluted share – GAAP $ (0.32 ) $ 0.04
Nonrecurring charges per share (a) 0.18 0.12
Adjusted (loss) earnings per diluted share $
(0.14 ) $ 0.16 (a) In the
first six months of 2010, we incurred $2.7 million of severance and
other exit cost related to the restructuring of our sales and
service organizations and management changes, as well as $1.4
million of other charges largely related to our class action and
Biotel law suits. In the first six months of 2009, we incurred $0.8
million of costs in connection with the since terminated definitive
merger agreement to acquire Biotel, Inc., $0.5 million for special
bonus paid to the then incoming CEO and $1.9 million of
integration, restructuring and other charges.
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