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CardioNet Inc. Reports Operating Results (10-Q)

May 15, 2009 | About:
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CardioNet Inc. (BEAT) filed Quarterly Report for the period ended 2009-03-31.

CARDIONET INC 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 the CardioNet System. CardioNet Inc. has a market cap of $424.5 million; its shares were traded at around $17.89 with a P/E ratio of 45.8 and P/S ratio of 3.6.

Highlight of Business Operations:

On March 8, 2007, we acquired all of the outstanding capital stock of PDSHeart for an aggregate purchase price of $51.6 million. In addition to the $51.6 million of consideration, the Company agreed to pay PDSHeart shareholders $5.0 million of contingent consideration in the event of a qualifying liquidation event, including a public offering or acquisition. The Company’s initial public offering was consummated on March 25, 2008 and, accordingly, the purchase price for the PDSHeart acquisition has been adjusted to $56.6 million to reflect this payment. Through this acquisition, CardioNet provides event, Holter and pacemaker monitoring services to patients in 49 states, with a concentration of sales in the Southeast. The acquisition has broadened our geographic coverage and expanded our service offerings to include the complete range of cardiac monitoring services. For our event, Holter and pacemaker monitoring services, we have established Medicare reimbursement and we have 108 direct contracts with commercial payors as of March 31, 2009 representing an estimated 135 million covered lives.

Revenues. Total revenues for the quarter ended March 31, 2009 increased to $35.7 million from $25.5 million for the quarter ended March 31, 2008, an increase of $10.2 million, or 40.3%. MCOT revenue increased $11.3 million, offset by a decrease in PDS revenue of $1.1 million.

Gross Profit. Gross profit increased to $23.9 million for the quarter ended March 31, 2009, or 66.9% of revenues, from $15.9 million for the quarter ended March 31, 2008, or 62.6% of revenues. The increase of $8.0 million, or 49.8%, was due to the increased revenue from MCOT as well as operational efficiencies achieved and cost reductions negotiated with vendors during 2009.

General and Administrative Expense. General and administrative expense increased to $14.3 million for the quarter ended March 31, 2009 from $9.1 million for the quarter ended March 31, 2008. This increase of $5.2 million, or 58.0%, was primarily due to an increase in the provision for bad debt of $1.5 million, increase in stock compensation expense of $1.3 million, increase in the bonus expense of $1.1 million, and $0.9 million of additional expense from the expansion of infrastructure related to Company growth.

Integration, Restructuring and Other Nonrecurring Charges. Severance charges related to executive employee terminations were $2.1 million for the quarter ended March 31, 2009. For the quarter ended March 31, 2008, the Company initiated exit plans for certain acquired activities of PDSHeart that were redundant to the Company’s existing operations, and initiated restructuring plans to consolidate its Finance and Human Resources functions in Conshohocken, Pennsylvania. For the quarter ended March 31, 2008, the Company incurred $0.3 million related to PDSHeart integration activities and $0.1 million related to the consolidation of its Finance and Human Resources functions. Additionally, in the quarter ended March 31, 2008, the Company incurred expenses of $0.9 million for a legal settlement with one of our competitors.

Our cash flow from operations decreased by $5.4 million to a cash outflow of $4.6 million in the first three months of 2009 from a cash inflow of $0.8 million in the first three months of 2008. The decrease is due primarily to increases in accounts receivable.

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