CardioNet, Inc. Reports Fourth Quarter and Full Year 2012 Financial Results

CardioNet, Inc. Reports Fourth Quarter and Full Year 2012 Financial Results

CONSHOHOCKEN, Pa.--(BUSINESS WIRE)-- CardioNet, Inc. (NAS: BEAT) , the leading wireless medical technology and research services company with a current focus on the diagnosis and monitoring of cardiac arrhythmias, today reported results for the fourth quarter and full year ended December 31, 2012.

2012 Highlights

• Generated positive adjusted EBITDA for the fourth quarter and full year 2012

• Experienced increased patient volume year over year

• Completed acquisition of Cardiocore Lab, Inc., a leading research services business

• Completed acquisition of ECG Scanning and Medical Services, Inc., a cardiac monitoring company

• Introduced CardioNet's new wireless event device, wEvent^TM

• Reduced DSO to 56 days, a 19 day improvement compared to year end 2011

• $18.3 million in cash and no debt as of December 31, 2012

President and CEO Commentary

Joseph Capper, President and Chief Executive Officer of CardioNet, commented: "2012 was a pivotal year for CardioNet, capped by a solid fourth quarter performance with positive adjusted EBITDA and revenue growth. The Company had several significant achievements this year, including the successful completion of two acquisitions, which provided scale and diversification. Our research services business, bolstered by the acquisition of Cardiocore in August, contributed strong results for the quarter, as evidenced by a shift in our revenue to 17% from research as compared to 1% in the fourth quarter 2011. As we have previously stated, we view the clinical research market as a significant avenue for growth.

"In our patient services segment, volume increased year over year, aided by the acquisition of ECG Scanning early in the year. During the fourth quarter, we launched the wEvent^TM, our wireless event monitor, as part of our "CardioNet Comprehensive" initiative, demonstrating our focus on offering the most extensive suite of cardiac outpatient monitoring solutions in the industry. We have also aligned the sales force compensation structure to facilitate this initiative. We have seen a positive market response as we continue to grow our prescribing physician base. We believe this strategy will allow us to increase our market share and grow revenue.

"As we continue our efforts to grow the business, we have not lost focus on gaining efficiencies, improving operations or containing costs, as evidenced by the reduction in the core business' cost structure. Over the past three years, we have removed more than $30 million of expense, resulting in a more efficient and focused organization. As part of our operational improvements, we now offer MCOT^TM patient monitoring through centers on both coasts, providing better service to our patients.

"Despite the investments and the acquisitions made this year, the Company continues to maintain a strong balance sheet with over $18 million in cash and no debt. Excluding acquisitions, the Company was cash flow neutral for the year, despite capital expenditures and the shareholder and patent litigation settlements. This enabled us to reduce our DSO to 56 days, a significant reduction compared to the prior year and on par with other health care providers. With our strong balance sheet, more efficient operations and diversified business model, we are building an organization that is poised for growth."

Fourth Quarter Financial Results

Revenue for the fourth quarter 2012 was $30.0 million, an increase of 11.9% compared to $26.8 million in the fourth quarter 2011. Despite an increase in overall patient volume, patient services revenue declined $2.7 million primarily due to a shift in product mix to event and Holter monitoring which carry a lower reimbursement rate. This decline was offset by an increase in research services revenue of $4.9 million primarily related to the acquisition of Cardiocore. Additionally, product revenue increased $0.9 million due to increased volume in the quarter. For the three months ended December 31, 2012, patient revenue was comprised of 48% Medicare and 52% commercial.

Gross profit for the fourth quarter 2012 increased to $17.2 million, or 57.3% of revenue, compared to $16.6 million, or 62.1% of revenue, in the fourth quarter of 2011. The decline in the gross profit percentage was primarily related to the growth in the research services segment with the addition of Cardiocore, which has a lower gross margin than the Company's patient services business.

On a GAAP basis, operating expenses for the fourth quarter 2012 were $22.0 million, a decrease of 66.8% compared to $66.2 million in the fourth quarter 2011. This decrease was driven by a goodwill impairment charge of $46.0 million in the fourth quarter 2011. On an adjusted basis, operating expenses for the fourth quarter were $19.3 million, a 10.1% increase compared to $17.5 million for the prior year quarter, excluding $2.7 million in the fourth quarter 2012 and $48.7 million in the fourth quarter 2011 related to restructuring and other nonrecurring charges and the 2011 goodwill impairment charge. This increase in operating expense was driven by the addition of the ECG Scanning and Cardiocore operations in 2012.

On a GAAP basis, net loss for the fourth quarter 2012 was $4.3 million, or a loss of $0.17 per diluted share, compared to a net loss of $49.8 million, or a loss of $2.03 per diluted share, for the fourth quarter 2011 which includes the goodwill impairment charge of $46.0 million. Excluding expenses related to restructuring and other nonrecurring charges, adjusted net loss for the fourth quarter 2012 was $2.3 million, or a loss of $0.09 per diluted share. This compares to an adjusted net loss of $1.1 million, or a loss of $0.04 per diluted share, for the fourth quarter 2011, which excludes the impact of restructuring and other nonrecurring charges and the goodwill impairment charge.

Full Year 2012 Financial Results

Revenue for the twelve months ended December 31, 2012 was $111.5 million, a decrease of 6.3% compared to $119.0 million reported in the prior year. Patient services revenue decreased $13.2 million. Higher patient volume was offset by a decrease in the average reimbursement rate as the service mix changed. Additionally, product revenue declined $1.6 million with lower volume. Offsetting this decline was an increase in research services revenue of $7.3 million primarily due to the acquisition of Cardiocore in August 2012. For the twelve months ended December 31, 2012, patient revenue was comprised of 44% Medicare and 56% commercial.

Gross profit for the twelve months ended December 31, 2012 was $65.9 million, or 59.1% of revenue, compared to $69.9 million, or 58.8% of revenue, in the prior year. On an adjusted basis, gross profit for the twelve months ended December 31, 2012 was $66.8 million, or 59.9% of revenue, excluding $0.9 million of start-up costs associated with the San Francisco monitoring center. The increase in adjusted gross profit percentage was related to the impact of cost reductions implemented at the end of 2011 and lower depreciation partially offset by the growth in the lower margin research services business.

On a GAAP basis, operating expenses for the twelve months ended December 31, 2012 were $79.1 million, a decrease of 39.8% compared to $131.3 million in the prior year. This decrease was primarily driven by a goodwill impairment charge of $46.0 million in 2011. On an adjusted basis, operating expenses for the full year 2012 declined 5.2% to $73.7 million compared to $77.7 million for the prior year, excluding $5.4 million for the twelve months ended December 31, 2012 and $53.5 million for the twelve months ended December 31, 2011 related to restructuring and other nonrecurring charges and the 2011 goodwill impairment charge. The decrease in adjusted operating expense was primarily driven by lower employee related expenses due to efficiency measures implemented in the fourth quarter 2011. Additionally, research and development expenses declined due to prior year expenses incurred for the development of the next generation MCOT^TM device which was launched in December 2011. These reductions were partially offset by the addition of ECG Scanning's and Cardiocore's operating expenses.

On a GAAP basis, net loss for the twelve months ended December 31, 2012 was $12.2 million, or a loss of $0.49 per diluted share, compared to a net loss of $61.4 million, or a loss of $2.51 per diluted share, for the twelve months ended December 31, 2011. Excluding expenses related to restructuring and other nonrecurring charges, adjusted net loss for the twelve months ended December 31, 2012 was $6.9 million, or a loss of $0.28 per diluted share. This compares to an adjusted net loss of $7.9 million, or a loss of $0.32 per diluted share, for the twelve months ended December 31, 2011, which also excludes the impact of restructuring and other nonrecurring charges.

Liquidity

As of December 31, 2012, the Company had total cash and investments of $18.3 million compared to $46.5 million as of December 31, 2011, a decrease of $28.2 million. The significant uses of cash during 2012 included $22.0 million related to the acquisition of Cardiocore, $5.8 million related to the acquisition of ECG Scanning, $6.0 million for capital expenditures, primarily medical devices, and $1.6 million related to the settlement of the shareholder and patent litigation. Positive operating cash flow from the Company's core business helped offset these expenditures. In addition, the Company significantly reduced its accounts receivable balance which resulted in a decrease in the Company's DSO to 56 days at year end. This reflects a 19 day decrease compared to year end 2011 and an 11 day reduction compared to the third quarter 2012.

Conference Call

CardioNet, Inc. will host an earnings conference call on Wednesday, February 13, 2013, 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 37095865.

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 Telemetry^TM (MCOT^TM). More information can be found at http://www.cardionet.com.

Cautionary Statement Regarding Forward-Looking Statements

This document 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 these expectations, and could cause actual outcomes and results to differ materially from current expectations. These factors include, among other things, the effect of the Cardiocore acquisition on our business operations and financial results and our ability to successfully integrate its operations into our business, the national rate set by the Centers for Medicare and Medicaid Services ("CMS") for our mobile cardiovascular telemetry service, effects of changes in health care legislation, effectiveness of our cost savings initiatives, relationships with our government and commercial payors, changes to insurance coverage and reimbursement levels for our products, 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, patent protection, adverse regulatory action, and litigation success. 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.