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Cardionet, Inc. (BEAT)

Q3 2008 Earnings Call Transcript

October 30, 2008, 5:00 pm ET

Executives

Randy Thurman – Executive Chairman

Arie Cohen – President and CEO

Marty Galvan – CFO

Analysts

Amit Bhalla – Citigroup

Bob Hopkins – Banc of America

Rick Wise – Leerink Swann

Presentation

Operator

Good afternoon. Thank you for joining us for the CardioNet Third Quarter 2008 Earnings Conference Call. Certain statements during the conference call and question-and-answer period to follow may relate to future events and expectations and, as such, constitute forward-looking statements within the meaning of the Private Securities and Litigation Act of 1995. Such statements involve known and unknown risks, uncertainties, and other factors, which may cause the actual results, performance or achievement of the company in the future to be materially different from the statements that the company’s executive may make today. These risks are described in detail in our public filings with the Securities and Exchange Commission, including our latest periodic report on Form 10-K or 10-Q. We assume no duty to update these statements.

At this time, all participants have been placed on a listen-only mode and the floor will be open for questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, Mr. Randy Thurman. Sir, you may begin.

Randy Thurman

Thank you very much. This is Randy Thurman, Executive Chairman of CardioNet. Thank you all for attending our third quarter 2008 conference call. With me this afternoon is Arie Cohen, President and Chief Executive Officer of CardioNet; and Marty Galvan, Senior Vice President and Chief Financial Officer of CardioNet.

I have been with CardioNet now for approximately three months as Executive Chairman. Amongst the many opportunities that I considered prior to joining CardioNet, I made the decision to join because of the tremendous future that I perceive that our company has. And for three months of coming to understand the business model more and getting to know the management team, I am even more enthusiastic about the prospects for your company and the future than I was when I joined. We have accomplished a number of things in the last several months. In addition to the very successful secondary offer, we have begun to restructure at the corporate governance level and have added two extraordinarily accomplished executives to our board of directors.

Ron Ahrens has joined. He is currently Vice Chairman and Director of Temptime Corporation and previously was President of Merck Consumer Healthcare Group Worldwide. Also joining CardioNet is Kirk Gorman, Senior Vice President and Chief Financial Officer of Jefferson Health Systems and previously was Senior Vice President and Chief Financial Officer of Universal Health System, one of the five largest investor-owned hospital companies in the United States.

Also in the period of time that I’ve been with the company, we’ve undertaken a longer-term strategic view of the company and have set forth various operational priorities in order for us to achieve our strategic goals. Internally, we call these operational priorities BEAT Excellence, focusing on functional and operational excellence in everything that w do as a company. Arie will speak to more specifics about the BEAT Excellence Program during his presentation.

At the end of our presentation, we will entertain all of your questions. At this time, I will turn the conference call over to Arie Cohen, President and Chief Executive Officer of CardioNet, Inc.

Arie Cohen

Thank you, Randy. Good afternoon and welcome, everyone, to our conference call. Before we begin the quarterly review, I would like to take a few minutes to recognize our employees for their strong commitment and hard work during the fire that impacted our corporate headquarters in August. Our employees successfully executed our Disaster Recovery Plan and activated our backup monitoring central facility with virtually no disruption to patient service. I would like to thank our dedicated employees for their diligence and tireless effort during this crisis.

Now, on to the quarter review, I am very pleased to report another quarter of strong operating and financial performance. Revenues for the third quarter increased to $31.2 million, a 52% growth year-over-year. Gross margins increased to 67.9% and adjusted operating income increased to $4.3 million, compared to $1.5 million in the same period last year and diluted earnings per share of $0.11. Marty Galvan, our CFO, will provide you with a more detailed financial report in a few moments.

Our success demonstrates the continued penetration of the CardioNet System in the $2 billion cardiac arrhythmia monitoring market as physicians and payers continue to recognize the superiority of our technology over events and Holter monitors. We once again achieved financial performance ahead of analysts’ expectations.

During the third quarter, we achieved a number of important milestones in driving physicians’ and payers’ awareness of our system. On October 10, the American Medical Association has published Category I National CPT Codes with the CardioNet System. These unique codes represent a major milestone for CardioNet that solidifies our foundation for future growth. The code gives the CardioNet System unquestionable technology validation. The AMA has been the clinical efficacy of our system is well established and documented in US peer-reviewed literature, and that the CardioNet System is being broadly performed by numerous respected physician.

This directly removes a major obstacle for commercial payers that still do not reimburse for the CardioNet System, categorizing it as experimental technology. The specific CPT codes also create a more simplified and stable reimbursement environment that will allow for automated payment processing, simplifying the process for physicians and payers. Reimbursement today is obtained through non-specific billing code that in most cases requires manual processing as well as additional review by payer. In short, it will become easier to do business with CardioNet. We believe the establishment of the National CPT codes will significantly accelerate adaptation of the CardioNet System by physicians and payers, resulting in greater market share and accelerated growth in 2009 and beyond.

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