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Cardionet, Inc. (BEAT)

Q4 2008 Earnings Call Transcript

February 17, 2009 at 5:00 am ET


Randy Thurman - Executive Chairman

Marty Galvan - Chief Financial Officer

Anna McNamara - Senior Vice President, Clinical Operations

Philip Leone - Vice President, Managed Care


Amit Bhalla - Citigroup

Analyst for Rick Wise - Leerink Swann

George Dai - M.A. Weatherbie

Alan Fishman - Thomas Weisel Partners



Good afternoon. Thank you for joining us for the CardioNet fourth quarter and full year 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 such 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 for today, Mr. Randy Thurman. Sir, you may begin.

Randy Thurman

Thank you very much and welcome to the Cardionet fourth quarter and yearend investor conference call. I am Randy Thurman, Executive Chairman of CardioNet. With me this afternoon is Marty Galvan, Senior Vice President and Chief Financial Officer and Anna McNamara, Senior Vice President of Clinical Operations and Phil Leone, Vice President of Managed Care.

In addition to providing detail on 2008 and 2009, our objective today is to outline for you the opportunity that we believe CardioNet has to gain significant share in the $2 billion cardiac monitoring market and how we plan to leverage that opportunity for the benefit of all of our stakeholders. As outlined in the press release issued earlier today, we see 2009 as a transformational year for building this market share through a series of operational and strategic initiatives that will strengthen our sales and marketing effort, enhance our infrastructure, and position CardioNet for higher growth in 2010 and beyond.

These operational and strategic initiatives will benefit all CardioNet's stakeholders and we believe will drive long-term shareholder value. We are pleased to report fourth quarter and full year revenue growth of 44% and 65% respectively. Gross margin increased to 69.4% in the quarter and expanded 190 basis points or 66.9% for the full year. Our adjusted operating margin increased 18.9% in the quarter leading to diluted earnings per share of $0.35. For the full year, our adjusted operating margin grew from breakeven in the prior year over 12% of sales contributing to full year diluted earnings per share of $0.59. Both quarterly and full year earnings exceed consensus expectation. Marty of course will provide you with a more detailed financial review in his remarks.

We firmly believe that our strong financial and operational performance in 2008 is indicative of the true potential of our technology, not only in cardiac monitoring but beyond. As such, 2009 will be a year in which we invest the physician CardioNet to achieve our operational and strategic imperatives. Our first imperative is to build market share in our existing business. Estimates are that the cardiac arrhythmia monitoring business is $2 billion per year in the US alone. As the wireless leader in this space, there is no greater opportunity for us and to capture share in the existing market. As such, we will be expanding our sales force this year by approximately 70% in entering new associated segments of the market. In so doing, we must also invest in IT and sales related support functions.

Our second imperative is to separate ourselves from any perceived competition by reinforcing in the market what we believe is our superior technology in demonstrating clinical advantages as well as to be recognized by physicians and patients as the unquestioned leader in supporting their requirements. As such, we intend to invest, to develop new application, to expand the output from our algorithms, to expand clinical programs and to ensure our customer service and monitoring operations are state of the art. As part of the second operational imperative, expect us to seek acquisitions that will accelerate achievement of these goals.

The third among our imperatives is continue the operational excellence or as we call it internally, E excellence. This means achieving world class status in the professionalism of our account executive’s quality of our customer service and monitoring centers and setting the highest standards of product quality and reliability. In 2008, we made considerable strides in each of these areas; 2009 will build upon this early success. A clear focus this year is on the first three operational imperatives. We estimate this investment will be in the range of $0.08 to $0.10 per share and will provide the foundation for accelerated growth about current expectations, revenues and earnings in 2010 and 2011. Beyond 2009, we set goals that will expand the scope of our current business.

Our fourth imperative is more strategic in nature and is to expand our current focus in cardiac arrhythmia to related cardiac industry segment or current technology and infrastructure can be leveraged. We expect that these related businesses will add new sources of revenue beyond the scope of the current product offering. On term, our fifth strategic imperative includes entering new geographic market and new therapeutic and diagnostic modalities. We believe the 2009 investment in combination with our continued focus on research and development, clinical programs and expanded payer coverage will position CardioNet to be the undisputed leader in our industry while also delivering strong revenue and earnings growth in 2009.

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