President and chief executive officer (CEO) Commentary

Randy Thurman, interim president and CEO, commented: “We are pleased to report strong fourth quarter and full year results, demonstrating CardioNet’s continued success in the wireless cardiac monitoring and diagnostic market. During the year, our revenue grew 65% and we achieved fourth quarter adjusted earnings per diluted share of $0.35 and full year adjusted earnings per diluted share of $0.59, exceeding our expectations and marking our first year of profitability.

“In 2008 we achieved a number of significant accomplishments throughout the organization that positioned us for accelerated growth in 2009. We secured Category I CPT codes and reimbursement rates for the CardioNet System in October, a major milestone in facilitating broader adoption. We also secured contracts with over 30 new payors during the year, including two major national payors, accounting for an additional 32.1 million covered lives. We strengthened the management team with several key hires and successfully completed the integration of the PDSHeart acquisition and the consolidation of our corporate functions to Pennsylvania. We continued growing and developing our sales and marketing organization, expanding our geographic footprint and elevating our profile within the medical community. We also remained committed to our research and development efforts, as demonstrated by the recent launch of our enhanced atrial fibrillation reporting package. Finally, we continued to benefit from the growing body of peer-reviewed research highlighting the benefits of the CardioNet System. We look forward to the future publication of additional studies, supported by our ongoing clinical programs.

“Looking forward, CardioNet is uniquely positioned within the healthcare industry and perhaps most industries today. We are leading what we believe is a revolution in healthcare – wireless medicine. The demand for our cardiac outpatient services is growing at greater than 40% per year. Our services provide significant and meaningful benefits to patients and prescribing physicians while delivering improved cost/benefit outcomes to the payors. Every indication is that CardioNet is positioned for years of exceptional growth.

“We view 2009 as an inflection point. We believe it is a year to make the necessary investments to lay the foundation for accelerated growth, increased market share and the establishment of the CardioNet brand as the clear leader in ambulatory cardiac monitoring and diagnosis. We firmly believe that we can achieve this incremental investment while reporting strong earnings growth in 2009, and, more importantly, positioning ourselves for an enhanced leadership position in the industry and higher levels of shareholder return in 2010 and beyond. Long-term, CardioNet’s success will be based upon our stakeholders viewing us as the unquestioned leader by the quality of our devices, customer service and patient support as well as the professionalism of our account executives. These stakeholders include patients, physicians, payors, our employees and our shareholders.

“To achieve these aims, we intend to make incremental investments in 2009 focused on increasing our sales force and ensuring the highest quality of customer service and monitoring operations, including the necessary information technology that underlies our business. We expect to invest in product development and clinical research studies with a focus on continued innovation. We anticipate that the single largest investment will be in our field sales organization with a planned increase of approximately 70% in account executives and the enhancement of our national coverage.

“As a result, we are establishing revenue guidance for 2009 of $170.0 to $175.0 million, somewhat higher than expectations, and over 40% growth compared to 2008. Based on the incremental investments I have just outlined, which represent approximately $0.08 to $0.10 per diluted share, we are providing earnings guidance for 2009 of $0.69 to $0.73 per diluted share, excluding any impact of NOLs, other tax related items and any nonrecurring charges. This represents over 75% earnings growth year over year. In addition, we currently anticipate a one-time benefit in 2009 related to NOLs and other tax related items which could favorably impact earnings by approximately $1.00 to $1.30 per diluted share. We do not anticipate any earnings per diluted share benefit from NOLs and other tax related items in 2010 or 2011. We believe the investment in 2009 is the foundation that will drive higher revenues and earnings in 2010 and beyond. Our outlook for 2010 is for revenue to increase at least 50% and earnings to increase 100%, compared to the Company’s 2009 guidance excluding NOLs and other tax related items. In 2011, we believe that earnings per diluted share could reach $2.00. We expect that the increased investment in 2009 and the rapid revenue growth that we are targeting will result in increased shareholder value over the long term.

“In summary, the convergence of healthcare and information technology is resulting in one of the most important trends for the next twenty years – wireless medicine – and CardioNet is uniquely positioned to capitalize on this unprecedented opportunity over the long term. Today, we are a leader in wireless medicine focused on cardiac arrhythmia monitoring and diagnostics. Building market share and making intelligent investments are our current focus. Tomorrow, we aspire to be the unquestioned leader in a healthcare revolution. We believe that our near-term and long-term goals are in-sync and will drive great value for all of our stakeholders.”

Financial Results

Revenues for the fourth quarter of 2008 increased to $34.4 million against $23.9 million in the fourth quarter of 2007, an increase of $10.5 million, or 43.8%.

Gross profit increased to $23.9 million in the fourth quarter of 2008, or 69.4% of revenues, against $15.3 million in the fourth quarter of 2007, or 63.7% of revenues.

Marty Galvan, CardioNet’s chief financial officer commented: “Fourth quarter gross margin benefitted from productivity and efficiency improvements that we instituted during the year. Also, our revenue mix continues to shift toward our higher margin CardioNet System, away from the legacy, lower margin event and Holter monitoring business. Additionally, after performing an internal evaluation related to the expected duration of our current generation device, we adjusted the depreciable life from two to three years, resulting in a 123 basis point improvement in gross margin in the fourth quarter. The change in the C3 depreciable life will also have a favorable impact on our 2009 gross margin.”

Net income for the fourth quarter of 2008 was $6.9 million, or $0.29 per diluted share, against $2.1 million, or $0.12 per diluted share, for the same period last year.

Net income for the full year 2008 increased to $9.2 million, or $0.40 per diluted share, against a net loss of $0.4 million, or a loss of $0.12 per diluted share, for the prior year.

Marty Galvan remarked: “With the assistance of tax consultants, during the quarter we completed a study which clarified the extent to which we could utilize our NOLs. As a result, we utilized $22.0 million of NOLs and adjusted our full year effective tax rate in the fourth quarter. This had a positive impact of $0.19 on our fourth quarter earnings per diluted share and a favorable impact of $0.20 on our full year results. As a result of the NOL utilization, our effective tax rate for 2008 was 13.9%. Additionally, the utilization of the NOLs in 2008 resulted in the avoidance of a cash payment for taxes of $8.8 million.”