FORM 10-Q
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
______ (I.R.S. Employer Identification Malvern, Pennsylvania 19355 (Address of (Zip Code)ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 June 30, 2017March 31, 2018oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 BioTelemetry, Inc.
Delaware46-2568498DELAWARE 46-2568498 (State or Other Jurisdictionother jurisdiction of Incorporationincorporation or Organization)organization)Number)1000 Cedar Hollow Road #102 Principal Executive Offices)xý No oxý No ooýxo(Do not check if a smaller reporting company)
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our registered or common law trademarks appears in this Quarterly Report on Form 10-Q, but this should not be construed as any indication that we will not assert our rights thereto to the fullest extent permissible under applicable law.
· the effectivenessbusiness, including our recent acquisition of our cost savings initiatives;
LifeWatch AG (“·LifeWatch”);
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(Unaudited) June 30, 2017 December 31, 2016 ASSETS Current assets: Cash and cash equivalents $ 26,898 $ 23,052 Healthcare accounts receivable, net of allowance for doubtful accounts of $13,407 and $12,198, at June 30, 2017 and December 31, 2016, respectively 15,071 14,594 Other accounts receivable, net of allowance for doubtful accounts of $429 and $665, at June 30, 2017 and December 31, 2016, respectively 13,857 12,261 Inventory 4,121 5,176 Prepaid expenses and other current assets 5,925 4,477 Total current assets 65,872 59,560 Property and equipment, net 26,695 25,823 Intangible assets, net 31,625 33,472 Goodwill 40,963 41,068 Deferred tax asset 36,925 36,636 Other assets 1,872 2,425 Total assets $ 203,952 $ 198,984 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 9,188 $ 12,425 Accrued liabilities 15,905 13,698 Current portion of capital lease obligations 63 162 Current portion of long-term debt 1,875 1,250 Deferred revenue 5,365 3,972 Total current liabilities 32,396 31,507 Long-term capital lease obligations 93 126 Long-term debt 22,770 23,911 Other long-term liabilities 1,917 4,526 Total liabilities 57,176 60,070 Stockholders’ equity: Common stock—$.001 par value as of June 30, 2017 and December 31, 2016; 200,000,000 shares authorized as of June 30, 2017 and December 31, 2016; 28,744,176 and 28,261,503 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively 29 28 Paid-in capital 287,562 281,642 Accumulated other comprehensive loss (15 ) (34 ) Accumulated deficit (140,800 ) (142,722 ) Total stockholders’ equity 146,776 138,914 Total liabilities and stockholders’ equity $ 203,952 $ 198,984 Three Months Ended Six Months Ended 2017 2016 2017 2016 Revenues: Healthcare $ 44,070 $ 42,165 $ 86,581 $ 83,314 Research 9,562 7,896 18,886 13,289 Technology 4,497 2,619 8,543 4,717 Total revenues 58,129 52,680 114,010 101,320 Cost of revenues: Healthcare 14,375 13,470 29,023 26,632 Research 5,581 4,447 11,152 7,702 Technology 2,206 1,842 4,959 3,438 Total cost of revenues 22,162 19,759 45,134 37,772 Gross profit 35,967 32,921 68,876 63,548 Operating expenses: General and administrative 14,366 14,388 30,283 26,724 Sales and marketing 7,631 7,124 15,332 14,669 Bad debt expense 2,416 2,664 5,207 5,302 Research and development 2,515 1,965 4,948 3,751 Other charges 4,651 1,659 6,390 3,447 Total operating expenses 31,579 27,800 62,160 53,893 Income from operations 4,388 5,121 6,716 9,655 Interest and other loss, net (1,392 ) (633 ) (4,390 ) (1,056 ) Income before income taxes 2,996 4,488 2,326 8,599 (Provision for) benefit from income taxes (1,270 ) 209 (404 ) 195 Net income $ 1,726 $ 4,697 $ 1,922 $ 8,794 Other comprehensive income: Foreign currency translation gain (loss) 18 (150 ) 19 (148 ) Comprehensive income $ 1,744 $ 4,547 $ 1,941 $ 8,646 Net income per common share: Basic $ 0.06 $ 0.17 $ 0.07 $ 0.32 Diluted $ 0.05 $ 0.15 $ 0.06 $ 0.29 Weighted average number of common shares outstanding: Basic 28,687,064 27,960,776 28,558,134 27,665,800 Diluted 31,672,842 30,516,302 31,494,079 30,018,887 Six Months Ended 2017 2016 OPERATING ACTIVITIES Net income $ 1,922 $ 8,794 Adjustments to reconcile net income to net cash provided by operating activities: Bad debt expense 5,207 5,302 Depreciation 5,551 5,257 Non-cash lease (benefit) expense (102 ) 27 Deferred income tax expense (benefit) 3 (444 ) Change in fair value of acquisition-related contingent consideration (605 ) — Change in fair value of derivative instrument 898 — Equity method investment loss 196 114 Stock-based compensation 4,200 2,619 Amortization of intangibles 1,989 1,673 Accretion of discount on debt 110 109 Changes in operating assets and liabilities: Healthcare and other accounts receivables (7,280 ) (5,866 ) Inventory 845 (786 ) Prepaid expenses and other assets (289 ) 391 Accounts payable (3,237 ) 1,789 Accrued and other liabilities 1,325 (1,453 ) Net cash provided by operating activities 10,733 17,526 INVESTING ACTIVITIES Acquisition of businesses, net of cash acquired — (17,970 ) Purchases of property and equipment and investment in internally developed software (6,197 ) (5,692 ) Purchases of derivative instrument (1,322 ) — Investment in equity method investee (350 ) — Net cash used in investing activities (7,869 ) (23,662 ) FINANCING ACTIVITIES Proceeds related to the exercising of stock options and employee stock purchase plan 3,602 1,236 Tax payments related to the vesting of shares (1,881 ) (2,325 ) Borrowings under revolving loans — 14,500 Principal payments on long-term debt (626 ) (635 ) Principal payments on capital lease obligations (132 ) (183 ) Net cash provided by (used in) financing activities 963 12,593 Effect of exchange rate changes on cash 19 — Net increase in cash and cash equivalents 3,846 6,457 Cash and cash equivalents - beginning of period 23,052 18,986 Cash and cash equivalents - end of period $ 26,898 $ 25,443 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Non-cash purchases of property and equipment $ 498 $ — Cash paid for interest $ 648 $ 654 Cash paid for taxes $ 1,232 $ 132 Three Months Ended Six Months Ended 2017 2016 2017 2016 Numerator: Net income $ 1,726 $ 4,697 $ 1,922 $ 8,794 Denominator: Weighted average shares used in computing basic net income per share 28,687,064 27,960,776 28,558,134 27,665,800 Potential dilutive common shares due to dilutive stock option and restricted stock units 2,985,778 2,555,526 2,935,945 2,353,087 Weighted average shares used in computing diluted net income per share 31,672,842 30,516,302 31,494,079 30,018,887 Net income per share: Basic net income per share $ 0.06 $ 0.17 $ 0.07 $ 0.32 Diluted net income per share $ 0.05 $ 0.15 $ 0.06 $ 0.29 those estimates. other similar data obtained from quoted market prices or independent pricing vendors. charges in the consolidated statements of operations. current fair value that is remeasured subsequently at each reporting date through the settlement date. The Derivative Balance at December 31, 2016 $ — Premium paid on derivative instrument 1,322 Change in fair value (898 ) Balance at June 30, 2017 $ 424 performance conditions are deemed probable of achievement and when the awards are vested. Performance stock options (“ ”) are valued and stock-based compensation expense is only recognized once the performance conditions of the outstanding PSOs have been met. We account for We record additional expense if the actual forfeiture rate is lower than estimated, and record a recovery of prior expense if the actual forfeiture rate is higher than estimated. : We determine the transaction price based negotiated prices for services provided, on a case rate basis, as provided for under the relevant Current Procedural Terminology (“CPT”) codes. Amount Weighted Fair value of assets acquired: Other accounts receivable $ 235 Inventory 1,522 Prepaid expenses and other current assets 1,261 Property and equipment 55 Other assets 933 Identifiable intangible assets: Customer relationships 400 5 Technology 2,000 5 Tradename 400 Indefinite Total identifiable intangible assets 2,800 Total assets acquired 6,806 Fair value of liabilities assumed: Accounts payable 459 Accrued liabilities 206 Deferred revenue 49 Total liabilities assumed 714 Total identifiable net assets 6,092 Goodwill 3,608 Net assets acquired $ 9,700 the three month period ended March 31, 2018. Three Months Ended Six Months Ended Revenue $ 53,986 $ 103,746 Net Income $ 4,023 $ 7,003 Net income per common share: Basic $ 0.14 $ 0.25 Diluted $ 0.13 $ 0.23 Weighted average number of common shares outstanding: Basic 27,960,776 27,665,800 Diluted 30,516,302 30,018,887 Total Contingent Balance at December 31, 2016 $ 2,700 Change in fair value of acquisition-related contingent consideration — Balance at June 30, 2017 $ 2,700 Weighted Average Life Amount (Years) Fair value of assets acquired: Cash and cash equivalents $ 849 Other accounts receivable 3,679 Inventory 111 Prepaid expenses and other current assets 396 Property and equipment 500 Deferred taxes 20 Identifiable intangible assets: Customer relationships 5,200 12 Technology 2,000 10 Backlog 3,100 4 Total identifiable intangible assets 10,300 Total assets acquired 15,855 Fair value of liabilities assumed: Accounts payable 325 Accrued liabilities 2,945 Current portion of capital lease obligations 59 Current portion of long-term debt 91 Deferred revenue 700 Long-term capital lease obligations 162 Long-term debt 97 Total liabilities assumed 4,379 Total identifiable net assets 11,476 Goodwill 4,343 Net assets acquired $ 15,819 Three Months Ended Six Months Ended Revenue $ 54,762 $ 107,258 Net Income $ 5,383 $ 10,132 Net income per common share: Basic $ 0.19 $ 0.37 Diluted $ 0.18 $ 0.34 Weighted average number of common shares outstanding: Basic 27,960,776 27,665,800 Diluted 30,516,302 30,018,887 Weighted Average Life Amount (Years) Fair value of assets acquired: Inventory $ 100 Property and equipment 175 Identifiable intangible assets: Customer relationships 400 10 Technology 2,800 10 Trade names 100 Indefinite Total identifiable intangible assets 3,300 Total assets acquired 3,575 Fair value of liabilities assumed: Accrued liabilities 266 Total liabilities assumed 266 Total identifiable net assets 3,309 Goodwill 3,181 Net assets acquired $ 6,490 Total Contingent Balance at December 31, 2016 $ 605 Change in fair value of acquisition-related contingent consideration (605 ) Balance at June 30, 2017 $ — June 30, 2017 December 31, 2016 Raw materials $ 2,878 $ 2,866 Finished goods 1,243 2,310 Total inventory $ 4,121 $ 5,176 and Intangible Assets the measurement period adjustment. Reporting Segment Healthcare Research Technology Total Balance at December 31, 2016 $ 14,724 $ 16,643 $ 9,701 $ 41,068 Goodwill adjustments related to 2016 acquisitions — (350 ) 245 (105 ) Balance at June 30, 2017 $ 14,724 $ 16,293 $ 9,946 $ 40,963 Three Months Ended June 30, Six Months Ended June 30, 2017 2016 2017 2016 Beginning balance $ 1,029 $ 1,079 $ 1,125 $ 1,100 Capital contributions 350 — 350 — Our share of the investee’s losses (100 ) (93 ) (196 ) (114 ) Ending balance $ 1,279 $ 986 $ 1,279 $ 986 term loan was $199.2 million as of March 31, 2018, which is the principal amount outstanding, net of $5.3 million of unamortized deferred financing costs to be amortized over the remaining term of the credit facility. The revolving credit facility is subject to an unused commitment fee, which is determined by reference to our Consolidated Total Net Leverage Ratio, as defined in the SunTrust Credit Agreement. Our unused commitment fee as of March 31, 2018 was 0.3%, and the revolving credit facility remains undrawn as of that date. “Note 3. Acquisitions” for further details related to the LifeWatch acquisition. 2003 Plan also automatically roll into the 2008 Plan. There are no shares available to grant under the 2008 Plan subsequent to the approval of the OIP. Stock Options Restricted Stock Units Number of Weighted Number of Weighted Average Stock outstanding as of December 31, 2016 3,568,434 $ 7.82 592,349 $ 9.86 Granted 173,881 24.12 78,991 24.65 Cancelled/forfeited — — — — Exercised/vested (191,998 ) 7.45 (176,362 ) 8.89 Stock outstanding as of March 31, 2017 3,550,317 $ 8.64 494,978 $ 12.57 Granted 25,000 31.59 36,623 28.47 Cancelled/forfeited (85,448 ) 17.97 (17,172 ) 14.74 Exercised/vested (82,840 ) 7.47 (11,385 ) 15.42 Stock outstanding as of June 30, 2017 3,407,029 $ 8.60 503,044 $ 13.59 Performance Stock Options Performance Stock Units Number of Weighted Number of Weighted Average Stock outstanding as of December 31, 2016 100,000 $ 18.33 132,992 $ 8.68 Vested 100,000 21.45 — — Cancelled/forfeited — — (132,992 ) 8.68 Exercised (30,000 ) 18.33 — — Stock outstanding as of March 31, 2017 170,000 $ 20.17 — $ — Vested — — — — Cancelled/forfeited — — — — Exercised (20,000 ) 18.33 — — Stock outstanding as of June 30, 2017 150,000 $ 20.41 — $ — Three Months Ended June 30, Six Months Ended June 30, 2017 2016 2017 2016 Legal fees $ 1,885 $ 1,242 $ 2,867 $ 2,611 Professional fees 2,172 278 3,332 446 Severance and employee related costs 347 72 532 323 Change in contingent consideration — — (605 ) — Other costs 247 67 264 67 Total $ 4,651 $ 1,659 $ 6,390 $ 3,447 Employee Share Based Payment Accounting our reportable segments. Healthcare Research Technology Corporate and Consolidated June 30, 2017 Revenues $ 44,070 $ 9,562 $ 4,497 — $ 58,129 Intersegment revenues — — 4,007 $ (4,007 ) — Income (loss) before income taxes 16,729 322 2,357 (16,412 ) 2,996 Depreciation and amortization 2,706 1,039 270 (190 ) 3,825 Capital expenditures 2,713 466 51 — 3,230 Healthcare Research Technology Corporate and Consolidated June 30, 2016 Revenues $ 42,165 $ 7,896 $ 2,619 — $ 52,680 Intersegment revenues — — 2,282 $ (2,282 ) — Income (loss) before income taxes 15,582 387 747 (12,228 ) 4,488 Depreciation and amortization 2,500 1,080 142 (58 ) 3,664 Capital expenditures 1,626 541 12 — 2,179 Healthcare Research Technology Corporate and Consolidated June 30, 2017 Revenues $ 86,581 $ 18,886 $ 8,543 — $ 114,010 Intersegment revenues — — 8,217 $ (8,217 ) — Income (loss) before income taxes 30,708 700 3,838 (32,920 ) 2,326 Depreciation and amortization 5,567 2,072 513 (612 ) 7,540 Capital expenditures 5,603 466 128 — 6,197 Healthcare Research Technology Corporate and Consolidated June 30, 2016 Revenues $ 83,314 $ 13,289 $ 4,717 — $ 101,320 Intersegment revenues — — 5,674 $ (5,674 ) — Income (loss) before income taxes 29,782 405 1,693 (23,281 ) 8,599 Depreciation and amortization 4,981 1,884 192 (127 ) 6,930 Capital expenditures 4,316 1,350 26 — 5,692 Unless otherwise noted, the figures in the following discussions are unaudited. our reportable segments. this report. 2017. synergies resulting from the integration of LifeWatch. or speculative purposes. March 31, 2018. By: /s/ Heather C. Getz Heather C. Getz Executive Vice President and Chief Financial Officer (Principal Financial Officer and authorized officer of the Registrant)(In thousands, except share and per share amounts)(Unaudited)
March 31,
2018 December 31,
2017ASSETS Current assets: Cash and cash equivalents $ 36,346 $ 36,022 Healthcare accounts receivable, net of allowance for doubtful accounts of $18,138 and $15,556, at March 31, 2018 and December 31, 2017, respectively 31,802 25,190 Other accounts receivable, net of allowance for doubtful accounts of $1,536 and $1,425, at March 31, 2018 and December 31, 2017, respectively 15,370 13,296 Inventory 6,353 5,332 Prepaid expenses and other current assets 8,524 10,268 Total current assets 98,395 90,108 Property and equipment, net of accumulated depreciation of $71,996 and $71,902, at March 31, 2018 and December 31, 2017, respectively 47,838 49,194 Intangible assets 137,614 141,707 Goodwill 223,699 223,105 Deferred tax asset 17,988 17,681 Other assets 2,491 2,767 Total assets $ 528,025 $ 524,562 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 16,858 $ 14,529 Accrued liabilities 21,639 26,055 Current portion of capital lease obligations 3,817 4,023 Current portion of long-term debt 2,819 2,050 Deferred revenue 5,064 4,298 Total current liabilities 50,197 50,955 Long-term portion of capital lease obligations 726 1,486 Long-term debt 196,336 197,306 Other long-term liabilities 24,412 25,112 Total liabilities 271,671 274,859 Stockholders’ equity: Common stock—$.001 par value as of March 31, 2018 and December 31, 2017; 200,000,000 shares authorized as of March 31, 2018 and December 31, 2017; 32,794,129 and 32,460,668 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively 33 32 Paid-in capital 411,328 409,517 Accumulated other comprehensive loss (311 ) (114 ) Accumulated deficit (152,696 ) (158,678 ) Total BioTelemetry, Inc.’s stockholders’ equity 258,354 250,757 Noncontrolling interest (2,000 ) (1,054 ) Total equity 256,354 249,703 Total liabilities and equity $ 528,025 $ 524,562 notes.Notes to Consolidated Financial Statements. AND Three Months Ended (In thousands, except per share data) March 31,
2018 March 31,
2017Revenue: Healthcare $ 80,551 $ 42,511 Research 11,244 9,324 Other 2,701 4,046 Total revenue 94,496 55,881 Cost of revenue: Healthcare 27,582 14,648 Research 6,326 5,571 Other 2,540 2,753 Total cost of revenue 36,448 22,972 Gross profit 58,048 32,909 Operating expenses: General and administrative 26,719 15,917 Sales and marketing 11,340 7,701 Bad debt expense 4,879 2,791 Research and development 3,289 2,433 Other charges 5,085 1,739 Total operating expenses 51,312 30,581 Income from operations 6,736 2,328 Other expense: Interest expense (1,890 ) (388 ) Loss on equity method investment (139 ) (95 ) Other non-operating income/(expense), net 187 (2,515 ) Total other expense (1,842 ) (2,998 ) Income/(loss) before income taxes 4,894 (670 ) Benefit from income taxes 142 866 Net income 5,036 196 Net loss attributable to noncontrolling interest (946 ) — Net income attributable to BioTelemetry, Inc. $ 5,982 $ 196 Net income per common share attributable to BioTelemetry, Inc.: Basic $ 0.18 $ 0.01 Diluted $ 0.17 $ 0.01 Weighted average number of common shares outstanding: Basic 32,570 28,429 Dilutive stock options and restricted stock units 2,665 2,886 Diluted 35,235 31,315 Anti-dilutive stock options and restricted stock units excluded from weighted average calculation 579 496 (In thousands, except share and per share amounts)
June 30,
June 30, Three Months Ended (In thousands) March 31,
2018 March 31,
2017Net income attributable to BioTelemetry, Inc. $ 5,982 $ 196 Other comprehensive income/(loss): Foreign currency translation gain/(loss) (197 ) 1 Comprehensive income attributable to BioTelemetry, Inc. $ 5,785 $ 197 notes.Notes to Consolidated Financial Statements.(In thousands)
June 30, Three Months Ended (in thousands) March 31,
2018 March 31,
2017OPERATING ACTIVITIES Net income $ 5,036 $ 196 Adjustments to reconcile net income to net cash provided by operating activities: Bad debt expense 4,879 2,791 Depreciation 5,507 2,720 Amortization of intangibles 4,321 995 Stock-based compensation 2,065 3,058 Equity method investment loss 139 95 Change in fair value of acquisition-related contingent consideration (700 ) (605 ) Accretion of discount on debt 311 55 Non-cash lease income (3 ) (50 ) Non-cash tax benefit (307 ) (635 ) Changes in operating assets and liabilities: Healthcare and other accounts receivables (13,565 ) (7,286 ) Inventory (1,021 ) 810 Prepaid expenses and other assets 1,287 368 Accounts payable 2,329 463 Accrued and other liabilities (1,204 ) 1,678 Net cash provided by operating activities 9,074 4,653 INVESTING ACTIVITIES Purchases of property and equipment and investment in internally developed software (3,938 ) (2,967 ) Net cash used in investing activities (3,938 ) (2,967 ) FINANCING ACTIVITIES Proceeds related to the exercising of stock options and employee stock purchase plan 2,486 2,617 Tax payments related to the vesting of shares (2,739 ) (1,881 ) Principal payments on long-term debt (513 ) (312 ) Principal payments on capital lease obligations (966 ) (65 ) Acquisition of noncontrolling interests (2,885 ) — Net cash (used in)/provided by financing activities (4,617 ) 359 Effect of exchange rate changes on cash (195 ) 1 Net increase in cash and cash equivalents 324 2,046 Cash and cash equivalents - beginning of period 36,022 23,052 Cash and cash equivalents - end of period $ 36,346 $ 25,098 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Non-cash purchases of property and equipment $ 441 $ 498 Non-cash fair value of equity issued for acquisition of business 1,972 — Cash paid for interest 1,497 310 Cash paid for taxes $ 20 $ 47 notes.Notes to Consolidated Financial Statements. BioTelemetry, Inc. Equity Common Stock Paid-in Capital Accumulated Deficit Noncontrolling Interest Total Equity (In thousands, except shares) Shares Amount Balance at December 31, 2017 32,460,668 $ 32 $ 409,517 $ (114 ) $ (158,678 ) $ (1,054 ) $ 249,703 Share issuances related to stock compensation plans 354,620 1 2,485 — — — 2,486 Stock-based compensation — — 2,065 — — — 2,065 Shares withheld to cover taxes on vesting of share based awards (79,945 ) — (2,739 ) — — — (2,739 ) Acquisition of noncontrolling interests 58,786 — — — — — — Currency translation adjustment — — — (197 ) — — (197 ) Net income/(loss) — — — — 5,982 (946 ) 5,036 Balance at March 31, 2018 32,794,129 $ 33 $ 411,328 $ (311 ) $ (152,696 ) $ (2,000 ) $ 256,354 (In thousands, except share and per share amounts)accordanceconformity with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information, and the requirements ofinstructions to Form 10-Q, and Article 10Rule 10-01 of Regulation S-X. Accordingly, these consolidatedS-X and include the accounts of BioTelemetry, Inc. and its controlled subsidiaries (“BioTelemetry,” the “Company,” “we,” “our” or “us”). In the opinion of management, all adjustments (consisting only of normal recurring accruals, except as otherwise disclosed herein) considered necessary to present fairly the financial statements do not include allposition as of the informationMarch 31, 2018 and footnotes necessary for a complete presentation of financial position,the results of operations and cash flows. Inflows for the opinion of management, theseinterim periods ended March 31, 2018 and 2017 have been included. All intercompany transactions and balances have been eliminated in consolidation. Certain information and footnote disclosures normally included in financial statements presented in accordance with U.S. GAAP, but which are not required for interim reporting purposes, have been omitted. The accompanying unaudited consolidated financial statements reflect all adjustments which are of a normal recurring natureshould be read in conjunction with the financial statements and necessarynotes thereto included in our Annual Report on Form 10-K for a fair presentation of BioTelemetry, Inc.’s (“BioTelemetry,” “Company,” “we,” “our” or “us” ) financial position as of June 30, 2017 andthe fiscal year ended December 31, 2016,2017.for the three months and six months ended June 30, 2017 and 2016 and cash flows foror accumulated deficit.six months ended June 30, 2017reported amounts of assets and 2016. The financial dataliabilities and other information disclosed in these notes todisclosures of contingent assets and liabilities at the date of the consolidated financial statements related toand the threereported amounts of revenue and six months ended June 30, 2017 and 2016 are unaudited. The results for the three and six months ended June 30, 2017 are not necessarily indicative of the results to be expected for any future period.Net Income Per ShareWe compute net income per share in accordance with Accounting Standards Codification (“ASC”) 260, Earnings Per Share. Basic net income per share is computed by dividing net income by the weighted average number of common shares outstandingexpenses during the reporting period. Diluted net income per share is computed by giving effect to all potential dilutive common shares, including stock options and restricted stock units.The following table presents the calculation of basic and diluted net income per share:
June 30,
June 30,Certain stock options, which are priced higher than the market price of our shares as of June 30, 2017 and 2016, would be anti-dilutive and therefore have been excludedActual results may differ from the weighted average shares used in computing diluted net income per share. These options could become dilutive in future periods.the Company.us. Unobservable inputs are inputs that reflect the Company’sLevel 1—Quoted prices in active markets for an identical asset or liability.Level 2—Inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the asset or liability.Level 3—Inputs that are unobservable for the asset or liability, based on the Company’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.Level 1 - Quoted prices in active markets for an identical asset or liability. Level 2 - Inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the asset or liability. Level 3 - Inputs that are unobservable for the asset or liability, based on our own assumptions about the assumptions a market participant would use in pricing the asset or liability. thecontingent consideration and long-term debt, the carrying value of these financial instruments approximates their fair value because of their short-term nature (classified as Level 1). Forbased on(classified as Level 2) is measured using market prices for similar instruments, inputs such as the borrowing rates currently available, the fair value was determined to be $25,188 as of June 30, 2017. This is equal to the nominal value, which is the carrying value, exclusive of debt discountbenchmark yields, actual trade data, broker/dealer quotes and deferred charges (classified as Level 2).model (classified as Level 3).model. Adjustments to contingent consideration are recorded underin other charges.the acquisition date,fair value, primarily using a discounted cash flow model (classified as Level 3). This valuation technique requires the Companyus to make certain assumptions, including, but not limited to, future operating performance and cash flows, royalty rate and other such variables which are discounted to present value using a discount rate that reflects the risk factors associated with future cash flow, the characteristics of the assets acquired and liabilities assumed and the experience of the acquired business.Derivative InstrumentsDuring Non-financial assets such as goodwill, intangible assets, and property and equipment are subsequently measured at fair value when there is an indicator of impairment and recorded at fair value only when an impairment is recognized. We assess the second quarterimpairment of 2017, we purchased a foreign currency option with a notional valueintangible assets annually or whenever events or changes in circumstances indicate that the carrying amount of $194,185 to mitigate the foreign exchange riskan intangible asset may not be recoverable.Swiss Franc denominated purchase price of LifeWatch AG. This derivative instrument was not designated as a hedge for accounting purposes. The derivative instrumentHealthcare segment and is recorded at fair valuethe time revenue is recognized, net of contractual allowances, and is presented on the consolidated balance sheet net of an allowance for doubtful accounts. The ultimate collection of accounts receivable may not be known for several months after services have been provided and billed. The percentages and amounts used to record bad debt expense and the allowance for doubtful accounts are supported by various methods and analyses, including current and historical cash collections and the aging of receivables by payor. Because of continuing changes in the health care industry and third-party reimbursement, it is possible that ouras a componentwithin stockholders’ equity, but separate from the parent’s equity; (ii) the amount of prepaid expenses and other current assetsconsolidated net income/(loss) attributable to the parent and the noncontrolling interest to be clearly identified and presented in the consolidated statements of operations; and (iii) changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary to be accounted for consistently.instrument are recorded as a componententerprise’s equity instruments or that may be settled by the issuance of interest and other loss, net insuch equity instruments. ASC 718 requires that an entity measures the consolidated statementscost of operations and comprehensive income.The fair values of certain non-exchange-traded commodity derivatives designated as Level 2 areequity-based service awards based upon indicative price quotations available through brokers, industry price publications or recent market transactions and related market indicators. Theon the grant-date fair value of our Level 2 foreign currency option was based upon third-party quotes or indicative valuesthe award and recognizes the cost of such awards over the requisite service period (generally, the vesting period of the award). ASC 718 requires that an entity measure the cost of liability-based service awards based on recent market transactions.following summarizescompensation expense associated with performance stock units (“changes in our derivative instruments duringperiod between when the six months ended June 30, 2017:
instrumentsEquity MethodPSOs Investmentsinvestments using the equity method of accounting if the investment provides us the abilityawards issued to exercise significant influence, but not control, over the investee. Significant influence is generally deemed to exist if the Company’s ownership interest in the voting stock of the investee ranges between 20% and 50%, although other factors, such as representation on the investee’s board of directors, are considered in determining whether the equity method of accounting is appropriate. Under the equity method of accounting, the investment is recorded at cost in the consolidated balance sheet as a component of other assets and is periodically adjusted for capital contributions, dividends received and our share of the investee’s earnings or losses together with other-than-temporary impairments which are recorded as a component of interest and other loss, net in the consolidated statements of operations and comprehensive income.Goodwill and Acquired Intangible AssetsGoodwill is the excess of the purchase price of an acquired business over the amounts assigned to assets acquired and liabilities assumed in a business combination. In accordance with ASC 350, Intangibles—Goodwill and Other (“ASC 350”), goodwill is reviewed for impairment annually, or when events arise that could indicate that an impairment exists. Initially, we qualitatively assess whether it is more-likely-than-not that an impairment exists for each reporting unit. Such qualitative factors can include, among others, industry and market conditions, present and anticipated sales and cost factors, overall financial performance and relevant entity-specific events. If we conclude based on our qualitative assessment that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value, we perform a two-step impairment testnon-employees in accordance with ASC 350. In the first step, we compare the fair value of our reporting units505-50, Equity-Based Payments to the carrying value of the reporting units. If the carrying value of the net assets assigned to the reporting units exceeds the fair value of the reporting units, then the second step of the impairment test is performed in order to determine the implied fair value of the reporting units’ goodwill. If the carrying value of the reporting units’ goodwill exceeds the implied fair value of those reporting units, an impairment loss equal to the difference is recorded.Non-EmployeesFor the purpose of performing our goodwill impairment analysis, we consider our business to be comprised of three reporting units: Healthcare, Research and Technology. .calculate the fair value of the reporting units utilizing a weighting of the income and market approaches. The income approach ishave historically recorded stock-based compensation expense based on a discounted cash flow methodology that includes assumptions for, among other things, forecasted income, cash flow, growththe number of options or restricted stock units (“RSUs”) we expect to vest using our historical forfeiture experience and periodically update those forfeiture rates income tax rates, expected tax benefits and long-term discount rates, all of which require significant judgment. The market approach utilizes our market data. There are inherent uncertainties related to these factors and the judgment applied in the analysis. We believe that the combination of an income and a market approach provides a reasonable basisapply to estimate the fair value of our reporting units.Acquired intangible assets are recorded at fair value on the acquisition date. The estimated fair values and useful lives of intangible assets are determined by assessing many factors including estimates of future operating performance and cash flow of the acquired business, the characteristics of the intangible assets acquired and the experience of the acquired business. Independent appraisal firms may assist with the valuation of acquired assets. The impairment test for indefinite-lived intangible assets other than goodwill consists of a comparison of the fair value of the indefinite-lived intangible asset to the carrying value of the asset. We estimate the fair value of the indefinite-lived intangibles using the relief from royalty method.Accounting Pronouncements Recently AdoptedIn March 2016, the Financial Accounting Standards Board (“FASB”) issuednew grants. While we early adopted Accounting Standards Update (“ASU”ASU”) 2016-09, Improvements to Employee Share-Based Payment Accounting. The standard revises the accounting for certain aspects of share-based compensation arrangements and requires any excess tax benefits or tax deficiencies to be recorded directly in the income statement when such awards vest or settle. In addition, the cash flows related to any excess tax benefits will no longer be separately classified as a financing activity, but will rather be classified as an operating activity, along with all other income tax cash flows. The standard also makes certain changes to the way the treasury stock method is applied when calculating diluted net income per share, as well as allows for a policy election to account for forfeitures as they occur, rather than using the estimation method currently prescribed by ASC 718. The standard is effective for annual and interim periods beginning after December 15, 2016, with early adoption permitted.We elected to early adopt the standard during the fourth quarter of 2016. The standard requires the recognition of any pre-adoption date net operating loss (“NOL”) carryforwards from share-based compensation arrangements to be recognized on a modified retrospective basis, through an opening retained earnings adjustment on January 1, 2016. Any income tax effects from share-based compensation arrangements arising after January 1,year ended December 31, 2016, will be recognized prospectively in the income statement during the period of adoption.Upon adoption, we recognized all previously unrecognized tax benefits which resulted in a cumulative-effect adjustment of $1,752 to our accumulated deficit. These previously unrecognized tax benefits were recorded as a deferred tax asset, which was fully offset by a valuation allowance on January 1, 2016, thus there was no net impact from the adoption of ASU 2016-09 as of the same date. In addition, we recognized excess tax benefits as an adjustment to our previously reported (provision for) income taxes of $362 and $489 for the three and six months ended June 30, 2016, respectively. Corresponding adjustments were recorded in the operating section of our statement of cash flows for the six months ended June 30, 2016. The weighted average number of common shares outstanding for calculating diluted net income per share increased by 459,585 and 399,591 for the three and six months ended June 30, 2016.Our adoption of the standard did not have any impact to our consolidated statements of cash flows as no NOL carryforwards from share-based compensation arrangements were recognized prior to January 1, 2016, due to our use of the “with and without” method of accounting for equity-generated NOL carryforwards. We have elected to continue to estimate forfeitures under the true-up provision of ASC 718.July 2015,response to the TCJA, the Staff of the U.S. Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 118 (“SAB 118”) to provide guidance to registrants in applying ASC 740 in connection with the TCJA. SAB 118 provides that in the period of enactment, the income tax effects of the TCJA may be reported as a provisional amount based on a reasonable estimate (to the extent a reasonable estimate can be determined), which would be subject to adjustment during a measurement period. The measurement period begins in the reporting period of the TCJA’s enactment and ends when a registrant has obtained, prepared, and analyzed the information that was needed in order to complete the accounting requirements under ASC 740. SAB 118 also describes supplemental disclosures that should accompany the provisional amounts. As of December 31, 2017, we applied the guidance in SAB 118 to account for the financial accounting impacts of the TCJA and have provided the applicable supplemental disclosures in “Note 13. Income Taxes.”issuedreleased ASU 2015-11, Simplifying2017-09, Scope of Modification Accounting, which clarifies the Measurementchanges to terms or conditions of Inventory. Thea share based payment award that requires application of modification accounting under Topic 718. A change to an award should be accounted for as a modification unless the fair value of the modified award is the same as the original award, the vesting conditions do not change and the classification as an equity or liability instrument does not change. This update is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2017. We adopted this standard requires inventory to be measured at the lower of cost or net realizable value. The guidance will not apply to inventories for which cost is determined using the last-in, first-out method or the retail inventory method. The adoption ofeffective January 1, 2018, and this standard did not have a material impact on our consolidated financial statements.position, results of operations or disclosures.Accounting Pronouncements Not Yet Adoptedissuedreleased ASU 2017-04, Simplifying2017-01, Business Combinations: Clarifying the Test for Goodwill Impairment. The standard eliminates step two in the current two-step impairment test under ASC 350. Under the new standard, a goodwill impairment will be recorded for any excessDefinition of a reporting unit’s carrying value over its fair value. A prospective transition approach is required.Business, which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The standard isamendments in this ASU should be applied prospectively and are effective for annual and interim reporting periodsfiscal years beginning after December 15, 20192017, including interim periods within those fiscal years, with early adoption permitted for annual and interim goodwill impairment testing dates afterpermitted. No disclosures are required at transition. We adopted this standard effective January 1, 2017. We plan to early adopt the2018, and this standard at the time of our 2017 goodwill impairment testing date and dodid not expect the standard to have a material impact on our consolidated financial statements.position, results of operations or disclosures.TheThis standard will require lessees to recognize most leases on their balance sheet and makes selected changes to lessor accounting. The standard is effective for annual and interim reporting periods beginning after December 15, 2018. A modified retrospective transition approach is required, with certain practical expedients available. We are currently evaluating the impact the adoption of this standard will have on our consolidated financial statements.In May 2014, the FASB issued ASU 2014-09, We adopted ASC 606 - Revenue from Contracts with Customers which has been updated through several revisions and clarifications since its original issuance. (“ASC 606” or the “Revenue Standard”) on January 1, 2018. The standard will requireRevenue Standard requires revenue recognized to represent the transfer of promised goods or services to customers at an amount that reflects the consideration whichthat a company expects to receive in exchange for those goods or services. The standard also requires new, expanded disclosures regarding revenue recognition. The standard will be effectiveearly adoption permissible beginning January 1, 2017.customers by payor type and major service line. We determined that disaggregating revenue into these categories achieves the disclosure objective of illustrating the differences in the nature, amount, timing and uncertainty of our revenue streams. Disaggregated revenue by payor type and major service line for the three months ended March 31, 2018 was as follows:(in thousands) Healthcare Research Other Total Consolidated Payor/Service Line Remote cardiac monitoring services - Medicare $ 30,215 $ — $ — $ 30,215 Remote cardiac monitoring services - commercial payors 50,336 — — 50,336 Clinical trial support and related services — 11,244 — 11,244 Technology devices, consumable and related services — — 2,701 2,701 Total $ 80,551 $ 11,244 $ 2,701 $ 94,496 continuing to evaluateutilizing the impact that ASU 2014-09 will haveportfolio approach practical expedient in ASC 606 for our patient contracts in the Healthcare segment. We account for the contracts within each portfolio as a collective group, rather than individual contracts. Based on our consolidated financial statementshistory with these portfolios and related disclosures. As we continue the evaluationsimilar nature and implementation process, we expect that there will be an impact to our financial reporting disclosures as well as any related business operations processes and Internal Controls Over Financial Reporting (“ICFR”). As partcharacteristics of the assessment performed through the date of this filing,patients within each portfolio, we have created an implementation working group, which includes internal and third-party resources. As part of our implementation plan,concluded that the financial statement effects are not materially different than if accounting for revenue on a contract by contract basisadopted implementation controls that will allow us to properly and timely adopt the new revenue accounting standard on its effective date. In particular, we implemented the following:· Developed a detailed project plan with key milestone dates;· Performed educationhistorical experience of collecting substantially all of the new accounting standard;· Outlined our revenue generating activities that fall within the scope of ASU 2014-09, and are continuing to assess what impact the new accounting standard will have on those activities, and;· Monitoring and assessment of the impact of changes to ASU 2014-09 and its interpretations as they become availableSpecific considerations made to date on the impact of adopting ASU 2014-09 include:· Healthcare Revenue — the valuation of our Healthcare revenue and accounts receivable, including whether differences between our list prices and negotiated contractual rates forand determined at contract inception that these customers have the intention and ability to pay the promised consideration. As such, we are not providing an implicit price concession but, rather, have chosen to accept the risk of default, and adjustments to the transaction price are recorded as bad debt expense.healthcare monitoring services constitutenon-contracted portfolio, we are providing an implicit price concessions or acceptance of the customer’s credit risk and how this impacts the timing of our healthcare revenue recognition. Our current accounting policy is revenue is recognized upon agreed upon reimbursement rates. Ifconcession because we do not have agreed upon reimbursement rates, we recognize revenuea contract with the underlying payor, the result of which requires us to estimate our transaction price based on historical experience, or if no historical experience, when cash is received. Adjustmentscollections utilizing the expected value method. Subsequent adjustments to the estimated net realizable value, based on final settlement with the third-party payors,transaction price are recorded upon settlement.·as an adjustment to Healthcare revenue and not as bad debt expense.—is generated by providing centralized core laboratory services including cardiac monitoring, imaging services, scientific consulting and data management services for drug and medical device trials. These amounts are due from pharmaceutical companies and contract research organizations. We bill our customers after the treatment of our long-term research contracts, including whether the various services promised in these contracts are distinct performance obligations, and the pattern of revenue recognition for these services. Under our current accounting policy, revenue for our Research segment is provided on a fee-for-service basis, and revenue is recognized as the related services are performed. Unearned revenue, includingUnder a typical contract, customers pay us a portion of our fee for these services upon contract execution as an upfront refundable deposit. Upfront deposits are deferred and then recognized as the services are performed.· Technology If a contract is canceled prior to service being provided, the upfront deposit is refunded.—recognition over the term of the contract. Our preliminary assessment wasresearch customer contracts have legally enforceable terms that are predominately thirty days due to termination for convenience clauses, which are held by the customer with no significant penalty. Given the short-term nature of these contracts and the structure of our billingdo not expectutilize the standard to have a material impact on Technology revenue. We are confirming this assessment through various procedures, including evaluating the timinginvoice practical expedient as defined in ASC 606 resulting in recognition of revenue recognition for product shipments. Under our current accounting policy, revenuein the amount that we have the right to invoice.segmentDevices, Consumable and Related Service Revenue (Other category)receivedprimarily derived from two operations: (1) manufacturing, engineering and development of non-invasive cardiac monitors for healthcare companies and (2) manufacturing, engineering and development of cellular-enabled blood glucose meter systems for diabetes patients. We bill our customers after goods are delivered or services are performed.products, product repairmedical devices and supplies which are recognized when shipped, or as service is completed.· Contract Costs - We are continuingrelated goods produced by us and (2) contract manufacturing on behalf of a customer. These contracts transfer control to assess the impact of ASU 2014-09a customer at a point in time based on the coststransfer of title for the underlying good or service. We provide standard warranty provisions.acquireeach performance obligation based on the relative stand-alone selling price. We determine the relative stand-alone selling price utilizing our observable prices for the sale of the underlying goods.fulfillconditions. No significant changes or impairment losses occurred to contract balances during the three months ended March 31, 2018.customerperformance obligations relate to contracts including whetherwith a duration of less than one year, we canhave elected to apply the practical expedientoptional exemption provided in ASC 606 and, therefore, are not required to disclose the aggregate amount of expensingthe transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period.whenare expensed as they are incurred ifas the amortization period of the asset that we otherwise would have recognized is one year or less in duration. Currently,accounting policy is to expense contract costs as they are incurred.· Transition Method —We are continuing to evaluate the transition method we will elect.Significant assessment and implementation matters to be addressed prior to adopting ASU 2014-09 include completing our review of customer contracts, confirming our transition method of adoption, determining the impact the new accounting standard will have on our consolidated financial statementstechnology device, consumable and related disclosuresservice revenue, we account for shipping and updating,handling activities we perform after a customer obtains control of the good as needed,activities to fulfill the promise to transfer the good.business processes, systems and controls required to comply with ASU 2014-09 upon its effective date (January 1, 2018). We will make continuous updates to our quarterly and year-end disclosures,wholly-owned subsidiary Cardiac Monitoring Holding Company, LLC, acquired approximately 97% of the outstanding shares of LifeWatch for aggregate consideration of 3,615,840 shares of BioTelemetry common stock with a focus on implementation status updatesfair value of $116.8 million and cash in the amount of $165.8 million. On that date, we acquired control of LifeWatch and began consolidating its financial statements. The acquisition of LifeWatch strengthens our market position as the leader in mobile cardiac monitoring.impact ASU 2014-09 will have onoffering, as components of accrued liabilities and paid-in capital, and reduced our noncontrolling interest related to our ownership of LifeWatch, in our consolidated financial statements and related footnotes.The assessment and implementation procedures performed through June 30, 2017 have not includedbalance sheet as of December 31, 2017. As a result, we ownedAG, whichas of December 31, 2017. In early January 2018, we acquired on July 12, 2017. During the quarter ending September 30, 2017, we will assess the impactsettled those obligations with payment of the acquisition on our implementation plan and procedures, which may result in the identification of additional revenue streams.We expect to confirm our method of adoption by September 30, 2017, and will include any known quantitative information on transition method impact on our third quarter 2017 Form 10-Q. We expect to complete our assessment of the full financial impact of ASU 2014-09 during the next six months and expect to adopt ASU 2014-09 when it becomes effective for the Company on January 1, 2018.2.AcquisitionsTelcare, Inc.On December 1, 2016, the Company, through its wholly-owned subsidiary BioTelemetry Care Management, LLC, entered into the Agreement with Telcare pursuant to which the Company acquired the stock of Telcare Medical Supply, Inc. and certain assets of Telcare, Inc. The total consideration paid at closing amounted to $7,000$2.9 million in cash and the issuance of 58,786 shares of our common stock with the potential for a performance-based earn out up to $5,000 upon reaching certain financial milestones. The fair market value of the total consideration transferred in the acquisition, including contingent consideration, was $9,700 at the acquisition date.The acquisition of Telcare provides us the opportunity to apply our expertise in remote monitoring to the diabetes market and increases our presence in the digital population health management market. $2.0 million.The CompanyWe recognized $3,608$184.1 million of goodwill as a result of the acquisition, all of which has been assigned to the TechnologyHealthcare segment. We expect $649None of this goodwill will be deductible for tax purposes.June 30, 2017March 31, 2018 and are subject to subsequent adjustment as additional information is obtained during the applicable measurement period. AThe measurement period adjustment was recorded induring the secondfirst quarter of 20172018 consisted of reducing the valuation of inventorycertain international non-income tax receivables by $269.$0.6 million. The primary areas of these preliminary estimates that are not yet finalized relatedrelate to certain tangible assets acquired and liabilities assumed, including deferred taxes, as well as theunrecorded tax provisions and identifiable intangible assets. The Company expectsWe expect to finalize all accounting for the acquisition of TelcareLifeWatch within one year of the acquisition date.The total consideration(in thousands, except lives) Amount Fair value of assets acquired: Cash and cash equivalents $ 4,303 Healthcare accounts receivable 9,467 Inventory 1,136 Prepaid expenses and other current assets 3,798 Property and equipment 28,241 Other assets 713 Identifiable intangible assets: Customer relationships 126,900 10 Technology 3,005 3 Total identifiable intangible assets 129,905 Total assets acquired 177,563 Fair value of liabilities assumed: Accounts payable 10,424 Accrued liabilities 9,747 Current portion of capital lease obligations 4,664 Current portion of long-term debt 3,027 Long-term capital lease obligations 3,420 Deferred tax liabilities 14,454 Other long-term liabilities 23,435 Total liabilities assumed 69,171 Total identifiable net assets 108,392 Fair value of noncontrolling interest (9,961 ) Goodwill 184,143 Net assets acquired $ 282,574 preliminary allocationto LifeWatch for Telcare is summarized as follows:
Average Life
(Years)the CompanyBioTelemetry and TelcareLifeWatch as if the acquisition had occurred as of January 1, 2016. Certain adjustments related to the elimination of transaction costs, as well as the addition of interest on the debt, the addition of depreciation and amortization related to fair value adjustments on the tangible and identifiable intangible assets acquired, and the change in the share count resulting from the share issuance have been reflected for the purposes of the unaudited pro forma financial information presented below. We believefor the periods presented is summarized as follows:
June 30, 2016
June 30, 2016Contingent ConsiderationThe Agreement includes the potential for a performance-based earn out up to $5,000 upon reaching certain milestones. The fair value of the contingent consideration associated with the Telcare acquisition was $2,700 as of the acquisition date and at June 30, 2017. At June 30, 2017, contingent consideration is included as a component of accrued expenses and other long-term liabilities in the accompanying consolidated balance sheets in the amounts of $2,400 and $300 respectively. Three Months Ended (pro forma, unaudited, in thousands, except per share amounts) March 31,
2017Revenue $ 85,100 Net loss attributable to BioTelemetry, Inc. (6,100 ) Net loss per common share attributable to BioTelemetry, Inc.: Basic $ (0.19 ) Diluted $ (0.19 ) Weighted average number of common shares outstanding: Basic 32,123 Diluted 32,123 The following summarizes the changes in our contingent consideration during the six months ended June 30, 2017:
ConsiderationVirtualScopics, Inc.On March 25, 2016, the Company, through its wholly-owned subsidiary BioTelemetry Research Acquisition Corporation, entered into a definitive Agreement and Plan of Merger with VirtualScopics, Inc. (“VirtualScopics”), a leading provider of clinical trial imaging solutions. Under the terms of the Merger Agreement, the Company purchased: (i) any and all outstanding shares of VirtualScopics’ $0.001 par value common stock for $4.05 per share; (ii) any and all outstanding shares of VirtualScopics’ $0.001 par value Series A and Series B Convertible Preferred Stock for $336.30 per share; and (iii) any and all outstanding shares of VirtualScopics’ $0.001 par value Series C-1 Convertible Preferred Stock for $920.00 per share. The all cash acquisition of VirtualScopics was completed on May 11, 2016. The total consideration paid at closing amounted to $14,970, net of cash acquired of $849.The acquisition of VirtualScopics expands the Company’s existing clinical research offerings and gives the Company further access to established customer relationships. We accounted for the transaction as a business combination, and as such, all assets acquired and liabilities assumed were recorded at their estimated fair values. The excess of the consideration paid over the fair value of the net assets acquired has been recognized as goodwill, which represents the expected future benefits arising from the assembled workforce and other synergies attributable to cost savings opportunities. The Company recognized $4,343 of goodwill as a result of the acquisition, all of which has been assigned to the Research segment. We do not expect that any of this goodwill will be deductible for tax purposes.The amounts below represent our final fair value estimates, which were completed in the second quarter of 2017. A measurement period adjustment was recorded in the second quarter of 2017 to recognize $292 of deferred tax assets resulting from state NOLs. The total consideration and related allocation for VirtualScopics is summarized as follows:The following unaudited pro forma financial information has been prepared using historical financial results of the Company and VirtualScopics as if the acquisition had occurred as of January 1, 2016. Certain adjustments related to the elimination of transaction costs and acquisition related indebtedness, as well as the addition of depreciation and amortization related to fair value adjustments on the tangible and identifiable intangible assets acquired, have been reflected for the purposes of the unaudited pro forma financial information presented below. No adjustments for synergies or certain other expected benefits of the acquisition have been included. We believe the assumptions used in preparing the unaudited pro forma financial information are reasonable, but not necessarily indicative of actual results should the acquisition have occurred on January 1, 2016.Pro forma financial information for the periods presented is summarized as follows:
June 30, 2016
June 30, 2016ePatch Division of DELTA Danish Electronics, Light, and AcousticsOn April 1, 2016, the Company, through its wholly-owned subsidiary BioTelemetry Technology ApS, entered into an Asset Purchase Agreement (“APA”) with DELTA Danish Electronics, Light, and Acoustics (“DELTA”), pursuant to which the Company acquired substantially all of the assets of the ePatch division of DELTA, inclusive of all products and indications currently under development. The total consideration paid at closing amounted to $3,000 in cash and 244,519 shares of the Company’s common stock valued at $2,885. In addition, there is the potential for a performance based earn out up to $3,000 upon reaching certain milestones, as defined in the APA. The fair value of the total consideration transferred in the ePatch acquisition, including contingent consideration, was $6,490 at the acquisition date.The ePatch acquisition is expected to generate future cost savings for the Company and will provide control over proprietary components for the Company’s next generation Mobile Cardiac Outpatient TelemetryTM (“MCOTTM”) device. We accounted for the transaction as a business combination, and as such, all assets acquired and liabilities assumed were recorded at their estimated fair values. The excess of the consideration paid over the fair value of the net assets acquired has been recognized as goodwill, which represents the expected future benefits arising from the assembled workforce and other synergies attributable to cost savings opportunities. The company recognized $3,181 of goodwill as a result of the acquisition, all of which has been assigned to the Technology segment. We expect all of this goodwill to be deductible for tax purposes.The amounts below represent our final fair value estimates, which were completed in the first quarter of 2017. The total consideration and related allocation for the ePatch acquisition is summarized as follows:While the ePatch acquisition provides control over proprietary components of our next generation cardiac monitoring device, the acquisition did not have a material effect on our consolidated results of operations.Contingent ConsiderationThe APA includes the potential for a performance based earn out up to $3,000 upon reaching certain milestones. The fair value of the contingent consideration associated with the ePatch acquisition was $0 and $605 at June 30, 2017 and December 31, 2016, respectively, and is included as a component of other long-term liabilities in the accompanying consolidated balance sheets.The following summarizes the changes in our contingent consideration during the six months ended June 30, 2017:
Consideration3.(in thousands) March 31,
2018 December 31,
2017Raw materials and supplies $ 3,861 $ 3,128 Finished goods 2,492 2,204 Total inventory $ 6,353 $ 5,332 Three Months Ended (in thousands) March 31,
2018 March 31,
2017Beginning balance $ 700 $ 3,305 Changes in fair value of contingent consideration (700 ) (605 ) Ending balance $ — $ 2,700 of June 30, 2017 and December 31, 2016 was $40,963 and $41,068, respectively. The decrease inwell as the changes to goodwill during the three and six months ended June 30, 2017March 31, 2018: Reporting Segment (in thousands) Healthcare Research Corporate and Other Total Balance at December 31, 2017 $ 198,273 $ 16,293 $ 8,539 $ 223,105 Measurement period adjustment 594 — — 594 Balance at March 31, 2018 $ 198,867 $ 16,293 $ 8,539 $ 223,699 purchase period adjustmentsthe LifeWatch acquisition. Refer to “Note 3. Acquisitions” for details related to our 2016 acquisitions.changes in thegross carrying amounts and accumulated amortization of goodwill by segment wereour intangible assets are as follows:5. (in thousands, except years) March 31,
2018 December 31,
2017Customer relationships 5 - 15 $ 143,174 $ 143,174 Technology including internally developed software 3 - 10 16,180 15,953 Backlog 1 - 4 6,860 6,860 Covenants not to compete 5 - 7 1,040 1,040 Total intangible assets, gross 167,254 167,027 Customer relationships (14,354 ) (10,868 ) Technology including internally developed software (9,184 ) (8,573 ) Backlog (5,245 ) (5,052 ) Covenants not to compete (857 ) (827 ) Total accumulated amortization (29,640 ) (25,320 ) Total intangible assets, net $ 137,614 $ 141,707 In December 2015, we acquiredWellBridge”WellBridge”) through the conversion of an outstanding note receivable and the related accrued interest.. The investment is accounted for under the equity method. In December 2015, the equity method basis differenceOur Chief Executive Officer sits on WellBridge’s Board of $891 was allocated to equity method goodwill. Directors, and therefore WellBridge is considered a related party. Except for our periodic investment in WellBridge through capital contributions, there were no related party transactions.June 30, 2017,March 31, 2018, our investment in WellBridge represented 31%32.1% of its outstanding stock. A summary of our investment in WellbridgeWellBridge is as follows:6. Three Months Ended (in thousands) March 31,
2018 March 31,
2017Beginning balance $ 1,431 $ 1,125 Loss in equity method investment (139 ) (95 ) Ending balance $ 1,292 $ 1,030 (in thousands) March 31,
2018 December 31,
2017Compensation $ 10,783 $ 13,086 Professional fees 1,904 1,587 Squeeze-out — 2,885 Severance 758 1,605 Non-income taxes 1,345 588 Interest 341 306 Other 6,508 5,998 Total $ 21,639 $ 26,055 On December 30, 2014,Concurrent with the acquisition of LifeWatch, we entered into a credit agreement with SunTrust Bank (the “SunTrust Credit Agreement with Healthcare Financial Solutions, LLC (“HFS””), previously the General Electric Capital Corporation, as a lender and an agent for the lenders (“Lenders”(the “Lenders”), and as a lender and swingline lender.. Pursuant to the SunTrust Credit Agreement, the Lenders agreed to make loans to us as follows:follows; (i) Term Loansa term loan in an aggregate principal amount of $25,000 asequal to $205.0 million; and (ii) a $50.0 million revolving credit facility for ongoing working capital purposes. The proceeds of the closing date with an uncommitted abilityloans were used to increase such Term Loans up to an amount not to exceed $10,000pay (i) our existing Healthcare Financial Solutions, LLC Credit Agreement of $24.9 million; (ii) acquired LifeWatch debt of $3.0 million; (iii) a portion of the consideration for the acquisition of LifeWatch; and (ii) Revolving Loans up to $15,000. As(iv) related transaction fees and expenses for the acquisition of both June 30, 2017 and December 31, 2016, $3,000 was drawn on the Revolving Loans. LifeWatch.loan, inclusive of Term Loans and Revolving Loans, is recorded on our consolidated balance sheets as of June 30, 2017 in the amount of $24,645, which is net of a debt discount and deferred charges of $543.The loan bearsloans bear interest at an annual rate, at our election, of (i) with respect to LIBOR rate loans, 4.0%, subjectthe applicable margin and (ii) with respect to abase rate loans, the Base Rate (the “prime rate” as published in the Wall Street Journal plus the applicable margin). The applicable margin for both LIBOR floorand base rate loans is determined by reference to our Consolidated Total Net Leverage Ratio, as defined in the SunTrust Credit Agreement. As of 1.0%. March 31, 2018, the applicable margin is 2.00% for LIBOR loans and 1.00% for base rate loans.Term Loans will be paid as follows: (i) beginning Aprilloan is subject to the following payment schedule:2015,2018, the principal amount of the Term Loansterm loan will be repaid, on a quarterly basis, in installments of $312,approximately $0.5 million, plus accrued interest; (ii) beginning2018,2019, the principal amount of the Term Loansterm loan will be repaid, on a quarterly basis, in installments of $625,approximately $1.3 million, plus accrued interest; and (iii)remaining $16,563, along with any outstanding Revolving Loans,principal amount of the term loan will be paidrepaid, on a quarterly basis, in fullinstallments of approximately $3.8 million, plus accrued interest;December 30, 2019, orJuly 12, 2022 (or such earlier date upon an acceleration of the Term Loansloans by the Lenders upon an event of default or termination by us. the Company).loan isloans are secured by substantially all of our assets and by a pledge of the capital stock of our U.S. based subsidiaries as well as a pledge of 65% of the capital stock of our first tier material foreign subsidiaries, including 65% of our ownership interest of LifeWatch.Company’s foreign subsidiaries.June 30, 2017,March 31, 2018, we were in compliance with allour covenants.7.As of March 31, 2018 and December 31, 2017, we were authorized to issue 200,000,000 shares of common stock. As of March 31, 2018 and December 31, 2017, we had 32,794,129 and 32,460,668 shares issued and outstanding, respectively. During the three months ended March 31, 2018, in accordance with the squeeze-out procedures under Swiss law, we issued 58,786 shares to the remaining stockholders of LifeWatch. See Stockholders’ EquityIn May 2017, the shareholders and Board of Directors approved the BioTelemetry, Inc.We have three stock plans: our 2017 Omnibus Incentive Plan (“OIP”OIP”), our 2008 Equity Incentive Plan (the “2008 Plan”) and our 2003 Equity Incentive Plan (the “2003 Plan”). The OIP is the only remainingprevious stock plan, the BioTelemetry, Inc. 2017 Equity Incentive2008 Plan. Stock options, restricted stock units (“RSUs”), performance stock units (“PSUs”)RSUs, PSUs and performance stock options (“PSOs”)PSOs are granted under the OIP. At June 30, 2017, 2,977,927March 31, 2018, 2,498,284 shares remain available for grant under the OIP.We recognized $1,142$1,441replaced our 2003 Plan. Under the terms of stock-based compensation expense for the three months ended June 30, 2017 and 2016, respectively. We recognized $4,200 and $2,6192008 Plan, all available shares in the 2003 Plan share reserve automatically rolled into the 2008 Plan. Any cancellations or forfeitures of stock-based compensation expense forgranted options under the six months ended June 30, 2017 and 2016, respectively.RSUPSO activity is summarized as follows:
Shares
Average
Exercise Price
Shares
Grant Date Fair
ValuePSO Stock Options Performance Stock Options Outstanding as of December 31, 2017 3,574,439 $ 10.78 150,000 $ 20.41 Granted 185,806 33.15 — — Forfeited (53,077 ) 28.37 — — Exercised (102,493 ) 12.94 — — Outstanding as of March 31, 2018 3,604,675 $ 11.61 150,000 $ 20.41 Three Months Ended (in thousands, except per option amounts) March 31,
2018 March 31,
2017Aggregate intrinsic value of options outstanding at period end $ 73,400 $ 73,660 Aggregate intrinsic value of options exercisable at period end 65,819 59,376 Aggregate intrinsic value of options exercised during the period 2,164 3,752 Cash received from the exercise of stock options during the period 1,327 1,981 Weighted average grant date fair value per option during the period $ 19.61 $ 15.31
Shares
Average
Exercise Price
Shares
Grant Date Fair
ValueStock-based Restricted Stock Units Performance Stock Units Units outstanding as of December 31, 2017 467,129 $ 13.76 — — Granted 79,474 32.99 63,345 $ 37.79 Forfeited (3,730 ) 17.84 — — Vested (186,650 ) 10.33 — — Units outstanding as of March 31, 2018 356,223 $ 19.81 63,345 $ 37.79 onlysummarized as follows: Three Months Ended (in thousands) March 31,
2018 March 31,
2017Aggregate market value of RSUs vested during the period $ 6,395 $ 4,265 outstanding PSUs whereissuance which replaced the performance conditions2008 ESPP. Under the 2017 ESPP, employees may contribute through payroll deductions up to $21,500. The price per share is equal to the lower of 85% of the fair market price on the first day of the offering period, or 85% of the fair market price on the day of purchase. Proceeds received from the issuance of shares are deemed probable for achievement. For PSUs deemed probable for achievement, stock-based compensation expense is recognized ratably overcredited to stockholders’ equity in the expected vesting period.period that the shares are issued. For the three and six months ended June 30, 2017, no stock-based compensation expense was recognized related to the PSUs. For the three and six months ended June 30, 2016, we incurred PSU expenseMarch 31, 2018, an aggregate of $355 and $444, respectively.PSOs are valued and stock-based compensation expense is only recognized once the performance conditions of the outstanding PSOs have been met. We incurred PSO expense of $1,533 for both the three and six months ended June 30, 2017. For the three and six months ended June 30, 2016, no stock-based compensation expense was recognized related to the PSOs.Employee Stock Purchase PlanFor the six months ended June 30, 2017, 47,96665,477 shares were purchased in accordance with the 2008 Employee Stock Purchase Plan (“2008 ESPP”).2017 ESPP. Net proceeds from the issuance of shares of common stock under the 20082017 ESPP for the sixthree months ended June 30, 2017March 31, 2018 were $636. In May 2017, the shareholders and Board of Directors approved the BioTelemetry, Inc. 2017 Employee Stock Purchase Plan (“2017 ESPP”), which will replace the 2008 ESPP.$1.2 million. At June 30, 2017, 500,000March 31, 2018, 387,274 shares remain available for purchase under the 2017 ESPP. Three Months Ended (in thousands) March 31,
2018 March 31,
2017Stock options $ 1,111 $ 596 Performance stock options — 1,534 Restricted stock units 720 813 Employee stock purchase plan 234 115 Total stock-based compensation expense $ 2,065 $ 3,058 and comprehensive income and record the related accrual in the accrued liabilitiesexpenses line onof our consolidated balance sheets. These costs are primarily disclosed as severance and employee related costs below.acquisition and integration related costsour acquisitions and certain litigation as other charges as incurred. These expenses were primarily a result of activities surrounding our acquisitionsacquisition and legal fees related to patent litigation in which we are the plaintiff. Other charges are costs that are not considered necessary to the ongoing business operations. For the six months ending June 30, 2017, other charges has been partially offset by a reduction in contingent consideration. A summary of these expenses is as follows:9. Three Months Ended (in thousands) March 31,
2018 March 31,
2017Legal fees $ 1,536 $ 982 Professional fees 1,227 1,160 Severance and employee related costs 1,997 185 Change in fair value of contingent consideration (700 ) (605 ) Other costs 1,025 17 Total $ 5,085 $ 1,739 IncomeAn income tax expensebenefit of $1,270$0.1 million and $404$0.9 million was recorded for the three and six months ended June 30,March 31, 2018 and 2017, respectively, primarily due to AMT levied on taxable income, net of allowable AMT net operating loss carryovers and certain state taxes. Wea discrete benefit recorded an income tax benefit of $209 and $195 for equity compensation deduction under the three and six months ended June 30, 2016, respectively. These amounts have been recastpreviously adopted ASU 2016-9, Improvement to include excess tax benefits related to stock based compensation in association with the adoption of ASU 2016-09.June 30, 2017March 31, 2018 and December 31, 2016,2017, we had deferred tax assets, net of deferred tax liabilities and valuation allowance, of $36,925$18.0 million and $36,636,$17.7 million, respectively.10.threetwo reportable segments: Healthcare Research and Technology.Research. During the first quarter of 2018, we aggregated the Technology operating segment into the “Corporate and Other” category. The Healthcare segment is focused on the diagnosis andremote cardiac monitoring ofto identify cardiac arrhythmias or heart rhythm disordersdisorders. We offer cardiologists and electrophysiologists, neurologists and primary care physicians a full spectrum of solutions which provides them with our comprehensive suitea single source of cardiac monitoring solutions in a healthcare setting. Ourservices. The Research segment is engaged in centralcentralized core laboratory services providing cardiac monitoring, imagingThe Technology segment focuses onIncluded in the development,Corporate and Other category is the manufacturing, testing and marketing of medicalcardiovascular and blood glucose monitoring devices to medical companies, clinics and hospitals. Intercompany revenues relatinghospitals and corporate overhead and other items not allocated to the manufacturingany of devices by the Technology segment for the other segments is included on the intersegment revenues line.researchintegration, restructuring and development costs incurred by the Technology segment for the benefit of the other segments,charges, as well as the elimination of costs associated with intercompany revenuesrevenue are included in Corporate and Other. Also included in Corporate and Other is our net interest expense and other financing expenses as well as the loss from equity method investments.expenses. We do not allocate assets to the individual segments.Forthree months ended:
Other
OtherForyear ended December 31, 2017 we reclassified research and development costs associated with cardiovascular devices utilized by our Research segment from the six months ended:
Other
Other11.United States Department of HealthCorporate and Human Services SettlementIn 2011, we experienced the theft of two unencrypted laptop computers and, as a result, were required to provide notices under the HIPAA Breach Notification RuleOther category to the United States Department of Health and Human Services’ Office for Civil Rights (“OCR”). During the first quarter of 2017, the OCR concluded its investigation into the matter and reached a settlement agreementHealthcare segment to synchronize our external reporting with the Company. Perway our chief operating decision maker reviews the agreement, BioTelemetry will paysegment performance and makes decisions about the OCR $2,500reportable segments.(in thousands) Healthcare Research Consolidated Three Months Ended March 31, 2018 Revenue $ 80,551 $ 11,244 $ 2,701 $ 94,496 Income/(loss) before income taxes 17,724 786 (13,616 ) 4,894 Depreciation and amortization 11,436 1,010 (2,618 ) 9,828 Capital expenditures 5,064 291 (1,417 ) 3,938 (reclassified, in thousands) Healthcare Research Consolidated Three Months Ended March 31, 2017 Revenue $ 42,511 $ 9,324 $ 4,046 $ 55,881 Income/(loss) before income taxes 11,759 378 (12,807 ) (670 ) Depreciation and amortization 2,861 1,033 (179 ) 3,715 Capital expenditures 2,890 — 77 2,967 agreed to submit a two-year corrective action plan regarding the Company’s HIPAA compliance program. We did not admit any liability or wrongdoing. As a result of the settlement, we recorded a non-operating charge of $2,500 to Interest and other loss, net in the consolidated statements of operations for the three and six months ended June 30, 2017.12.Subsequent EventsOn July 12, 2017, we completed the acquisition of LifeWatch AG (“LifeWatch”), a Swiss corporation. The acquisition follows a transaction agreement governing the acquisition, dated April 9, 2017, and the subsequent public tender offer. At settlement, we paid an aggregate consideration of 3,615,840 shares of BioTelemetry Common Stock and cash in the amount of CHF157,503, approximately $162,967, to holders of tenderedthe loss can be estimated. Shares. The cash payment was funded with the proceedsAmerican Arbitration Association. Claimants alleged that LifeWatch violated the 2015 Stock Purchase Agreement for the purchase of FlexLife Health, Inc., a term loan. Asremote international normalized ratio monitoring business. The demand alleges LifeWatch did not makeresultreasonable basis for terminating the business line. Claimants seek liquidated damages and attorneys’ fees. We are vigorously defending against these claims and are seeking recovery of attorneys’ fees related to our defense. The arbitration hearing was held in February 2018, and we are awaiting a decision. While we believe that the Offer,risk of loss in this arbitration is improbable, we becamecannot determine, nor can we estimate, the majority ownerrange of LifeWatch and intend to acquire the remaining untendered LifeWatch Shares pursuant topotential loss. Accordingly, as we do not believe that a short-form merger or a squeeze-out procedureloss is probable, in accordance with Swiss law and takeover regulation.Concurrent withauthoritative guidance on the acquisitionevaluation of LifeWatch,loss contingencies, we entered into a credit agreement with Suntrust Bank, as a lender andhave not recorded an agent for the lenders (the “Lenders”). Pursuantaccrual related to the credit agreement, the Lenders agreed to make loans to the Company as follows; (i) a term loan in an aggregate principal amount equal to $205,000; and (ii) a $50,000 revolving credit facility for ongoing working capital purposes, which remains undrawn. The proceeds of the loans were used to refinance our existing indebtedness in the amount of approximately $25,000, pay a portion of the consideration for the acquisition of LifeWatch and pay related transaction fees and expenses of the acquisition of LifeWatch.The loans bear interest at an annual rate, at the election of the Company, of (i) with respect to LIBOR rate loans, LIBOR plus the applicable margin and (ii) with respect to base rate loans, the Base Rate (the “prime rate” as published in the Wall Street Journal plus the applicable margin). The applicable margin is determined by reference to the Company’s Consolidated Total Net Leverage Ratio, as defined in the credit agreement. Currently, the applicable margin is 2.00% for LIBOR loans and 1.00% for base rate loans.The outstanding principal of the loan will be paid as follows:· Beginning January 1, 2018, the principal amount of the term loan will be repaid, on a quarterly basis, in installments of $513, plus accrued interest;· Beginning January 1, 2019, the principal amount of the term loan will be repaid, on a quarterly basis, in installments of $1,281, plus accrued interest;· Beginning January 1, 2020, the principal amount of the term loan will be repaid, on a quarterly basis, in installments of $3,844, plus accrued interest;· Beginning January 1, 2021, the principal amount of the term loan will be repaid, on a quarterly basis, in installments of $5,125, plus accrued interest;· The remaining principal balance will be repaid on or before July 12, 2022 (or such earlier date upon an acceleration of the loans by Lenders upon an event of default or termination by the Company).The loans are secured by substantially all of the assets of the Company and by a pledge of the capital stock of the Company’s U.S. based subsidiaries as well as a pledge of 65% of the capital stock of its first tier material foreign subsidiaries, including 65% of the capital stock the Company owns of LifeWatch AG.In connection with the Suntrust credit agreement, we paid approximately $25,000 outstanding indebtedness under the Credit Agreement between the Company and Healthcare Financial Solutions, LLC (“HFS”), previously the General Electric Capital Corporation, as agent for the lenders, and as a lender, and we terminated the General Electric Credit Agreement.2016,2017, and in conjunction with the accompanying quarterly unaudited condensed consolidated financial statements.statements and related notes. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those contained in these forward-looking statements due to a number of factors, including, but not limited to, those set forth herein and elsewhere in this report and in our other filings with the U.S. Securities and Exchange Commission (“SEC”SEC”). See the “Forward-Looking“Cautionary Note Regarding Forward-Looking Statements” section at the beginning of this report.cardiac monitoring services and digital population health management for healthcare providers, medical device manufacturing and centralized core laboratory services and manufacture cardiac and blood glucose monitoring devices.for clinical research. We operate under threetwo reportable segments: Healthcare Research and Technology.Research. The Healthcare segment is focused on the diagnosis and monitoring of cardiac arrhythmias or heart rhythm disorders. We offer cardiologists and electrophysiologists, neurologists and primary care physicians a full spectrum of solutions which provides them with a single source of cardiac monitoring services. These services range from the differentiated Mobile Cardiac Telemetry (“MCT”)mobile cardiac telemetry service marketed as Mobile Cardiac Outpatient TelemetryTM (“MCOTTM”) or External Cardiac Ambulatory Telemetry (“ECAT”), to wireless and trans-telephonic event, Holter, extended wear Holter, Pacemaker and International Normalized Ratio (“INR”) monitoring. The Research segment is engaged in central core laboratory services providing cardiac monitoring, imaging services, scientific consulting and data management services for pharmaceuticaldrug and medical device clinical trials. The Technology segment focuses on the development, manufacturing, testingCorporate and marketingOther category includes corporate overhead and other items not allocated to any of medical devices to medical companies, clinics and hospitals.On December 1, 2016, the Company entered into a Share and Asset Purchase Agreement (“Agreement”) with Telcare, Inc. (“Telcare”) pursuant to which the Company acquired the stock of Telcare Medical Supply, Inc. and certain assets of Telcare. The total consideration paid at closing amounted to $7.0 million in cash, with the potential for a performance-based earn out up to $5.0 million upon reaching certain milestones, as defined in the Agreement. The fair value of the total consideration transferred in the acquisition, including contingent consideration, was $9.7 million at the acquisition date. Telcare is included in the Technology segment.On May 11, 2016, the Company completed the acquisition of VirtualScopics, Inc. (“VirtualScopics”), a leading provider of clinical trial imaging solutions. The all cash Tender Offer commenced on April 8, 2016 and ended on May 9, 2016, pursuant to which the business and operations of VirtualScopics were acquired by the Company. The total consideration paid at closing amounted to $15.0 million, net of cash acquired of $0.8 million. VirtualScopics is included in the Research segment.On April 1, 2016, the Company entered into an Asset Purchase Agreement (“APA”) with DELTA Danish Electronics, Light, and Acoustics (“DELTA”), pursuant to which the Company acquired substantially all of the assets of the ePatch division of DELTA, inclusive of all products and indications currently under development. The total consideration paid at closing amounted to $3.0 million in cash and 244,519 shares of the Company’s common stock valued at $2.9 million. In addition, there is the potential for a performance-based earn out up to $3.0 million upon reaching certain milestones, as defined in the APA. The fair value of the total consideration transferred in the acquisition, including contingent consideration, was $6.5 million at the acquisition date. ePatch is included in the Technology segment.completedacquired, through our wholly owned subsidiary Cardiac Monitoring Holding Company, LLC, approximately 97% of the acquisition of LifeWatch. At settlement, we paid an aggregate consideration of 3,615,840outstanding shares of BioTelemetry Common Stock and cash in the amount of CHF157.5 million, approximately $163.0 million, to holders of tendered LifeWatch Shares. The cash payment was funded with the proceeds of a term loan. As a result of the Offer,AG (“LifeWatch”). On that date, we became the majority owneracquired control of LifeWatch and intend to acquirebegan consolidating its financial statements. We recorded our obligations for the remaining untendered LifeWatch Sharesshares, pursuant to a short-form merger or a squeeze-out procedure in accordance with Swiss law and takeover regulation. LifeWatch will be included in the Healthcare segment.Revenue RecognitionHealthcareHealthcare revenue includes revenue from MCT, Event, Holter, Pacemaker and INR monitoring services. We receive a significant portion of our revenue from third-party commercial insurance organizations and governmental entities. We also receive reimbursement directly from patients through co-pays and self-pay arrangements. Billings for services reimbursed by contracted third-party payors, including Medicare, are recorded as revenue, net of contractual allowances. Adjustments to the estimated receipts, based on final settlement with the third-party payors, are recorded upon settlement. If we do not have sufficient historical information regarding collectability from a given payor to support revenue recognition at the time of service, revenue is recognized when cash is received. Unearned amounts are appropriately deferred until the service has been completed. For the three months ended June 30, 2017 and 2016, revenue from Medicare as a percentage of our Healthcare revenue was 42.0% and 41.4%, respectively. For the six months ended June 30, 2017 and 2016, revenue from Medicare as a percentage of our Healthcare revenue was 41.2% and 41.6%, respectively.ResearchResearch revenue includes revenue for core laboratory services, including cardiac monitoring, imaging, scientific consulting and data management services. Our Research revenue is provided on a fee-for-service basis, and revenue is recognized as the related services are performed. We also provide consulting services on a time and materials basis and this revenue is recognized as the services are performed. Our site support revenue, consisting of equipment rentals and sales along with related supplies and logistics management, are recognized at the time of sale or over the rental period. Under a typical contract, customers pay us a portion of our fee for these services upon contract execution as an upfront deposit, some of which is typically non-refundable upon contract termination. Unearned revenue, including upfront deposits, are deferred, and then recognized as the services are performed.For arrangements with multiple deliverables, the revenue is allocated to each element (both delivered and undelivered items) based on their relative selling prices or management’s best estimate of their selling prices, when vendor-specific or third-party evidence is unavailable.We record reimbursements received for out-of-pocket expenses incurred, including freight, as revenue in the accompanying consolidated statements of operations.TechnologyTechnology revenue includes revenue received from the sale of products, product repairs and supplies to medical companies, clinics and hospitals. Our Technology revenue is recognized when shipped, or as service is completed.Reimbursement - HealthcareWe are dependent on reimbursement for our patient services by government and commercial insurance payors. Medicare reimbursement rates for our MCT, event, Holter, Pacemaker and INR monitoring services have been established nationally by the Centers for Medicare and Medicaid Services (“CMS”) and fluctuate periodically based on the annually published CMS rate table.In addition to government reimbursement through Medicare, we have successfully secured contracts with most national and regional commercial payors for our monitoring services.Accounts Receivable and Allowance for Doubtful AccountsAccounts receivableregulations related to the Healthcare segment are recorded at the time revenue is recognized, netoffering, as components of contractual allowances,accrued liabilities and are presented on thepaid-in capital, and reduced our noncontrolling interest related to our ownership of LifeWatch, in our consolidated balance sheets netsheet as of an allowance for doubtful accounts. The ultimate collectionDecember 31, 2017. As a result, we owned 100% of accounts receivable may not be known for several months after servicesLifeWatch as of December 31, 2017. In early January 2018, we settled those obligations with payment of $2.9 million in cash and the issuance of 58,786 shares of our common stock with a fair market value of $2.0 million.been providedprepared the financial statements and billed. We record an allowance for doubtful accountsaccompanying notes included in “Part I; Item 1. Financial Statements” of this report in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). This requires us to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. These estimates and assumptions are based on historicalagingcircumstances. Actual results could differ from those estimates under different assumptions or conditions.receivables using payor-specific historical data.Significant Accounting Policies” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017. The percentagesaccounting policies and amounts usedrelated assumptions that we consider to record bad debt expense and the allowance for doubtful accounts are supported by various methods and analyses, including current and historical cash collections and the aging of receivables by payor. Because of continuing changes in the healthcare industry and third-party reimbursement, it is possible that our estimates of collectability could change, which could have a material impact on our operations and cash flows.Other accounts receivable relatedbe more critical to the Researchpreparation of our financial statements and Technology segmentsaccompanying notes and involve the most significant management judgments and estimates are recorded at the time revenue is recognized, or when products are shipped or services are performed. We estimate the allowance for doubtful accountsdescribed in a specific account basis and consider several factors in our analysis, including customer-specific information and the aging of the account.We write-off receivables when the likelihood for collection is remote and when we believe collection efforts have been fully exhausted and we do not intend to devote additional resources in attempting to collect. We perform write-offs on a monthly basis. In the Healthcare segment, we wrote off $3.8 million and $3.9 million of receivablesForm 10-K for the six monthsfiscal year ended June 30, 2017 and 2016, respectively. The impact was a reductionDecember 31, 2017. Except for the implementation of gross receivables and a reduction in the allowance for doubtful accounts. ThereASC 606 - write-offschanges in, or additions to, our critical accounting policies or in the Research and Technology segments. We recorded bad debt expense of $2.4 million and $5.2 million, respectively, forassumptions or estimates we used to prepare the three and six months ended June 30, 2017. We recorded bad debt expense of $2.7 million and $5.3 million, respectively, for the three and six months ended June 30, 2016.Other ChargesWe account for expenses associated with our acquisitions and certain litigation as other charges as incurred. These expenses were primarily a result of legal fees related to patent litigationfinancial information appearing in which we are the plaintiff and activities surrounding our acquisitions. Other charges are costs that are not considered necessary to the ongoing business operations.June 30,Ended March 31, 2018 and March 31, 2017 and 2016Revenues. Three Months Ended Change (in thousands, except percentages) March 31, 2018 March 31, 2017 $ % Healthcare $ 80,551 $ 42,511 $ 38,040 89.5 % Research 11,244 9,324 1,920 20.6 % Other 2,701 4,046 (1,345 ) (33.2 )% Total revenue $ 94,496 $ 55,881 $ 38,615 69.1 % revenuesrevenue for the three months ended June 30, 2017 were $58.1 million comparedMarch 31, 2018 increased due primarily to $52.7 million for the three months ended June 30, 2016, reflecting an increase of $5.4 million, or 10.3%.higher Healthcare revenue, increased $1.9 million due to increased patient volumes and a favorable product mix, partially offsetwhich was driven by a reduction in MCT Medicare pricing effective January 1, 2017. Research revenue increased $1.6 million, due to growth in andthe combination of the full quarter impact of the LifeWatch acquisition and 12% organic revenue growth. The organic revenue growth stemmed from higher patient volume as well as a favorable service mix. Research revenue increased due to higher image and electrocardiogram volumes. Other revenue decreased due primarily to a large, non-recurring sale of the imaging business, VirtualScopics, whichblood glucose meters and strips that occurred in the secondfirst quarter of 2016. Technology revenue increased $1.9 million due to the acquisition of Telcare which occurred in the fourth quarter of 2016.Profit.Profit Three Months Ended Change (in thousands, except percentages) March 31, 2018 March 31, 2017 $ % Gross profit $ 58,048 $ 32,909 $ 25,139 76.4 % Percentage of revenue 61.4 % 58.9 % increased to $36.0 million for the three months ended June 30, 2017March 31, 2018 increased due primarily to the full quarter impact of the LifeWatch acquisition, the organic revenue growth, and realized synergies from $32.9 million for the three months ended June 30, 2016, reflecting anour acquisitions. The increase of $3.1 million, or 9.3%. Gross profit as a percentage of revenues was 61.9% for the three months ended June 30, 2017 compared to 62.5% for the three months ended June 30, 2016. The decrease in gross margin percentage was due to the favorable Healthcare service mix and the impact of our acquisitions, which carry lower profit margins than our existing business, as well as the aforementioned reduction in MCT Medicare pricing effective January 1, 2017.Expense.Expense Three Months Ended Change (in thousands, except percentages) March 31, 2018 March 31, 2017 $ % General and administrative expense $ 26,719 $ 15,917 $ 10,802 67.9 % Percentage of revenue 28.3 % 28.5 % was $14.4 million for both the three months ended June 30, 2017 andincreased for the three months ended June 30, 2016. A $1.1March 31, 2018 due primarily to the $6.4 million full quarter impact of the LifeWatch acquisition, a $3.3 million impact from intangible asset amortization attributed to LifeWatch, $0.5 million higher consulting expense driven by system optimization efforts, as well as a $0.3 million increase related to our 2016 acquisitions was fullyin headcount-related expense, partially offset by a $0.9$0.2 million in headcount synergies. The decrease in employee related costs and $0.2 million decrease in amortization. As a percent of total revenues,the general and administrative expense as a percent of revenue was 24.7%the result of improved leverage due to the impact of synergies and higher revenue. Three Months Ended Change (in thousands, except percentages) March 31, 2018 March 31, 2017 $ % Sales and marketing expense $ 11,340 $ 7,701 $ 3,639 47.3 % Percentage of revenue 12.0 % 13.8 % June 30, 2017 comparedMarch 31, 2018 was due primarily to 27.3%the $5.4 million full quarter impact of the LifeWatch acquisition and $0.9 million due to higher sales meeting costs, partially offset by approximately $2.8 million of synergies due to the integration of LifeWatch. Sales and marketing expense decreased as a percentage of revenue due to improved leverage resulting from the synergies realized from our LifeWatch acquisition. Three Months Ended Change (in thousands, except percentages) March 31, 2018 March 31, 2017 $ % Bad debt expense $ 4,879 $ 2,791 $ 2,088 74.8 % Percentage of revenue 5.2 % 5.0 % June 30, 2016.Sales and Marketing Expense. Sales and marketing expense was $7.6 million for the three months ended June 30, 2017 compared to $7.1 million for the three months ended June 30, 2016. The increase of $0.5 million, or 7.1%,March 31, 2018 was due to a $0.4 million increase in employee related costs, driven in part by the creation of our strategic sales group,increased Healthcare revenue and a $0.1 million increase in travel and meeting expenses due to the timing of sales meetingsrevenue and tradeshows. As a percent of total revenues, sales and marketing expense was 13.1% for the three months ended June 30, 2017 compared to 13.5% for the three months ended June 30, 2016.Bad Debt Expense. Bad debt expense was $2.4 million for the three months ended June 30, 2017 compared to $2.7 million for the three months ended June 30, 2016. The decrease of $0.3 million, or 9.3%, was due to the timing of revenues and collections. As a percentage of total revenues, bad debt expense was 4.2% for the three months ended June 30, 2017 compared to 5.1% for the three months ended June 30, 2016. Substantially all of our bad debt expense relates to the Healthcare segment. Bad debt expense in the Research segment and Technology segments, which include our recently acquired companies,the Corporate and Other category was minimal and is recorded on a specific account basis.Expense.Expense Three Months Ended Change (in thousands, except percentages) March 31, 2018 March 31, 2017 $ % Research and development expense $ 3,289 $ 2,433 $ 856 35.2 % Percentage of revenue 3.5 % 4.4 % was $2.5 million for the three months ended June 30, 2017 comparedMarch 31, 2018 increased due primarily to $2.0the $0.7 million full quarter impact of the LifeWatch acquisition, offset partially by $0.2 million of synergies realized from the integration of LifeWatch and other cost savings. Three Months Ended Change (in thousands, except percentages) March 31, 2018 March 31, 2017 $ % Other charges $ 5,085 $ 1,739 $ 3,346 192.4 % Percentage of revenue 5.4 % 3.1 % June 30, 2016. The increaseMarch 31, 2018 was primarily related to $3.2 million for the consolidation and closure of certain legacy LifeWatch international locations and $0.7 million of higher legal expenses, offset by a $0.5 million or 28.0%, was due to the addition of $0.3 million from our acquired businesses and a $0.2 million increasedecrease in consulting servicesintegration expenses related to the development of new hardware. As a percent of total revenues, research and developmentour 2016 acquisitions. Three Months Ended Change (in thousands, except percentages) March 31, 2018 March 31, 2017 $ % Interest expense $ (1,890 ) $ (388 ) $ (1,502 ) 387.1 % Loss on equity method investment (139 ) (95 ) (44 ) 46.3 % Other non-operating income/(expense), net 187 (2,515 ) 2,702 (107.4 )% Total Other expense $ (1,842 ) $ (2,998 ) $ 1,156 (38.6 )% Percentage of revenue 1.9 % 5.4 % was 4.3% for the three months ended June 30, 2017 compared to 3.7% for the three months ended June 30, 2016.Other Charges. During the three months ended June 30, 2017, we incurred $4.7March 31, 2018 was affected by $1.5 million of additional interest expense in the current year resulting from our new SunTrust Credit Agreement entered into concurrent with our LifeWatch acquisition, offset by the reduction of $2.7 million in other non-operating charges primarilyassociated with our 2017 settlement with the Office of Civil Rights related to professional service fees related to our pending and prior year acquisitions. the theft of two unencrypted laptop computers in 2011. Three Months Ended Change (in thousands, except percentages) March 31, 2018 March 31, 2017 $ % Benefit from income taxes $ 142 $ 866 $ (724 ) (83.6 )% Effective tax benefit rate 2.9 % 129.3 % June 30, 2017, other charges were 8.0% of total revenues.During the three months ended June 30, 2016, we incurred $1.7 million of other charges primarily related to legal fees for patent litigation as well as professional service fees related to our 2016 acquisitions. For the three months ended June 30, 2016, other charges were 3.1% of total revenue.InterestMarch 31, 2018 and Other Loss, net. Interest and other loss, net was $1.4 million for the three months ended June 30, 2017 compared to $0.6 million for the three months ended June 30, 2016. The increase was due to a non-operating charge of $0.9 million related to the change in fair value of a derivative instrument.Income Taxes. For the three months ended June 30, 2017, we recorded anrecognized a modest income tax provision of $1.3 million.benefit. After considering discrete taxwindfall benefits from the exercise of stock options, but excluding the impact of the acquisition of LifeWatch, we expect our 20172018 annual effective tax rate to be approximately 34%,in the range of 25% to 27% absent changes in tax laws or significant changes in uncertain tax positions. For the three months ended June 30, 2016, we recorded an income tax benefit of $0.2 million.Net Income. We recognized net income of $1.7 million for the three months ended June 30, 2017 compared to net income of $4.7 million for the three months ended June 30, 2016.Six Months Ended June 30, 20172016Revenues. Total revenues for the six months ended June 30, 2017 were $114.0 million compared to $101.3 million for the six months ended June 30, 2016, reflecting an increase of $12.7 million, or 12.5%. Healthcare revenue increased $3.3 million due to increased patient volumes and a favorable product mix, partially offset by a reduction in MCT Medicare pricing effective January 1, 2017. Research revenue increased $5.6 million, due to growth in and the full year impact of the acquisition of the imaging business, VirtualScopics, which occurred during the second quarter of 2016. Technology revenue increased $3.8 million, due to the acquisition of Telcare during the fourth quarter of 2016.Gross Profit. Gross profit increased to $68.9 million for the six months ended June 30, 2017 from $63.5 million for the six months ended June 30, 2016, reflecting an increase of $5.4 million, or 8.4%. Gross profit as a percentage of revenues was 60.4% for the six months ended June 30, 2017 compared to 62.7% for the six months ended June 30, 2016. Capital Resourcesdecrease in gross margin percentage was due to the impact of our acquisitions, which carry lower profit margins than our existing business, as well as the aforementioned reduction in MCT Medicare pricing effective January 1, 2017.General and Administrative Expense. General and administrative expense was $30.3 million for the six months ended June 30, 2017 compared to $26.7 million for the six months ended June 30, 2016. The increase of $3.6 million, or 13.3%, was due to the addition of $3.1 million from our acquired businesses, a $0.3 million increase in employee related costs and a $0.3 million increase technology costs. As a percent of total revenues, general and administrative expense was 26.6% for the six months ended June 30, 2017 compared to 26.4% for the six months ended June 30, 2016.Sales and Marketing Expense. Sales and marketing expense was $15.3 million for the six months ended June 30, 2017 compared to $14.7 million for the six months ended June 30, 2016. The increase of $0.6 million, or 4.5%, was due to an increase in employee related costs, driven by the creation of our strategic sales group. As a percent of total revenues, sales and marketing expense was 13.4% for the six months ended June 30, 2017 compared to 14.5% for the six months ended June 30, 2016.Bad Debt Expense. Bad debt expense was $5.2 million for the six months ended June 30, 2017 compared to $5.3 million for the six months ended June 30, 2016. The decrease of $0.1 million, or 1.8%, was due to the timing of revenues and collections. As a percentage of total revenues, bad debt expense was 4.6% for the six months ended June 30, 2017 compared to 5.2% for the six months ended June 30, 2016. Substantially all of our bad debt expense relates to the Healthcare segment. Bad debt expense in the Research and Technology segments, which include our recently acquired companies, was minimal and is recorded on a specific account basis.Research and Development Expense. Research and development expense was $4.9 million for the six months ended June 30, 2017 compared to $3.8 million for the six months ended June 30, 2016. The increase of $1.1 million, or 31.9%, was due to the addition of $0.8 million from our acquired businesses, a $0.1 million increase in consulting services related to the development of new hardware and a $0.1 million increase in employee related expenses. As a percent of total revenues, research and development expense was 4.3% for the six months ended June 30, 2017 compared to 3.7% for the six months ended June 30, 2016.Other Charges. During the six months ended June 30, 2017, we incurred $6.4 million of other charges primarily related to professional service feesfollowing table highlights certain information related to our pendingliquidity and prior year acquisitions. These charges were partially offset by a $0.6 million decrease in fair value of acquisition-related contingent consideration. For the six months ended June 30, 2017, other charges were 5.6% of total revenues.During the six months ended June 30, 2016, we incurred $3.4 million of other chargescapital resources:(in thousands, except ratios) March 31, 2018 December 31, 2017 Cash and cash equivalents $ 36,346 $ 36,022 Healthcare accounts receivable, net of allowance for doubtful accounts 31,802 25,190 Other accounts receivable, net of allowance for doubtful accounts 15,370 13,296 Availability under revolving credit facility 50,000 50,000 Working capital $ 48,198 $ 39,153 Current ratio 2.0 1.8 Total capital lease obligations $ 4,543 $ 5,509 Total debt $ 199,155 $ 199,356 Three Months Ended (in thousands) March 31, 2018 March 31, 2017 Net income $ 5,036 $ 196 Non-cash adjustments to net income 16,212 8,424 Cash used for working capital (12,174 ) (3,967 ) Cash provided by operating activities 9,074 4,653 Cash used in investing activities (3,938 ) (2,967 ) Cash provided by/(used in) financing activities $ (4,617 ) $ 359 related to legal fees for patent litigation as well as professional services related to our acquisitions. For the six months ended June 30, 2016, other charges were 3.4% of total revenue.Interest and Other Loss, net. Interest and other loss, net was $4.4 million for the six months ended June 30, 2017 compared to $1.1 million for the six months ended June 30, 2016. The increase was due to a non-operating charge of $2.5 million recorded for a settlement with the Office for Civil Rights related to the theft of two unencrypted laptop computers in 2011 and a $0.9 million charge related to the change in fair value of a derivative instrument.Income Taxes. For the six months ended June 30, 2017, we recorded an income tax provision of $0.4 million. After considering discrete tax benefits from the exercise of stock options, but excluding the impact of the acquisition of LifeWatch, we expect our 2017 annual effective tax rate to be approximately 34%, absent changes in tax laws or significant changes in uncertain tax positions. For the six months ended June 30, 2016, we recorded an income tax benefit of $0.2 million.Net (Loss) Income. We recognized net income of $1.9 million for the six months ended June 30, 2017 compared to net income of $8.8 million for the six months ended June 30, 2016.Liquidity and Capital ResourcesOur Annual Report on Form 10-K for the year ended December 31, 2016 includes a detailed discussion of our liquidity, contractual obligations and commitments. The information presented below updates and should be read in conjunction with the information disclosed in that Form 10-K.As of June 30, 2017, our principal source of liquidity was cash and cash equivalents of $26.9 million and net healthcare and other accounts receivables of $28.9 million. We had working capital of $33.5 million as of June 30, 2017.We generated $10.7 million of cash from operations for the six months ended June 30, 2017. Our ongoing operations during this period resulted in net income of $1.9 million, which included $17.4 million of non-cash items primarily relatedrelate to bad debt, depreciation, amortization and stock-basedstock compensation expense. These items were partially offset by $8.6For the three months ended March 31, 2018, our non-cash adjustments increasedcash used for working capital.We used $7.9increased amortization, $2.8 million of cash in investing activities for the six months ended June 30, 2017. We used $6.2increased depreciation and $2.1 million of cash for capital purchases primarilyincreased bad debt expense, all related to medical devicesthe acquisition of LifeWatch, offset partially by a decrease of $1.0 million of stock compensation expense related to the prior year recognition of performance stock options.Healthcareamount of $205.0 million and Research segments for use in our ongoing operations and an investment in internally developed software forextinguished the six months ended June 30, 2017.In December 2014, we entered into a $25.0 million Term Loan and $15.0 million Revolving Loan with previous Healthcare Financial Solutions, LLC previouslyCredit Agreement. For further details regarding the General Electric Capital Corporation. At June 30, 2017, $3.0 million was drawn under the Revolving Loan.In July 2017, we entered into a $205.0 million Term Loan and $50 million revolving credit facility with Suntrust Bank, as a lender and an agent for the lenders. The proceeds of the Loans were usedCredit Agreements, please see refinance our existing indebtedness in the amount of approximately $25 million, pay a portion of the consideration for the acquisition of LifeWatch and pay related transaction fees and expenses of the acquisition of LifeWatch.Consolidated Financial Statements; Note 9. Credit Agreement.”balanceand cash equivalents as of June 30, 2017 was $26.9March 31, 2018 were $36.3 million. We do not invest in any short-term or long-term securities, nor do we hold any derivative financial instruments for trading securities.June 30, 2017,March 31, 2018, we had $25.2$199.2 million of variable rate debt, exclusiveinclusive of debt discounts and deferred charges, based offat a rate of LIBOR rates.plus the applicable margin, or the prime rate plus the applicable margin. A 1.0% change in either the LIBOR ratesrate, prime rate, or the applicable margin would result in an incrementala change in interest expense.expense of approximately $2.0 million. For further details regarding the debt, rates or applicable margin, please refer to “Part I; Item 1. Financial Statements; Notes to Consolidated Financial Statements; Note 9. Credit Agreement.”Act”Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in Companyour reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.June 30, 2017 to ensure that information required to be disclosed in these reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.Changes in Internal Control over Financial ReportingThere were no changes in our internal control over financial reporting during the six months ended June 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.projected.estimated.the risk factors previously disclosed in “Part I,I; Item 1A1A. Risk Factors” of theour Annual Report on Form 10-K for the year ended December 31, 2016,2017, as well as the information contained in this Quarterly Report and other reports and registration statements filed by us with the SEC.ExhibitNumber3.1Certificate of Incorporation of Incorporated by Reference Filed/Furnished Herewith Description Form File No. Exhibit Filing Date 10.1* † 3.210.2* Bylaws† 31.110.3* † 10.4* † 31.1 † 31.231.2 † 32.132 + 101.INS101.INS XBRL Instance DocumentDocument.101.SCH101.DEF XBRL Taxonomy Extension Definition Linkbase Document. 101.SCH XBRL Taxonomy Extension Schema DocumentDocument.101.CAL101.CAL XBRL Taxonomy Extension Calculation Linkbase DocumentDocument.101.LAB101.LAB XBRL Taxonomy Extension Label Linkbase DocumentDocument.101.PRE101.PRE XBRL Taxonomy Extension Presentation Linkbase DocumentDocument.101.DEFXBRL Taxonomy Definition Linkbase Document† Filed herewith. + Furnished herewith. BIOTELEMETRY, INC.BIOTELEMETRY, INC. Date: August 8, 2017April 27, 2018 CPA