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 SeptemberJune 30, 20172018oTRANSITION 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 
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 oand posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes xý No ooýxo(Do not check if a smaller reporting company)
2018
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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.
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· the effectiveness of our cost savings initiatives;
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10-K for the year ended December 31, 2017.
(Unaudited) September 30, 2017 December 31, 2016 ASSETS Current assets: Cash and cash equivalents $ 26,242 $ 23,052 Healthcare accounts receivable, net of allowance for doubtful accounts of $14,498 and $12,198, at September 30, 2017 and December 31, 2016, respectively 23,651 14,594 Other accounts receivable, net of allowance for doubtful accounts of $567 and $665, at September 30, 2017 and December 31, 2016, respectively 13,109 12,261 Inventory 6,086 5,176 Prepaid expenses and other current assets 9,295 4,477 Total current assets 78,383 59,560 Property and equipment, net 56,680 25,823 Intangible assets, net 140,064 33,472 Goodwill 227,524 41,068 Deferred tax asset 15,498 36,636 Other assets 2,562 2,425 Total assets $ 520,711 $ 198,984 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 14,367 $ 12,425 Accrued liabilities 23,048 13,698 Current portion of capital lease obligations 4,728 162 Current portion of long-term debt 1,546 1,250 Deferred revenue 5,171 3,972 Total current liabilities 48,860 31,507 Long-term capital lease obligations 2,480 126 Long-term debt 197,815 23,911 Other long-term liabilities 3,242 4,526 Total liabilities 252,397 60,070 Equity: Common stock—$.001 par value as of September 30, 2017 and December 31, 2016; 200,000,000 shares authorized as of September 30, 2017 and December 31, 2016; 32,408,118 and 28,261,503 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively 32 28 Paid-in capital 405,859 281,642 Accumulated other comprehensive income (loss) 1 (34 ) Accumulated deficit (143,085 ) (142,722 ) Total stockholders’ equity 262,807 138,914 Noncontrolling interests 5,507 — Total equity 268,314 138,914 Total liabilities and equity $ 520,711 $ 198,984 Three Months Ended Nine months Ended 2017 2016 2017 2016 Revenues: Healthcare $ 69,528 $ 40,395 $ 156,109 $ 123,709 Research 9,313 10,420 28,199 23,709 Technology 2,182 2,240 10,725 6,957 Total revenues 81,023 53,055 195,033 154,375 Cost of revenues: Healthcare 24,493 13,030 53,516 39,662 Research 5,581 5,604 16,733 13,306 Technology 1,880 1,555 6,839 4,993 Total cost of revenues 31,954 20,189 77,088 57,961 Gross profit 49,069 32,866 117,945 96,414 Operating expenses: General and administrative 25,320 13,853 55,603 40,577 Sales and marketing 9,719 7,018 25,051 21,687 Bad debt expense 3,768 2,495 8,975 7,797 Research and development 3,277 2,137 8,225 5,888 Other charges 8,152 2,397 14,542 5,844 Total operating expenses 50,236 27,900 112,396 81,793 Income (loss) from operations (1,167 ) 4,966 5,549 14,621 Other income (expense): Interest expense (1,841 ) (544 ) (2,622 ) (1,402 ) Loss on extinguishment of debt (543 ) — (543 ) — Loss on equity method investment (106 ) (69 ) (302 ) (184 ) Other non-operating income (expense), net 658 (17 ) (2,755 ) (100 ) Total other income (expense) (1,832 ) (630 ) (6,222 ) (1,686 ) Income (loss) before income taxes (2,999 ) 4,336 (673 ) 12,935 Benefit from (provision for) income taxes 435 (141 ) 31 54 Net income (loss) (2,564 ) 4,195 (642 ) 12,989 Net loss attributable to noncontrolling interests (279 ) — (279 ) — Net income (loss) attributable to BioTelemetry, Inc. $ (2,285 ) $ 4,195 $ (363 ) $ 12,989 Other comprehensive income (loss): Foreign currency translation gain 16 150 35 2 Comprehensive income (loss) $ (2,269 ) $ 4,345 $ (328 ) $ 12,991 Net income (loss) per common share attributable to BioTelemetry, Inc.: Basic $ (0.07 ) $ 0.15 $ (0.01 ) $ 0.47 Diluted $ (0.07 ) $ 0.14 $ (0.01 ) $ 0.43 Weighted average number of common shares outstanding: Basic 31,897,237 28,102,196 29,682,210 27,810,763 Diluted 31,897,237 30,880,773 29,682,210 30,306,017 Nine months Ended 2017 2016 OPERATING ACTIVITIES Net income (loss) $ (642 ) $ 12,989 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Bad debt expense 8,975 7,797 Depreciation 11,233 7,884 Amortization of intangibles 5,326 2,735 Stock-based compensation 5,685 3,757 Equity method investment loss 302 184 Change in fair value of acquisition-related contingent consideration (2,005 ) — Write off of derivative premium 1,322 — Accretion of discount on debt 369 163 Loss on extinguishment of debt 543 — Non-cash gain on legal settlement (1,333 ) — Non-cash lease (benefit) expense (63 ) 111 Deferred income tax benefit (563 ) (476 ) Changes in operating assets and liabilities: Healthcare and other accounts receivables (9,413 ) (8,390 ) Inventory (89 ) (1,221 ) Prepaid expenses and other assets 365 (2,079 ) Accounts payable (8,724 ) 934 Accrued and other liabilities (627 ) 2,017 Net cash provided by operating activities 10,661 (26,405 ) INVESTING ACTIVITIES Acquisition of businesses, net of cash acquired (166,244 ) (17,970 ) Purchases of property and equipment and investment in internally developed software (11,940 ) (8,507 ) Purchases of derivative instrument (1,322 ) — Investment in equity method investee (490 ) — Net cash used in investing activities (179,996 ) (26,477 ) FINANCING ACTIVITIES Proceeds related to the exercising of stock options and employee stock purchase plan 5,705 2,380 Tax payments related to the vesting of shares (1,881 ) (2,324 ) Issuance of long-term debt 205,000 — Borrowings under revolving loans — 14,500 Repayments of revolving loans (3,000 ) — Payment of debt issuance costs (6,319 ) — Principal payments on long-term debt (25,851 ) (958 ) Principal payments on capital lease obligations (1,164 ) (257 ) Net cash provided by financing activities 172,490 13,341 Effect of exchange rate changes on cash 35 — Net increase in cash and cash equivalents 3,190 13,269 Cash and cash equivalents - beginning of period 23,052 18,986 Cash and cash equivalents - end of period $ 26,242 $ 32,255 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Non-cash purchases of property and equipment $ 498 $ — Non-cash fair value of common stock returned in legal settlement 2,753 — Non-cash fair value of equity issued for acquisition of business 117,440 — Cash paid for interest 2,353 965 Cash paid for taxes $ 1,355 $ 289 BioTelemetry, Inc. Equity Common Stock Paid-in Accumulated Accumulated Noncontrolling Total Shares Amount Capital Income (Loss) Deficit Interests Equity Balance December 31, 2016 28,261,503 $ 28 $ 281,642 $ (34 ) $ (142,722 ) — $ 138,914 Exercise of stock options and purchase of shares related to the employee stock purchase plan 480,433 5,705 — — — 5,705 Stock-based compensation 187,747 — 5,685 — — — 5,685 RSUs and PSUs withheld to cover taxes (77,878 ) — (1,881 ) — — — (1,881 ) Business combination 3,615,840 4 116,788 — — 11,224 128,016 Acquistion of noncontrolling interest 19,806 — 673 — — (5,438 ) (4,765 ) Common shares returned to Company in legal settlement (79,333 ) — (2,753 ) — — — (2,753 ) Currency translation adjustment — — — 35 — — 35 Net loss — — — — (363 ) $ (279 ) (642 ) Balance September 30, 2017 32,408,118 $ 32 $ 405,859 $ 1 $ (143,085 ) $ 5,507 $ 268,314 Three Months Ended Nine months Ended 2017 2016 2017 2016 Numerator: Net income (loss) attributable to BioTelemetry, Inc. $ (2,285 ) $ 4,195 $ (363 ) $ 12,989 Denominator: Weighted average shares used in computing basic net income (loss) per share 31,897,237 28,102,196 29,682,210 27,810,763 Dilutive stock option and restricted stock units — 2,778,577 — 2,495,254 Weighted average shares used in computing diluted net income per share 31,897,237 30,880,773 29,682,210 30,306,017 Net income (loss) per share attributable to BioTelemetry, Inc: Basic net income (loss) per share $ (0.07 ) $ 0.15 $ (0.01 ) $ 0.47 Diluted net income (loss) per share $ (0.07 ) $ 0.14 $ (0.01 ) $ 0.43 benchmark yields, actual trade data, broker/dealer quotes and other similar data obtained from quoted market prices or independent pricing vendors. charges in the consolidated statements of operations. our gross accounts receivable. Interest None of this goodwill will be deductible for tax purposes. Amount Weighted 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 4,392 Property and equipment 30,200 Other assets 713 Identifiable intangible assets: Customer relationships 109,400 10 Technology 2,100 5 Total identifiable intangible assets 111,500 Total assets acquired 161,711 Fair value of liabilities assumed: Accounts payable 10,666 Accrued liabilities 8,879 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 21,993 Other liabilities 1,720 Total liabilities assumed 54,369 Total identifiable net assets 107,342 Fair value of noncontrolling interest (11,224 ) Goodwill 186,456 Net assets acquired $ 282,574 2018. Three Months Ended September 30, Nine months Ended September 30, 2017 2016 2017 2016 Revenue $ 84,349 $ 80,881 $ 257,976 239,215 Net income (loss) attributable to BioTelemetry, Inc (3,681 ) 1,612 (2,753 ) (9,073 ) Net income (loss) per common share attributable to BioTelemetry, Inc: Basic $ (0.11 ) $ 0.05 $ (0.09 ) $ (0.29 ) Diluted $ (0.11 ) $ 0.05 $ (0.09 ) $ (0.29 ) Weighted average number of common shares outstanding: Basic 32,350,858 31,737,842 32,245,396 31,446,409 Diluted 32,350,858 34,516,419 32,245,396 31,446,409 Amount Weighted Fair value of assets acquired: Other accounts receivable $ 235 Inventory 1,417 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 6,701 Fair value of liabilities assumed: Accounts payable 459 Accrued liabilities 206 Deferred revenue 49 Total liabilities assumed 714 Total identifiable net assets 5,987 Goodwill 3,713 Net assets acquired $ 9,700 Three Months Ended Nine Months Ended Revenue $ 54,169 $ 157,915 Net Income $ 3,414 $ 10,417 Net income per common share: Basic $ 0.12 $ 0.37 Diluted $ 0.11 $ 0.34 Weighted average number of common shares outstanding: Basic 28,102,196 27,810,763 Diluted 30,880,773 30,306,017 Total Contingent Balance at December 31, 2016 $ 2,700 Change in fair value of acquisition-related contingent consideration (1,400 ) Balance at September 30, 2017 $ 1,300 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 Nine Months Ended Revenue $ 160,314 Net Income $ 14,933 Net income per common share: Basic $ 0.54 Diluted $ 0.49 Weighted average number of common shares outstanding: Basic 27,810,763 Diluted 30,306,017 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 September 30, 2017 $ — September 30, 2017 December 31, 2016 Raw materials $ 3,185 $ 2,866 Finished goods 2,901 2,310 Total inventory $ 6,086 $ 5,176 Estimated September December Cardiac monitoring devices, device parts and components 3 - 5 $ 72,541 $ 55,825 Computers 3 - 5 24,303 18,027 Equipment, tools and molds 3 - 5 8,049 6,666 Furniture, fixtures and other 5 - 7 2,005 1,467 Leasehold improvements Life of lease 6,111 3,171 Capital leases 3 - 7 7,305 737 Total property and equipment, at cost 120,314 85,893 Less accumulated depreciation (63,634 ) (60,070 ) Total property and equipment, net $ 56,680 $ 25,823 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 ) 350 — Goodwill acquired during the year 186,456 — — 186,456 Balance at September 30, 2017 $ 201,180 $ 16,293 $ 10,051 $ 227,524 Refer to Estimated September December (Years) Customer relationships 5 - 15 $ 126,750 $ 16,700 Technology including internally developed software 3 - 10 23,654 21,135 Backlog 1 - 4 6,860 6,860 Covenants not to compete 5 - 7 1,040 1,040 Total intangible assets, gross 158,304 45,735 Customer relationships (7,715 ) (3,809 ) Technology including internally developed software (7,896 ) (6,588 ) Backlog (4,833 ) (4,176 ) Covenants not to compete (796 ) (690 ) Total accumulated amortization (21,240 ) (15,263 ) Indefinite-lived trade names 3,000 3,000 Total intangible assets, net $ 140,064 $ 33,472 2017 $ 3,836 2018 15,573 2019 15,845 2020 15,294 2021 14,868 Thereafter 71,648 Total estimated amortization $ 137,064 Three Months Ended September 30, Nine months Ended September 30, 2017 2016 2017 2016 Beginning balance $ 1,279 $ 985 $ 1,125 $ 1,100 Capital contributions 140 312 490 312 Our share of the investee’s losses (106 ) (69 ) (302 ) (184 ) Ending balance $ 1,313 $ 1,228 $ 1,313 $ 1,228 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 Granted 280,000 35.79 — — Cancelled/forfeited (44,015 ) 13.78 (19,023 ) 12.53 Exercised/vested (60,380 ) 22.93 — — Stock outstanding as of September 30, 2017 3,582,634 $ 10.42 484,021 $ 13.63 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 — $ — Vested — — — — Cancelled/forfeited — — — — Exercised — — — — Stock outstanding as of September 30, 2017 150,000 $ 20.41 — $ — 2018. Three Months Ended September 30, Nine months Ended September 30, 2017 2016 2017 2016 Legal fees $ 930 $ 1,965 $ 3,797 $ 4,576 Professional fees 4,462 144 7,794 590 Severance and employee related costs 3,210 238 3,742 561 Change in contingent consideration (1,400 ) — (2,005 ) — Other costs 950 50 1,214 117 Total $ 8,152 $ 2,397 $ 14,542 $ 5,844 2017. our reportable segments. Healthcare Research Technology Corporate and Consolidated September 30, 2017 Revenues $ 69,528 $ 9,313 $ 2,182 — $ 81,023 Intersegment revenues — — 5,217 $ (5,217 ) — Income (loss) before income taxes 14,721 217 508 (18,445 ) (2,999 ) Depreciation and amortization 7,337 1,040 404 238 9,019 Capital expenditures 4,796 608 339 — 5,743 Healthcare Research Technology Corporate and Consolidated September 30, 2016 Revenues $ 40,395 $ 10,420 $ 2,240 — $ 53,055 Intersegment revenues — — 3,396 $ (3,396 ) — Income (loss) before income taxes 14,722 1,442 1,059 (12,887 ) 4,336 Depreciation and amortization 2,434 1,180 141 (66 ) 3,689 Capital expenditures 2,481 327 7 — 2,815 Healthcare Research Technology Corporate and Consolidated September 30, 2017 Revenues $ 156,109 $ 28,199 $ 10,725 — $ 195,033 Intersegment revenues — — 13,434 $ (13,434 ) — Income (loss) before income taxes 45,429 917 4,346 (51,365 ) (673 ) Depreciation and amortization 12,904 3,112 917 (374 ) 16,559 Capital expenditures 10,399 1,074 467 — 11,940 Healthcare Research Technology Corporate and Consolidated September 30, 2016 Revenues $ 123,709 $ 23,709 $ 6,957 — $ 154,375 Intersegment revenues — — 9,070 $ (9,070 ) — Income (loss) before income taxes 44,504 1,847 2,752 (36,168 ) 12,935 Depreciation and amortization 7,415 3,064 333 (193 ) 10,619 Capital expenditures 6,797 1,677 33 — 8,507 Cleveland Clinic Foundation Arbitration this report. June 30, 2017 integration of LifeWatch. LifeWatch acquisition. 2017. integration of LifeWatch. uncertain tax positions. Other non-operating expense LifeWatch acquisition. non-cash tax benefit. Supplementary Data; Notes to Consolidated Financial Statements; Note 10. Credit Agreement” (in thousands) Contractual obligations Total 2017 2018 2019 2020 2021 Beyond Additional operating lease obligations $ 6,081 $ 772 $ 2,763 $ 1,100 $ 616 $ 577 $ 253 Additional capital lease obligations 7,652 1,239 4,561 1,763 89 — — Revised debt principal repayment obligations* $ 205,000 — $ 2,050 $ 5,125 $ 15,375 $ 20,500 $ 161,950 or speculative purposes. Description By: /s/ Heather C. Getz Heather C. Getz Executive Vice President and Chief Financial Officer (Principal Financial Officer and authorized officer of the Registrant)Consolidated Financial Statements(In thousands, except share and per share amounts)(Unaudited)
June 30,
2018 December 31,
2017ASSETS Current assets: Cash and cash equivalents $ 39,434 $ 36,022 Healthcare accounts receivable, net of allowance for doubtful accounts of $22,004 and $15,556, at June 30, 2018 and December 31, 2017, respectively 35,332 25,190 Other accounts receivable, net of allowance for doubtful accounts of $2,198 and $1,425, at June 30, 2018 and December 31, 2017, respectively 14,601 13,296 Inventory 7,708 5,332 Prepaid expenses and other current assets 8,111 10,268 Total current assets 105,186 90,108 Property and equipment, net of accumulated depreciation of $73,642 and $71,902, at June 30, 2018 and December 31, 2017, respectively 47,653 49,194 Intangible assets 133,812 141,707 Goodwill 238,339 223,105 Deferred tax assets 20,939 17,681 Other assets 2,446 2,767 Total assets $ 548,375 $ 524,562 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 13,815 $ 14,529 Accrued liabilities 20,855 26,055 Current portion of capital lease obligations 3,223 4,023 Current portion of long-term debt 3,588 2,050 Deferred revenue 4,456 4,298 Total current liabilities 45,937 50,955 Long-term portion of capital lease obligations 313 1,486 Long-term debt 195,365 197,306 Other long-term liabilities 33,559 25,112 Total liabilities 275,174 274,859 Stockholders’ equity: Common stock—$.001 par value as of June 30, 2018 and December 31, 2017; 200,000,000 shares authorized as of June 30, 2018 and December 31, 2017; 32,715,190 and 32,460,668 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively 33 32 Paid-in capital 415,701 409,517 Accumulated other comprehensive loss (281 ) (114 ) Accumulated deficit (142,252 ) (158,678 ) Total BioTelemetry, Inc.’s stockholders’ equity 273,201 250,757 Noncontrolling interest — (1,054 ) Total equity 273,201 249,703 Total liabilities and equity $ 548,375 $ 524,562 notes.Notes to Consolidated Financial Statements. AND Three Months Ended Six Months Ended (In thousands, except per share data) June 30,
2018 June 30,
2017 June 30,
2018 June 30,
2017Revenues $ 101,360 $ 58,129 $ 195,856 $ 114,010 Cost of revenues 35,605 22,162 72,053 45,134 Gross profit 65,755 35,967 123,803 68,876 Operating expenses: General and administrative 28,741 14,366 55,460 30,283 Sales and marketing 11,075 7,631 22,415 15,332 Bad debt expense 6,875 2,416 11,754 5,207 Research and development 2,733 2,515 6,022 4,948 Other charges 5,208 4,651 10,293 6,390 Total operating expenses 54,632 31,579 105,944 62,160 Income from operations 11,123 4,388 17,859 6,716 Other expense: Interest expense (2,684 ) (392 ) (4,574 ) (781 ) Loss on equity method investment (45 ) (101 ) (184 ) (196 ) Other non-operating income/(expense), net 550 (899 ) 737 (3,413 ) Total other expense (2,179 ) (1,392 ) (4,021 ) (4,390 ) Income before income taxes 8,944 2,996 13,838 2,326 Benefit from/(provision for) income taxes 1,500 (1,270 ) 1,642 (404 ) Net income 10,444 1,726 15,480 1,922 Net loss attributable to noncontrolling interest — — (946 ) — Net income attributable to BioTelemetry, Inc. $ 10,444 $ 1,726 $ 16,426 $ 1,922 Net income per common share attributable to BioTelemetry, Inc.: Basic $ 0.32 $ 0.06 $ 0.51 $ 0.07 Diluted $ 0.29 $ 0.05 $ 0.46 $ 0.06 Weighted average number of common shares outstanding: Basic 32,435 28,687 32,227 28,558 Dilutive stock options and restricted stock units 3,143 2,986 3,187 2,936 Diluted 35,578 31,673 35,414 31,494 (LOSS)(In thousands, except share and per share amounts)
September 30,
September 30, Three Months Ended Six Months Ended (In thousands) June 30,
2018 June 30,
2017 June 30,
2018 June 30,
2017Net income attributable to BioTelemetry, Inc. $ 10,444 $ 1,726 $ 16,426 $ 1,922 Other comprehensive income/(loss): Foreign currency translation gain/(loss) 30 18 (167 ) 19 Comprehensive income attributable to BioTelemetry, Inc. $ 10,474 $ 1,744 $ 16,259 $ 1,941 notes.Notes to Consolidated Financial Statements.(In thousands)
September 30, Six Months Ended (in thousands) June 30,
2018 June 30,
2017OPERATING ACTIVITIES Net income $ 15,480 $ 1,922 Adjustments to reconcile net income to net cash provided by operating activities: Bad debt expense 11,754 5,207 Depreciation 11,236 5,551 Amortization of intangibles 8,646 1,989 Stock-based compensation 4,923 4,200 Equity method investment loss 184 196 Change in fair value of acquisition-related contingent consideration (700 ) (605 ) Change in fair value of derivative instrument — 898 Accretion of discount on debt 621 110 Non-cash lease income (64 ) (102 ) Non-cash tax (benefit)/expense (3,258 ) 3 Changes in operating assets and liabilities: Healthcare and other accounts receivables (22,579 ) (7,280 ) Inventory (2,376 ) 845 Prepaid expenses and other assets 1,700 (289 ) Accounts payable (582 ) (3,237 ) Accrued and other liabilities (8,849 ) 1,325 Net cash provided by operating activities 16,136 10,733 INVESTING ACTIVITIES Purchases of property and equipment and investment in internally developed software (9,937 ) (6,197 ) Purchase of derivative instrument — (1,322 ) Investment in equity method investee — (350 ) Net cash used in investing activities (9,937 ) (7,869 ) FINANCING ACTIVITIES Proceeds related to the exercising of stock options and employee stock purchase plan 6,152 3,602 Tax payments related to the vesting of shares (2,890 ) (1,881 ) Principal payments on long-term debt (1,025 ) (626 ) Principal payments on capital lease obligations (1,973 ) (132 ) Acquisition of noncontrolling interests (2,885 ) — Net cash (used in)/provided by financing activities (2,621 ) 963 Effect of exchange rate changes on cash (166 ) 19 Net increase in cash and cash equivalents 3,412 3,846 Cash and cash equivalents - beginning of period 36,022 23,052 Cash and cash equivalents - end of period $ 39,434 $ 26,898 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Non-cash purchases of property and equipment $ 1,131 $ 498 Non-cash acquisitions of noncontrolling interests 3,972 — Cash paid for interest 3,675 648 Cash paid for taxes $ 1,107 $ 1,232 notes.Notes to Consolidated Financial Statements.STATEMENTSSTATEMENT OF EQUITY(In thousands, except share amounts)
Other
Comprehensive 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 280,913 1 6,151 — — — 6,152 Stock-based compensation — — 4,923 — — — 4,923 Shares withheld to cover taxes on vesting of share based awards (85,177 ) — (2,890 ) — — — (2,890 ) Acquisition of noncontrolling interests 58,786 — (2,000 ) — — 2,000 — Currency translation adjustment — — — (167 ) — — (167 ) Net income/(loss) — — — — 16,426 (946 ) 15,480 Balance at June 30, 2018 32,715,190 $ 33 $ 415,701 $ (281 ) $ (142,252 ) $ — $ 273,201 notes.Notes to Consolidated Financial Statements.(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 consolidated financial statements do notS-X and include allthe accounts of BioTelemetry, Inc. and its controlled subsidiaries (“BioTelemetry,” the information and footnotes necessary for a complete presentation of financial position, results of operations and cash flows.“Company,” “we,” “our” or “us”). In the opinion of management, these consolidated financial statements reflect all adjustments which are(consisting only of a normal recurring nature andaccruals, except as otherwise disclosed herein) considered necessary for a fair presentation of BioTelemetry, Inc.’s (“BioTelemetry,” “Company,” “we,” “our” or “us” )to present fairly the financial position as of SeptemberJune 30, 2017 and December 31, 2016,2018, the results of operations for the interim three months and nine monthssix month periods ended SeptemberJune 30, 20172018 and 20162017, and cash flows for the nine monthsinterim six month periods ended SeptemberJune 30, 2018 and 2017 have been included. All intercompany transactions and 2016.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 financial data and other information disclosed in these notes to theaccompanying unaudited consolidated financial statements related toshould be read in conjunction with the threefinancial statements and nine months ended September 30, 2017 and 2016 are unaudited. The resultsnotes thereto included in our Annual Report on Form 10-K for the three and nine monthsfiscal year ended September 30, 2017 are not necessarily indicative of the results to be expected for any future period.Net Income (Loss) Per ShareDecember 31, 2017.We compute net income (loss) per share in accordance with Accounting Standards Codification (“ASC”) 260, Earnings Per Share. Basic net income (loss) per share is computed by dividing net income (loss) attributable to BioTelemetry by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by giving effect to all potential dilutive common shares, including stock options and restricted stock units, using the treasury stock method.The following table presents the calculation of basic and diluted net income (loss) per share:
September 30,
September 30,stock options, which are priced higher than the market price of our shares as of September 30, 2017 and 2016, would be anti-dilutive and thereforereclassifications have been excluded from the weighted average shares used in computing diluted net income (loss) per share. These options could become dilutive in future periods.ReclassificationsCertainmade to prior year amounts have been reclassified for consistency withperiod statements to conform to the current period presentation. This consists of These consist of:withinof other income (expense)expense in the consolidated statements of operations. operations,reclassificationreclassifications had no impact on previously reported net income (loss),consolidated results of operations, cash flows or accumulated deficit.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 our 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. 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 $205,000 (classified as Level 2) as of September 30, 2017.model (classified as Level 3).model. Adjustments to contingent consideration are recorded underin other charges.Derivative InstrumentsDuring the second quarter Non-financial assets such as goodwill, intangible assets, and property and equipment are subsequently measured at fair value when there is an indicator of 2017, we purchased a foreign currency option with a notional value of $194,185 to mitigate the foreign exchange risk related to the Swiss Franc denominated purchase price of LifeWatch AG (“LifeWatch”). This derivative instrument was not designated as a hedge for accounting purposes. The derivative instrument wasimpairment and recorded at fair value only when an impairment is recognized. We assess the impairment of goodwill and indefinite lived assets annually or whenever events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable.as a componentnet of prepaid expensesan allowance for doubtful accounts. The ultimate collection of accounts receivable may not be known for several months after services have been provided and other current assets. We did not exercise this optionbilled. The percentages and amounts used to record bad debt expense and the contract expired duringallowance for doubtful accounts are supported by various methods and analyses, including current and historical cash collections and the third quarteraging of 2017, resulting in a write offreceivables by payor. Because of the premium of $1,322 which was recorded as a component of other non-operating income (expense), netcontinuing changes in the consolidated statementshealth care 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 comprehensive income (loss).Equity Method InvestmentsWe account for investments usingcash flows.equity method of accounting if the investment provides us the ability 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%Research segment 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 investmentCorporate and Other category and is recorded at costthe time revenue is recognized, when products are shipped or services are performed. We estimate an allowance for doubtful accounts on a specific account basis, and consider several factors in our analysis including customer specific information and the consolidated balance sheet as a component of other assets and is periodically adjusted for capital contributions, dividends received and our shareaging of the investee’s earnings or losses togetheraccount.other-than-temporary impairments whichhigh quality financial institutions to mitigate this risk. We perform ongoing credit evaluations of our customers and generally do not require collateral. We record an allowance for doubtful accounts in accordance with the procedures described above. Past-due amounts are recorded as loss on equity method investment inwritten-off against the consolidated statementsallowance for doubtful accounts when collections are believed to be unlikely and all collection efforts have ceased.operations and comprehensive income (loss).interestsshareholder’sstockholders’ equity, but separate from the parent’s equity; (ii) the amount of consolidated net incomeincome/(loss) attributable to the parent and the noncontrolling interest to be clearly identified and presented on the face ofin the consolidated statements of income;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.We acquired approximately 97.0% of LifeWatch AG on July 12, 2017. On that date, we acquired control of LifeWatch AG and began consolidating its financial statements. The interest represented byshares not tendered or subsequently acquired through September 30, 2017 are presented as noncontrolling interestsaccounting for share-based payment transactions in our consolidated financial statements. The fair valuewhich an enterprise receives employee services in exchange for: (i) equity instruments of the noncontrolling interest was determinedenterprise or (ii) liabilities that are based on the observable quoted share price as of the acquisition date. As of September 30, 2017, we owned 98.5% of LifeWatch AG and expect to acquire the remaining outstanding shares in the fourth quarter of 2017 or shortly thereafter.LifeWatch AG owns 55% of LifeWatch Turkey Holding AG (“LifeWatch Turkey”) with their partner, IKSIR TEKNOLOJI SAGLIK VE KIMYA SAN. ve TIC. A.S., a company located in Ankara, Turkey, to provide digital health solutions to the Turkish market. Concurrent with our acquisition of LifeWatch AG, we acquired control of LifeWatch Turkey and began consolidating their financial statements. As of September 30, 2017, LifeWatch Turkey’s net assets were $3,097 and their loss since July 12, 2017 was $526.Amounts pertaining to the noncontrolling ownership interest of both LifeWatch AG and LifeWatch Turkey Holding AG held by third parties in the operating results of the Company are combined and reported as noncontrolling interests in the accompanying consolidated financial statements.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 test in accordance with ASC 350. In the first step, we compare the fair value of our reporting units 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 reportingenterprise’s equity instruments or that may be settled by the issuance of such equity instruments. ASC 718 requires that anthen(“RSUs”), based on the second step of the impairment test is performed in order to determine the impliedgrant-date fair value of the reporting units’ goodwill. Ifaward and recognize the carrying valuecost of such awards over the requisite service period (generally, the vesting period of the reporting units’ goodwill exceedsaward). ASC 718 requires that an entity measure the impliedcost of liability-based service awards based on current fair value that is remeasured subsequently at each reporting date through the settlement date. The compensation expense associated with performance stock units (“PSUs”) is recognized ratably over the period between when the performance conditions are deemed probable of those reporting units, an impairment loss equal toachievement and when the differenceawards are vested. Performance stock options (“PSOs”) are valued and stock-based compensation expense is recorded.Foronly recognized once the purpose of performing our goodwill impairment analysis, we consider our business to be comprised of three reporting units: Healthcare, Research and Technology. We calculate the fair valueperformance conditions of the reporting units utilizing a weighting of the income and market approaches. The income approach isoutstanding PSOs have been met. We account for equity awards issued to non-employees in accordance with ASC 505-50, Equity-Based Payments to Non-Employees.a discounted cash flow methodology that includes assumptions for, among other things, forecasted income, cash flow, growththe number of stock options or RSUs we expect to vest using our historical forfeiture experience and we 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, Compensation — Stock Compensation (“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 $94 and $583 for the three and nine months ended September 30, 2016, respectively. Corresponding adjustments were recorded in the operating section of our statement of cash flows for the nine months ended September 30, 2016. The weighted average number of common shares outstanding for calculating diluted net income per share increased by 547,196 and 448,792 for the three and nine months ended September 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.In July 2015, We record additional expense if the FASB issued ASU 2015-11, Simplifyingactual forfeiture rate is lower than estimated, and record a recovery of prior expense if the Measurementactual forfeiture rate is higher than estimated.Inventory.our stock options using the Black‑Scholes option valuation model. The standardBlack‑Scholes option valuation model requires inventorythe use of certain subjective assumptions. The most significant of these assumptions are the estimates of the expected volatility of the market price of our stock and the expected term of the award. We base our estimates of expected volatility on the historical average of our stock price. The expected term represents the period of time that share‑based awards granted are expected to be measuredoutstanding. Other assumptions used in the Black‑Scholes option valuation model include the risk‑free interest rate and expected dividend yield. The risk‑free interest rate for periods pertaining to the expected term of each option is based on the U.S. Treasury yield of a similar duration in effect at the lowertime of cost or net realizable value.grant. We have never paid, and do not expect to pay, dividends in the foreseeable future.guidancePSUs are forfeited to the extent the performance criteria are not met.applybe able to inventoriesrealize our deferred tax assets, we adjust the carrying value of the deferred tax asset through the valuation allowance.costseparate discrete financial information is determined usingavailable for evaluation by the last-in, first-out methodchief operating decision maker, or the retail inventory method. Our adoptiondecision-making group, in making decisions on how to allocate resources and assess performance.this standardsolutionsconsolidated financial statements.position, results of operations or disclosures.Accounting Pronouncements Not Yet Adoptedwill adoptadopted this standard effective January 1, 2018, and dothis standard did not expect the standard to have a material impact on our consolidated financial statements.In January 2017, the FASB issued ASU 2017-04, Simplifying 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 excessposition, results of a reporting unit’s carrying value over its fair value. A prospective transition approach is required. The standard is effective for annual and interim reporting periods beginning after December 15, 2019 with early adoption permitted for annual and interim goodwill impairment testing dates after January 1, 2017. We plan to early adopt the standard at the time of our 2017 goodwill impairment testing date and do not expect the standard to have a material impact on our consolidated financial statements.operations or disclosures.In February 2016, the FASB issued ASU 2016-02, Leases. The 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, with early adoption permitted. 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.issuance.issuance (collectively, the “Revenue Updates”). The standard willRevenue Updates require 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 standardRevenue Updates also requiresrequire new, expanded disclosures regarding revenue recognition. The standard will beWe adopted the Revenue Updates effective January 1, 2018. See “Note 2. Revenue Recognition.”earlyselling goods or services to customers as part of a contract accounted for under ASC 606 - Revenue from Contracts with Customers (“ASC 606”). The amendments in ASU 2018-07 are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption permissibleis permitted. We are currently evaluating the potential effects of this updated guidance on our consolidated financial statements and related disclosures.2017.We have substantially completed the detailed review2019.contract portfolioexisting leases, including identifying all contracts that are, or contain, leases and revenue streamsaccumulating all the necessary information required to identify potential differences in accounting as a result ofproperly account for the leases under the new standard.We expect that there will be an impact to financial reporting disclosures as well as any related business operations processes and internal controls over financial reporting. As partto ensure we meet the new reporting and disclosure requirements.performed throughof the datefull financial impact shortly after December 31, 2018, and will include all required presentation and disclosures under ASU 2016-02 in our Form 10-Q for the three months ending March 31, 2019. Three Months Ended June 30, 2018 (in thousands) Healthcare Research Other Total Consolidated Payor/Service Line Remote cardiac monitoring services - Medicare $ 36,599 $ — $ — $ 36,599 Remote cardiac monitoring services - commercial payors 50,124 — — 50,124 Clinical trial support and related services — 12,546 — 12,546 Technology devices, consumable and related services — — 2,091 2,091 Total $ 86,723 $ 12,546 $ 2,091 $ 101,360 Six Months Ended June 30, 2018 (in thousands) Healthcare Research Other Total Consolidated Payor/Service Line Remote cardiac monitoring services - Medicare $ 66,814 $ — $ — $ 66,814 Remote cardiac monitoring services - commercial payors 100,460 — — 100,460 Clinical trial support and related services — 23,790 — 23,790 Technology devices, consumable and related services — — 4,792 4,792 Total $ 167,274 $ 23,790 $ 4,792 $ 195,856 filing,methodcreated 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 basis. adopted 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 education of the new accounting standard;· Outlined our revenue generating activities that fall within the scope of ASU 2014-09, and assessed what impact the new accounting standard will have on those activities, and;· Monitored and assessed the impact of changes to ASU 2014-09 and its interpretations.Specific considerations made to date on the impact of adopting ASU 2014-09 include:· Healthcare Revenue —We continue to evaluate the valuation of our Healthcare revenue and accounts receivable with respect to adopting ASU 2014-09. This evaluation includes determining whether the Company has historical experience of collecting substantially all of the negotiated contractual rates or any implicit price concessionsand determined at contract inception that these customers have the intention and ability to pay the promised consideration. As such, we are provided. If the Company determines it has not providedproviding an implicit price concession but, rather, that it hashave chosen to accept the risk of default, by the patient,and adjustments to the transaction price would be presentedare recorded as bad debts. This impacts whether revenue will be recognized on a gross basis or a net basis. debt expense.this assessment,our non-contracted portfolio, we combined LifeWatch revenue with the existing legacy Healthcare revenue streams. Our current accounting policy is such that revenue is recognized upon agreed upon reimbursement rates. Ifare providing an implicit price concession 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,transaction price are recorded as an adjustment to Healthcare segment revenue and not as bad debt expense.final settlement with the third-party payors, are recorded upon settlement.· Research revenue — The Company has concluded that the majoritynature of the clinicalservices provided by us. Our core laboratory services are provided over time as the customer receives benefits resulting in revenue recognition over the term of the contract. Our research arrangementscustomer 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 billing practices, our billing practices approximate our performance if measured by an output method, where eachwill representin instances where a single performance obligation. We expect to accountcustomer pays an upfront deposit upon contract execution for revenue for this single performance obligation over time using either an input or output method to measure progress. We are still evaluating the appropriate selection of the measure of progress for these arrangements.· Technology revenue — The Company has concluded that the standard will not have a material impact on Technology revenue. We will continue to recognize revenue in our Technology segment when products are shipped or asfuture services are rendered.· Contract Costs — The Company has concluded that all material costs to acquire customer contracts will continue to be expensedperformed by us. We receive payments from our customers based on standard terms and conditions. No significant changes or impairment losses occurred to contract balances during the three and six months ended June 30, 2018.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 as the amortization period of the asset that we otherwise would have recognized is one year or less. less in duration.are evaluatingdo not adjust the impactpromised amount of fulfillment cost capitalization in conjunction with its measureconsideration for the effects of progress selection undera significant financing component as we expect, at contract inception, that the inputperiod between when we transfer a promised good or output methodservice to a customer and when the customer pays for Research revenue. We currently expense all contract costs.· Transition Method —Wethat good or service will be electing to adopt ASU 2014-09 using the modified retrospective approach.In addition to the open matters discussed above, significant implementation matters to be addressed prior to adopting ASU 2014-09 include determining the transition adjustment resultingone year or less.new accounting standardTransaction Price: We exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on our consolidated financial statements, and updating, as needed, our business processes, systems and controls required to comply with ASU 2014-09 upon its effective date. We will make continuous updates to our year-end disclosures,concurrent with a focus on implementation status updates related tospecific revenue-producing transaction and collected by us from the impact ASU 2014-09 will have oncustomer.consolidated financial statementstechnology device, consumable and related footnotes.We expect to complete our assessmentservice revenue, we account for shipping and handling activities we perform after a customer obtains control of the full financial impact of ASU 2014-09 duringgood as activities to fulfill the next three months and expectpromise to adopt ASU 2014-09 when it becomes effective on January 1, 2018. AGthe Company,we, through its wholly-ownedour wholly owned subsidiary Cardiac Monitoring Holding Company, LLC, acquired approximately 97.0%97% of the outstanding shares of LifeWatch AG for aggregate consideration of 3,615,840 shares of BioTelemetry common stock with a fair value of $116,792$116.8 million and cash in the amount of $165,782.$165.8 million. On that date, we acquired control of LifeWatch AG and began consolidating its financial statements. The interest represented by the shares not tendered or subsequently acquired through September 30, 2017 are presented as noncontrolling interests in our consolidated financial statements. The fair value of the noncontrolling interest was determined based on the observable quoted share price as of the acquisition date.Through September 30, 2017, we purchased 343,525 additional shares of LifeWatch for cash consideration of $4,765 andstrengthens our market position as the issuance of 19,806 shares with a fair value of $648. leader in remote cardiac monitoring.intendrecorded our obligations to acquire the remaining untendered LifeWatch shares, pursuant to a squeeze-out procedure in accordance with Swiss law and takeover regulation.regulations related to the offering, as components of accrued liabilities and paid-in capital, and reduced our noncontrolling interest related to ourof September 30, 2017,a result, we owned 98.5%100% of LifeWatch AGas of December 31, 2017. In early January 2018, we settled those obligations with payment of $2.9 million in cash and expect to acquire the remaining outstandingissuance of 58,786 shares in the fourth quarter of 2017 or shortly thereafter.Also on July 12, 2017, in connectionour common stock with the closinga fair market value of the acquisition of LifeWatch, and refinancing of its existing debt, the Company entered into a Credit Agreement pursuant to which the Company obtained loans as follows; (i) a term loan (funded on July 12, 2017) in an aggregate principal amount equal to $205,000, the proceeds of which were used to (a) pay our existing General Electric Credit Agreement of $24,875 and acquired LifeWatch debt of $3,027, (b) pay a portion of the cash consideration for the acquisition of LifeWatch, and (c) pay related transaction fees and expenses of the acquisition of LifeWatch; and (ii) a $50,000 revolving credit facility for ongoing working capital purposes, which remains undrawn. The term loan will be repaid in quarterly installments beginning January 1, 2018, with the remaining principal balance repaid on or before July 12, 2022.The acquisition of LifeWatch strengthens our position as the leader in wireless medicine, creating the foremost connected health platform, significantly enhancing our ability to improve quality of life and reduce cost of care. $2.0 million.The CompanyWe recognized $186,456$198.8 million of goodwill as a result of the acquisition, all of which has been assigned to the Healthcare segment.SeptemberJune 30, 20172018 and are subject to subsequent adjustment as additional information is obtained during the applicable measurement period. The primary areas of these preliminary estimates that are not yet finalized relatedrelate to certain tangible assets acquired and liabilities assumed, including deferred taxes identifiable intangible assets, as well asand uncertain tax positions. The measurement period adjustments recorded during the determinationsix months ended June 30, 2018 were due primarily to a $5.7 million adjustment to increase accrued liabilities related to the ZTech legal matter (see “Note 15. Legal Proceedings” for details) and an $8.9 million increase to other long-term liabilities.(in thousands, except lives) Amount Fair value of assets acquired: Cash and cash equivalents $ 4,303 Healthcare accounts receivable 10,089 Inventory 1,136 Prepaid expenses and other current assets 3,798 Property and equipment 27,507 Other assets 713 Identifiable intangible assets: Customer relationships 126,800 10 Technology 3,217 2.5 Total identifiable intangible assets 130,017 Total assets acquired 177,563 Fair value of liabilities assumed: Accounts payable 10,292 Accrued liabilities 15,579 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 14,465 Other long-term liabilities 32,364 Total liabilities assumed 83,811 Total identifiable net assets 93,752 Fair value of noncontrolling interest (9,961 ) Goodwill 198,783 Net assets acquired $ 282,574 the goodwill that will be deductible for tax purposes. The Company expectsrevenue and income/(loss) attributable to finalize all accounting for the acquisition of LifeWatch within one year of the acquisition date.
Average Life
(Years)For the period from July 12, 2017 to September 30, 2017, LifeWatch contributed revenues of $27,386 and net loss of $1,998 to our consolidated results of operations and comprehensive income (loss), and are included as components of our Healthcare and Technology segments.We incurred $3,148 and $8,188 ofLifeWatch.ninesix month periods ended SeptemberJune 30, 2017, respectively. These costs were included in other charges in our consolidated statements of operations and comprehensive income (loss).the CompanyBioTelemetry and LifeWatch 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:(pro forma, unaudited, in thousands, except per share amounts) Three Months Ended
June 30,
2017 Six Months Ended
June 30,
2017Revenue $ 88,500 $ 173,600 Net income/(loss) attributable to BioTelemetry, Inc. 2,600 (3,500 ) Net income/(loss) per common share attributable to BioTelemetry, Inc.: Basic $ 0.08 $ (0.11 ) Diluted $ 0.07 $ (0.11 ) Weighted average number of common shares outstanding: Basic 32,381 32,282 Diluted 35,921 32,282 Telcare, 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 in cash, with the potential for a performance-based earn out up to $5,000 upon reaching certain financial milestones. The fair 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. 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 fair value of the purchase price 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 $3,713 of goodwill as a result of the acquisition, all of which has been assigned to the Technology segment. We expect $668 of this goodwill will be deductible for tax purposes.The amounts below represent our preliminary fair value estimates as of September 30, 2017 and are subject to subsequent adjustment as additional information is obtained during the applicable measurement period. Measurement period adjustments reducing the valuation of inventory of $269 and $105 were recorded in the second and third quarters of 2017, respectively. The primary areas of these preliminary estimates that are not yet finalized related to deferred taxes. We expect to finalize all accounting for the acquisition of Telcare within one year of the acquisition date.The total consideration and related preliminary allocation for Telcare is summarized as follows:
Average Life
(Years)The following unaudited pro forma financial information has been prepared using historical financial results of the Company and Telcare 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 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. 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:
September 30, 2016
September 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 $1,300 at September 30, 2017. At September 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 $1,000 and $300 respectively.The following summarizes the changes in our contingent consideration during the nine months ended September 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. None 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:
September 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 September 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 nine months ended September 30, 2017:
Consideration3.(in thousands) June 30,
2018 December 31,
2017Raw materials and supplies $ 5,012 $ 3,128 Finished goods 2,696 2,204 Total inventory $ 7,708 $ 5,332 4.PropertyEquipmentPropertydeferred charges, of $199.0 million and equipment consists$199.4 million as of June 30, 2018 and December 31, 2017, respectively.following:
Useful Life
(Years)
30,
2017
31,
2016Depreciation expensefair value of contingent consideration were recognized within accrued liabilities and other long-term liabilities on ourpropertyour Telcare and equipment, inclusive of amortization of assets recorded under capital leases, was $5,682 and $2,627 forePatch acquisitions that occurred during the threeyear ended December 31, 2016: Three Months Ended Six Months Ended (in thousands) June 30,
2018 June 30,
2017 June 30,
2018 June 30,
2017Beginning balance $ — $ 2,700 $ 700 $ 3,305 Changes in fair value of contingent consideration — — (700 ) (605 ) Ending balance $ — $ 2,700 $ — $ 2,700 SeptemberJune 30, 2018 and 2017, the fair values of the contingent consideration decreased $0.7 million and 2016,$0.6 million, respectively, and $11,233 and $7,884 foras it was no longer probable that certain of the nine months ended September 30, 2017 and 2016, respectively.5.contingencies related to the Telcare or ePatch acquisitions, respectively, would be met.of September 30, 2017 and December 31, 2016 was $227,524 and $41,068, respectively. The increase inwell as the changes to goodwill during the three and ninesix months ended SeptemberJune 30, 2017 was primarily due to the LifeWatch acquisition, partially offset by2018: 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 adjustments 15,234 — — 15,234 Balance at June 30, 2018 $ 213,507 $ 16,293 $ 8,539 $ 238,339 related to our 2016 acquisitions.The changes in the carrying amounts of goodwill by segment were as follows:The change to goodwill in the Research segment relate to measurement period changes in the first quarter of 2017 to accrued liabilities and in the second quarter of 2017 to accrued liabilities and deferred taxes for our VirtualScopics, Inc. acquisition. The change to goodwill in the Technology segement relate to measurement period changes in the first quarter of 2017 to inventory and accrued liabilities, and in the second and third quarters of 2017 for inventory for our Telcare, Inc. acquisition. The increase in the Healthcare segment isare due to the LifeWatch acquisition.as of September 30, 2017 and December 31, 2016 are as follows:
Useful Life
30,
2017
31,
2016The estimated amortization expense for remainder of 2017, the next four years and thereafter is summarized as follows at September 30, 2017:Amortization expense for the three months ended September 30, 2017 and 2016 was $3,337 and $1,062, respectively, and amortization expense for the nine months ended September 30, 2017 and 2016 was $5,326 and $2,735, respectively.6. (in thousands, except years) June 30,
2018 December 31,
2017Customer relationships 5 - 15 $ 143,100 $ 143,174 Technology including internally developed software 1.5 - 10 16,779 15,953 Backlog 1 - 4 6,860 6,860 Covenants not to compete 5 - 7 1,040 1,040 Total intangible assets, gross 167,779 167,027 Customer relationships (17,836 ) (10,868 ) Technology including internally developed software (9,804 ) (8,573 ) Backlog (5,439 ) (5,052 ) Covenants not to compete (888 ) (827 ) Total accumulated amortization (33,967 ) (25,320 ) Total intangible assets, net $ 133,812 $ 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.SeptemberJune 30, 2017,2018, our investment in WellBridge represented 31%32.2% of its outstanding stock. A summary of our investment in WellbridgeWellBridge is as follows:7. Three Months Ended Six Months Ended (in thousands) June 30,
2018 June 30,
2017 June 30,
2018 June 30,
2017Beginning balance $ 1,292 $ 1,030 $ 1,431 $ 1,125 Capital contributions — 350 — 350 Loss in equity method investment (45 ) (101 ) (184 ) (196 ) Ending balance $ 1,247 $ 1,279 $ 1,247 $ 1,279 (in thousands) June 30,
2018 December 31,
2017Compensation $ 11,171 $ 13,694 Professional fees 4,932 3,816 Squeeze-out — 2,885 Severance 363 1,605 Non-income taxes 547 588 Interest 658 306 Operating costs 1,296 1,170 Facility costs 719 802 Other 1,169 1,189 Total $ 20,855 $ 26,055 as discussed in Note 2. Acquisitions, we entered into a credit agreement with SunTrust Bank (the “SunTrust Credit Agreement”), as a lender and an agent for the lenders (the “Lenders”“Lenders”). Pursuant to the credit agreement,SunTrust Credit Agreement, the Lenders agreed to make loans to the Companyus as follows; (i) a term loan in an aggregate principal amount equal to $205,000;$205.0 million; and (ii) a $50,000$50.0 million revolving credit facility for ongoing working capital purposes, which remains undrawn. The proceeds of the loans were used to pay our existing General Electric Credit Agreement of $24,875 and acquired LifeWatch debt of $3,027, 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 purposes.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.$199,047$199.0 million as of SeptemberJune 30, 2017,2018, which is the principal amount outstanding, net of $5,953$5.0 million of unamortized deferred financing costs to be amortized over the remaining term of the credit facility.In connection 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 June 30, 2018 was 0.3%, and the revolving credit facility remains undrawn as of that date.SunTrust credit agreement,squeeze-out procedures under Swiss law, we paidissued 58,786 shares to the $24,875 outstanding indebtedness under the Credit Agreement between the Company and Healthcare Financial Solutions, LLC, previously the General Electric Capital Corporation, as agentremaining stockholders of LifeWatch. See “Note 3. Acquisitions” for the lenders, and as a lender, and we terminated the General Electric Credit Agreement. We wrote-off the unamortized deferred financing feesfurther details related to the existing debtLifeWatch acquisition.$543, which is included in loss on extinguishmentJune 30, 2018, we were authorized to issue 10,000,000 shares of debtpreferred stock. As of June 30, 2018 and December 31, 2017, there were no shares of preferred stock issued or outstanding.statementsbalance sheet; however, we continue to reflect the net loss attributable to the noncontrolling interest on our consolidated statement of operations and comprehensive income (loss).8.for the period of time where we did not own the entire entity.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 remaining stock plan actively granting new stock options or units. The purpose of these stock plans was, and the OIP is, to grant incentive stock options to employees and non-qualified stock options, RSUs, performance stock and other stock-based incentive awards to officers, directors, employees and consultants. The Plans are administered by our Board of Directors (the “Board”) or its delegates. The number, type, exercise price, and vesting terms of awards are determined by the Board or its delegates in accordance with the terms of the Plans. The stock options granted expire on a date specified by the Board but generally not more than ten years from the grant date. Stock option grants to employees generally vest over four years while RSUs generally vest after three years.previous stock plan, the BioTelemetry, Inc. 2008 Equity Incentive 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 SeptemberJune 30, 2017, 2,780,9652018, 2,333,880 shares remain available for grant under the OIP.We recognized $1,485$1,138replaced our 2003 Plan. Under the terms of stock-based compensation expense for the three months ended September 30, 2017 and 2016, respectively. We recognized $5,685 and $3,7572008 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 stock options under the nine months ended September 30, 2017 and 2016, respectively.RSUPSO activity is summarized as follows:
Shares
Average
Exercise Price
Shares
Grant Date Fair
ValuePSOStock Options Weighted Average Remaining Contractual Term
(years) Aggregate Intrinsic Value
(in thousands)Outstanding as of December 31, 2017 3,574,439 $ 10.78 Granted 270,806 33.43 Forfeited (60,577 ) 27.31 Exercised (553,259 ) 8.53 Outstanding as of June 30, 2018 3,231,409 $ 12.76 5.7 $ 104,190 Exercisable as of June 30, 2018 2,215,761 $ 6.59 4.3 $ 85,097 Expected to vest as of June 30, 2018 926,897 $ 26.20 8.7 $ 17,424 Performance Stock Options Weighted Average Remaining Contractual Term
(years) Aggregate Intrinsic Value
(in thousands)Outstanding as of December 31, 2017 150,000 $ 20.41 Granted — — Forfeited — — Exercised (15,000 ) 18.33 Outstanding as of June 30, 2018 135,000 $ 20.64 8.5 $ 3,288 Exercisable as of June 30, 2018 135,000 $ 20.64 8.5 $ 3,288 Three Months Ended Six Months Ended (in thousands, except per option amounts) June 30,
2018 June 30,
2017 June 30,
2018 June 30,
2017Aggregate intrinsic value of options exercised $ 15,715 $ 2,073 $ 17,879 $ 5,825 Cash received from the exercise of stock options 3,665 985 4,992 2,966 Weighted average grant date fair value per option $ 20.17 $ 18.42 $ 19.79 $ 15.57
Shares
Average
Exercise Price
Shares
Grant Date Fair
ValueStock-based compensation expense is Restricted Stock Units Performance Stock Units Units outstanding as of December 31, 2017 467,129 $ 13.76 — — Granted 125,860 34.38 88,345 $ 37.79 Forfeited (7,980 ) 17.60 — — Vested (223,723 ) 12.03 — — Units outstanding as of June 30, 2018 361,286 $ 21.93 88,345 $ 37.79 recognizedif specific financial performance metrics are met, and the vested shares will then be modified based on relative total shareholder return. The 88,345 PSUs were granted at “target” levels; however, for outstanding PSUs whereshare pool purposes, we have reserved an additional 88,345 shares if the combined financial performance and market conditions are deemed probable for achievement. For PSUs deemed probable for achievement, stock-based compensation expense is recognized ratably over the expected vesting period.achieve maximum levels. For the three and ninesix months ended SeptemberJune 30, 2017,2018, no stock-based compensation expense related to these PSUs was recognized relatedin accordance with ASC 718 and ASC 505-50 for employees and non-employees, respectively. Three Months Ended Six Months Ended (in thousands) June 30,
2018 June 30,
2017 June 30,
2018 June 30,
2017Aggregate market value of RSUs vested $ 1,478 $ 320 $ 7,873 $ 4,585 the PSUs. For the three and nine months ended Septemberbe recognized over a weighted average period of approximately two years. Additionally, there were 576,546 RSUs vested but not released at June 30, 2016, we incurred stock-based compensation expense of $0 and $444, respectively, related to PSUs.PSOs are valued and stock-based compensation expense is only recognized once the performance conditions of the outstanding PSOs have been met. We incurred stock-based compensation expense of $0 and $1,533 for the three and nine months ended September 30, 2017 related to the PSOs. For the three and nine months ended September 30, 2016, no stock-based compensation expense was recognized related to the PSOs.For the nine months ended September 30, 2017, 47,966 shares were purchased in accordance with theIn July 2008, we made available an Employee Stock Purchase Plan (“2008 ESPP”). Net proceeds from the issuance of shares of common stock under the 2008 ESPP for the nine months ended September 30, 2017 were $636.”) in which substantially all of our full-time employees became eligible to participate effective March 18, 2008. In May 2017, the shareholders and Board of Directorsour stockholders approved the BioTelemetry, Inc. 2017 Employee Stock Purchase Plan (“2017 ESPP”ESPP”), with 500,000 shares reserved for issuance which replaced the 2008 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 credited to stockholders’ equity in the period that the shares are issued. Purchases under the 2017 ESPP which will replace the 2008 ESPP.are made in March and September. For the ninesix months ended SeptemberJune 30, 2017, 47,2492018, an aggregate of 65,477 shares were purchased in accordance with the 2017 ESPP. Net proceeds from the issuance of shares of common stock under the 2017 ESPP for the ninesix months ended SeptemberJune 30, 20172018 were $720.$1.2 million. At SeptemberJune 30, 2017, 452,7512018, 387,274 shares remain available for purchase under the 2017 ESPP.9. Three Months Ended Six Months Ended (in thousands) June 30,
2018 June 30,
2017 June 30,
2018 June 30,
2017Stock options $ 1,717 $ 560 $ 2,828 $ 1,156 Performance stock options — — — 1,534 Restricted stock units 840 413 1,560 1,226 Employee stock purchase plan 301 169 535 284 Total stock-based compensation expense $ 2,858 $ 1,142 $ 4,923 $ 4,200 operations and comprehensive income (loss) and record theoperations. The related accrualaccruals are recorded in the accrued liabilities line onof our consolidated balance sheets. These costs are primarily comprised of severance and employee related costs.acquisition and integration related costsour acquisitions and certain litigation as other charges as incurred. These expenses were primarily a result of activities surrounding our acquisitions 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 periods ending September 30, 2017, other charges have been partially offset by reductions in contingent consideration. A summary of these expenses is as follows:10. Three Months Ended Six Months Ended (in thousands) June 30,
2018 June 30,
2017 June 30,
2018 June 30,
2017Legal fees $ 1,305 $ 1,885 $ 2,841 $ 2,867 Professional fees 525 2,172 1,752 3,332 Severance and employee related costs 1,294 347 3,291 532 Change in fair value of contingent consideration — — (700 ) (605 ) Reserve for note receivable 1,793 — 1,793 — Other costs 291 247 1,316 264 Total $ 5,208 $ 4,651 $ 10,293 $ 6,390 IncomeWe recorded an income tax benefit of $435$1.5 million and $31 was recorded$1.6 million for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively, due primarily due to a discrete benefit recorded for an equity compensation deduction under the previously adopted ASU 2016-09. We recorded an income tax expense of $141 2016-9, Improvement to Employee Share Based Payment Accounting and an income tax benefitprovision of $54$0.4 million for the three and ninesix months ended SeptemberJune 30, 2016, respectively. These amounts have been recast to include excess tax benefits related to stock based compensation in association with the adoption of ASU 2016-09.SeptemberJune 30, 20172018 and December 31, 2016,2017, we had deferred tax assets, net of deferred tax liabilities and valuation allowance, of $15,498$20.9 million and $36,636,$17.7 million, respectively.netunrecognized tax benefit, or a portion of an unrecognized tax benefit, is presented in the consolidated financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward.September 30, 2017 reflects a preliminary estimate of the deferred taxes from the LifeWatch acquisition.11.December 31, 2017. We will finalize our adjustments during 2018.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, 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, imaging services, scientific consulting and data management services for drug and medical device trials. The 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 from the nine months ended:
Other
Other12.Corporate and Other category to the Healthcare segment to synchronize our external reporting with the way our chief operating decision maker reviews segment performance and makes decisions about the reportable segments. Three Months Ended June 30, 2018 (in thousands) Healthcare Research Consolidated Revenues $ 86,723 $ 12,546 $ 2,091 $ 101,360 Gross profit 60,882 5,328 (455 ) 65,755 Income/(loss) before income taxes 34,875 1,520 (27,451 ) 8,944 Depreciation and amortization 4,948 967 4,139 10,054 Capital expenditures 7,077 911 (1,989 ) 5,999 Three Months Ended June 30, 2017 (reclassified, in thousands) Healthcare Research Consolidated Revenues $ 44,070 $ 9,562 $ 4,497 $ 58,129 Gross profit 29,695 3,981 2,291 35,967 Income/(loss) before income taxes 15,528 324 (12,856 ) 2,996 Depreciation and amortization 2,706 1,039 80 3,825 Capital expenditures 2,713 466 51 3,230 Six Months Ended June 30, 2018 (in thousands) Healthcare Research Consolidated Revenues $ 167,274 $ 23,790 $ 4,792 $ 195,856 Gross profit 113,851 10,246 (294 ) 123,803 Income/(loss) before income taxes 52,599 2,306 (41,067 ) 13,838 Depreciation and amortization 16,384 1,977 1,521 19,882 Capital expenditures 12,141 1,202 (3,406 ) 9,937 Six Months Ended June 30, 2017 (reclassified, in thousands) Healthcare Research Consolidated Revenues $ 86,581 $ 18,886 $ 8,543 $ 114,010 Gross profit 57,558 7,734 3,584 68,876 Income/(loss) before income taxes 28,546 703 (26,923 ) 2,326 Depreciation and amortization 5,567 2,072 (99 ) 7,540 Capital expenditures 5,603 466 128 6,197 Inthird quarter of 2017, a settlement was reached with the selling stockholder of Mednet Healthcare Technologies, Inc., Heartcare Corporation of America, Inc., Universal Medical, Inc., and Universal Medical Laboratory, Inc. (together, “Mednet”), whereby 79,333 shares of BioTelemetry common stock with a fair value of $2,753 were returned to the Company. These shares were part of the consideration paid in the January 31, 2014 acquisition of Mednet and had been subject to certain terms and conditions set forth in the Stock Purchase Agreement ( the “Agreement”). In accordance with the terms of the Agreement, BioTelemetry sought indemnification for alleged breaches of certain representations and warranties. Accordingly, in 2016 the company recorded a $1,420 indemnification asset. However, as a result of the settlement’s fair value exceeding the indemnification asset recorded, a gain of $1,333 was recorded as a component of other non-operating income (expense), net in the consolidated statements of operations for the nine months ended September 30, 2017.In 2011, we experienced the theft of two unencrypted laptop computers and, as a result, were required to provide notices under the HIPAA Breach Notification Rule 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 agreement with the Company. Per the agreement, BioTelemetry paid the OCR $2,500 and agreed to submit a two-year corrective action plan regarding our 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 other non-operating income (expense), net in the consolidated statements of operations and comprehensive income (loss) for the nine months ended September 30, 2017.“Claimants”“Claimants”) filed an arbitration demand against LifeWatch with the American Arbitration Association. Claimants allegealleged that LifeWatch violated the 2015 Stock Purchase Agreement for the purchase of FlexLife Health, Inc., a remote international normalized ratio (“INR”) monitoring business. Claimants filed the pending demand after LifeWatch terminated the INR business in late 2016. The demand allegesalleged LifeWatch did not make commercially reasonable efforts to achieve certain conditions precedent and did not have a reasonable basis for terminating the business line. Claimants seeksought liquidated damages and attorneys’ fees. We are vigorously defending against these claims and are seeking recovery of attorneys’ fees related to our defense. Discovery is ongoing, andOn May 9, 2018, the arbitration hearing is scheduledpanel issued an award including accrued interest against LifeWatch in the amount ofFebruary 2018,our LifeWatch acquisition (see “Note 3. Acquisitions”). The interest accrued since the acquisition date of LifeWatch was recorded as a component of other non-operating expense and accrued liabilities within our consolidated financial statements. The total amount of the award and accrued interest was paid in Cleveland, Ohio. The probable outcome of this matter cannot be determined, nor can we estimate a range of potential loss. Therefore, in accordance with authoritative guidance on the evaluation of loss contingencies, we have not recorded an accrual related to this matter.May 2018.2016,2017, and in conjunction with the accompanying quarterly unaudited condensed consolidated financial 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. Unless otherwise noted, the figures in the following discussions are unaudited.Companycardiacremote 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. TheResearch. 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”)remote cardiac telemetry service marketed as Mobile Cardiac Outpatient TelemetryTM (“MCOTTM”), External Cardiac Ambulatory Telemetry (“ECAT”) or Ambulatory Cardiac Telemetry (“ACT”) to wireless and trans-telephonic event, Holter, extended 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 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.Recent AcquisitionsOn July 12, 2017, we acquired control of LifeWatch AG (“LifeWatch”) via the acquisition of approximately 97% of their outstanding shares. At settlement, we paid aggregate consideration of 3,615,840 shares of BioTelemetry common stockhospitals and cash in the amount of approximately $165.8 million. On that date, we acquired control of LifeWatch AGcorporate overhead and began consolidating its financial statements. The interest represented by the sharesother items not tendered or subsequently acquired through September 30, 2017 are presented as noncontrolling interests in our consolidated financial statements. The fair value of the noncontrolling interest was determined based on the observable quoted share price as of the acquisition date. As of September 30, 2017, we owned 98.5% of LifeWatch AG and expectallocated to acquire the remaining untendered LifeWatch shares pursuant to a squeeze-out procedure in accordance with Swiss law and takeover regulation in the fourth quarter of 2017 or shortly thereafter.On December 1, 2016, we entered into a Share and Asset Purchase Agreement (“Agreement”) with Telcare, Inc. (“Telcare”) pursuant to which we 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, we 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 us. 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, we entered into an Asset Purchase Agreement (“APA”) with DELTA Danish Electronics, Light, and Acoustics (“DELTA”), pursuant to which we 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 sharesany of our 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.Revenue Recognition“Part I; Item 1. Financial Statements”Healthcare of this report in conformity with U.S. generally accepted accounting principles (“Healthcare revenue includes revenueU.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 historical experience, analysis of current trends, and various other factors that we believe to be reasonable under the circumstances. Actual results could differ from MCT, Event, Holter, Pacemakerthose estimates under different assumptions or conditions.INR monitoring services. We receive aestimates and make adjustments when facts and circumstances warrant. Our significant portionaccounting policies are described in “Part II; Item 8. Financial Statements and Supplementary Data; Notes to Consolidated Financial Statements; Note 2. Summary of Significant Accounting Policies” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017. The accounting policies and related assumptions that we consider to be more critical to the preparation of our revenue from third-party commercial insurance organizationsfinancial statements and governmental entities. We also receive reimbursement directly from patients through co-paysaccompanying notes and self-pay arrangements. Billings for services reimbursed by contracted third-party payors, including Medicare,involve the most significant management judgments and estimates are recorded as revenue, netdescribed in “Part II; Item 7. Management’s Discussion and Analysis 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 timeFinancial Condition and Results 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 September 30, 2017Operations; Critical Accounting Policies and 2016, revenue from Medicare as a percentageEstimates” of our Healthcare revenue was 42.7% and 41.5%, respectively. For the nine months ended September 30, 2017 and 2016, revenue from Medicare as a percentage of our Healthcare revenue was 41.9% 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 providedAnnual Report 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. 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 receivable related to the Healthcare segment are recorded at the time revenue is recognized, net of contractual allowances, and are presented on the consolidated balance sheets 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. We record an allowance for doubtful accounts based on the aging of receivables using payor-specific historical data. 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 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 related to the Research and Technology segments are recorded at the time revenue is recognized, or when products are shipped or services are performed. We estimate the allowance for doubtful accounts on 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 $6.4 million and $6.3 million of receivablesForm 10-K for the nine monthsfiscal year ended September 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 - Revenue from Contracts with Customers, there were no material write-offschanges in, or additions to, our critical accounting policies or in the Research and Technology segments. We recorded bad debt expense of $3.8 million and $9.0 million, respectively, forassumptions or estimates we used to prepare the three and nine months ended September 30, 2017. We recorded bad debt expense of $2.5 million and $7.8 million, respectively, for the three and nine months ended September 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 as well as activities surrounding our acquisitions. Other charges are costs that are not considered necessary to the ongoing business operations.SeptemberJune 30, 20172018 and 2016 Three Months Ended Change (in thousands, except percentages) June 30,
2018 June 30,
2017 $ % Healthcare $ 86,723 $ 44,070 $ 42,653 96.8 % Research 12,546 9,562 2,984 31.2 % Other 2,091 4,497 (2,406 ) (53.5 )% Total revenues $ 101,360 $ 58,129 $ 43,231 74.4 % Revenues.Total revenues for the three months ended SeptemberJune 30, 2017 were $81.0 million compared2018 increased 74.4% driven by a 96.8% increase in Healthcare revenue and a 31.2% increase in Research revenue. The Healthcare revenue increase was due to $53.1 milliona 70% increase in Healthcare patient volume resulting primarily from the LifeWatch acquisition. On an organic basis, Healthcare revenue grew 16%. The organic revenue growth stemmed from higher mobile cardiac telemetry (“MCT”) and extended Holter patient volume as well as a favorable payor mix. The Research revenue increase was driven by higher imaging volume from oncology studies as well as increased cardiac revenue from early phase studies. The strength in Healthcare and Research revenue was partially offset by lower Other revenue due to several large product sales in the second quarter of 2017. Three Months Ended Change (in thousands, except percentages) June 30,
2018 June 30,
2017 $ % Gross profit $ 65,755 $ 35,967 $ 29,788 82.8 % Percentage of revenues 64.9 % 61.9 % SeptemberJune 30, 2016, reflecting an increase of $27.9 million, or 52.7%. Healthcare revenue2018 increased $29.1 million due to the impact of the LifeWatch acquisition, organic revenue growth and realized synergies from our acquisition of LifeWatch, which accounted for $27.4 million in revenue, as well as increased patient volumes and a favorable product mix, partially offset by a reduction in MCT Medicare pricing effective January 1, 2017. Research revenue decreased $1.1 million, due to lower cardiac study volumes. Technology revenue was consistent with the prior year quarter.Gross Profit. Gross profit increased to $49.1 million for the three months ended September 30, 2017 from $32.9 million for the three months ended September 30, 2016, reflecting anacquisitions. The 300 basis point increase of $16.2 million, or 49.3%. Gross profit as a percentage of revenues was 60.6% for the three months ended September 30, 2017 compared to 61.9% for the three months ended September 30, 2016. The decrease in gross margin percentage was due to the impact of our recent acquisitions, which carry lower profit margins than our existing business, as well assynergies resulting from the aforementioned reduction in MCT Medicare pricing effective January 1, 2017.Expense.Expense Three Months Ended Change (in thousands, except percentages) June 30,
2018 June 30,
2017 $ % General and administrative expense $ 28,741 $ 14,366 $ 14,375 100.1 % Percentage of revenues 28.4 % 24.7 % was $25.3 millionincreased for the three months ended SeptemberJune 30, 2017 compared2018 due to $13.9the $10.4 million impact of the LifeWatch acquisition, $3.3 million of additional intangible asset amortization attributable to LifeWatch, $2.0 million of additional headcount related expense and $1.3 million higher stock compensation expense, partially offset by $2.6 million in synergies stemming from the integration of LifeWatch. Three Months Ended Change (in thousands, except percentages) June 30,
2018 June 30,
2017 $ % Sales and marketing expense $ 11,075 $ 7,631 $ 3,444 45.1 % Percentage of revenues 10.9 % 13.1 % SeptemberJune 30, 2016. The increase2018 was due primarily to the $5.1 million of $11.4the LifeWatch acquisition, partially offset by $1.2 million or 82.8%, wasof synergies due to the additionintegration of $11.1 million from the acquisition of LifeWatch as well as a $0.3 millionLifeWatch. Three Months Ended Change (in thousands, except percentages) June 30,
2018 June 30,
2017 $ % Bad debt expense $ 6,875 $ 2,416 $ 4,459 184.6 % Percentage of revenues 6.8 % 4.2 % consulting expenses, partially offset by acquisition synergies. As a percent of total revenues, general and administrativebad debt expense was 31.3% for the three months ended SeptemberJune 30, 2017 compared to 26.1% for the three months ended September 30, 2016.Sales and Marketing Expense. Sales and marketing expense was $9.7 million for the three months ended September 30, 2017 compared to $7.0 million for the three months ended September 30, 2016. The increase of $2.7 million, or 38.5%,2018 was due to a $3.2 million increase from the acquisition of LifeWatch, partially offset by a $0.5 million decrease in travel and meeting expenses dueprimarily to the timing$2.6 million impact of sales meetings and tradeshows. As a percent of total revenues, sales and marketing expense was 12.0% for the three months ended September 30, 2017 compared to 13.2% forLifeWatch acquisition, the three months ended September 30, 2016.Bad Debt Expense. Bad debt expense was $3.8 million for the three months ended September 30, 2017 compared to $2.5 million for the three months ended September 30, 2016. The increase of $1.3 million, or 51.0%, was due to increased Healthcare revenue from our acquisition of LifeWatch and the timing of revenues and collections. As a percentage of total revenues, bad debt expense was 4.7% for the three months ended September 30, 2017 and for the three months ended September 30, 2016. Substantially all of our bad debt expense relates to the Healthcare segment.collections, as well as a $1.1 million specific reserve related to a customer bankruptcy in the Corporate and Other category. Bad debt expense in the Research and Technology segments was minimal and is recorded on a specific account basis.Expense.Expense Three Months Ended Change (in thousands, except percentages) June 30,
2018 June 30,
2017 $ % Research and development expense $ 2,733 $ 2,515 $ 218 8.7 % Percentage of revenues 2.7 % 4.3 % expense was $3.3 million for the three months ended September 30, 2017 compared to $2.1 million for the three months ended September 30, 2016. The increase of $1.2 million, or 53.3%, was due to the addition of $0.6 million from the acquisition of LifeWatch, a $0.3 million increase in consulting services related to the development of new hardware, as well as a $0.2 million increase in employee related costs. As a percent of total revenues, research and development expense was 4.0% for the three months ended September 30, 2017 and September 30, 2016.Other Charges. During the three months ended September 30, 2017, we incurred $8.2 million of other charges primarily related to legal and professional fees, as well as severance costs related to the acquisition of LifeWatch. For the three months ended September 30, 2017, other charges were 10.1% of total revenues.During the three months ended September 30, 2016, we incurred $2.4 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 September 30, 2016, other charges were 4.5% of total revenues.Interest Expense. Interest expense was $1.9 million for the three months ended September 30, 2017 compared to $0.5 million for the three months ended September 30, 2016. The increase was primarily due to the interest from the $205.0 million term loan entered into in July 2017.Loss on Extinguishment of Debt. Loss on extinguishment of debt was $0.5 million for the three months ended September 30, 2017 and represented a write off of the unamortized debt issuance costs when we paid off our General Electric Credit Agreement in July 2017. There was no loss on extinguishment of debt for the three months ended September 30, 2016.Loss on Equity Method Investment. Loss on equity method investment was $0.1 million for the three months ended September 30, 2017 and 2016, respectively.Other non-operating income (expense), net. Other non-operating income was $0.7 million for the three months ended September 30, 2017 compared to a nominal expense for the three months ended SeptemberJune 30, 2016. The increase was2018 increased due primarily to the $0.8 million impact of the LifeWatch acquisition, offset partially by $0.7 million of synergies realized from the integration of LifeWatch. Three Months Ended Change (in thousands, except percentages) June 30,
2018 June 30,
2017 $ % Other charges $ 5,208 $ 4,651 $ 557 12.0 % Percentage of revenues 5.1 % 8.0 % a gain of $1.3$3.4 million for a settlementtransaction costs, primarily legal and professional fees, associated with a former ownerthe LifeWatch acquisition, $0.7 million for patent litigation and $0.6 million related to other restructuring and nonrecurring activities. Three Months Ended Change (in thousands, except percentages) June 30,
2018 June 30,
2017 $ % Interest expense $ (2,684 ) $ (392 ) $ (2,292 ) 584.7 % Loss on equity method investment (45 ) (101 ) 56 (55.4 )% Other non-operating income/(expense), net 550 (899 ) 1,449 (161.2 )% Total Other expense $ (2,179 ) $ (1,392 ) $ (787 ) 56.5 % Percentage of revenues 2.2 % 2.4 % Mednet,additional interest expense resulting from the new Credit Agreement entered into concurrent with the LifeWatch acquisition and $0.3 million of interest related to the ZTech ruling (see “Part I; Item 1. Financial Statements; Notes to Consolidated Financial Statements; Note 15. Legal Proceedings”), partially offset by $0.4an unrealized foreign exchange gain of $1.0 million related toassociated with our uncertain tax positions. Other non-operating expense for the write offthree months ended June 30, 2017 was impacted by a $0.9 million change in the fair value of a foreign currency option purchased in connection with the derivative instrument premium.Taxes.Taxes Three Months Ended Change (in thousands, except percentages) June 30,
2018 June 30,
2017 $ % Benefit from/(provision for) income taxes $ 1,500 $ (1,270 ) $ 2,770 (218.1 )% Effective tax rate 16.8 % (42.4 )% SeptemberJune 30, 2018, we recognized an income tax benefit due primarily to a discrete benefit recorded for equity compensation deductions. For the three months ended June 30, 2017, we recorded an income tax benefit of $0.4 million.expense. 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 35%in the range of 14% to 16%, absent changes in tax laws or significant changes in uncertain tax positions. For the three months ended September 30, 2016, we recorded an income tax expense of $0.1 million.Net Loss Attributable to Noncontrolling Interests. The amount of net loss attributable to noncontrolling interests of $0.3 million for the three months ended September 30, 2017 is related to the post-acquisition activity of the 1.5% of LifeWatch shares that we have not yet acquired and the 45% of LifeWatch Turkey that we do not own.Net Income (Loss) Attributable to BioTelemetry, Inc. We recognized a net loss attributable to BioTelemetry of $2.3 million for the three months ended September 30, 2017 compared to net income attributable to BioTelemetry of $4.2 million for the three months ended September 30, 2016.NineSeptemberJune 30, 20172018 and 2016Revenues.June 30, 2017 Six Months Ended Change (in thousands, except percentages) June 30,
2018 June 30,
2017 $ % Healthcare $ 167,274 $ 86,581 $ 80,693 93.2 % Research 23,790 18,886 4,904 26.0 % Other 4,792 8,543 (3,751 ) (43.9 )% Total revenues $ 195,856 $ 114,010 $ 81,846 71.8 % ninesix months ended SeptemberJune 30, 2017 were $195.0 million compared to $154.4 million for the nine months ended September 30, 2016, reflecting an2018 increased 71.8%, driven by a 93.2% increase of $40.6 million, or 26.3%.in Healthcare revenue increased $32.4 million primarilyand a 26% increase in Research revenue. The Healthcare revenue increase was due to our acquisition of LifeWatch, which accounted for $27.4 milliona 66% increase in revenue, and increasedHealthcare patient volumes and a favorable product mix, partially offset by a reduction in MCT Medicare pricing effective January 1, 2017. Research revenue increased $4.5 millionvolume due to the impact of the LifeWatch acquisition. On an organic basis, Healthcare revenue grew 14%. The organic revenue growth instemmed from higher MCT and extended Holter patient volume as well as the full year impact of the acquisition of thea favorable payor mix. The Research revenue increase was driven by higher imaging business, VirtualScopics, which occurred during the second quarter of 2016,volume. The strength in Healthcare and Research revenue was partially offset by lower cardiac study volumes. TechnologyOther revenue increased $3.7 million, due to several large product sales in the acquisitionfirst half of Telcare during the fourth quarter of 2016.Profit.Profit Six Months Ended Change (in thousands, except percentages) June 30,
2018 June 30,
2017 $ % Gross profit $ 123,803 $ 68,876 $ 54,927 79.7 % Percentage of revenues 63.2 % 60.4 % increased to $117.9 million for the ninesix months ended SeptemberJune 30, 20172018 increased due primarily to the impact of the LifeWatch acquisition, the organic revenue growth and realized synergies from $96.4 million for the nine months ended September 30, 2016, reflecting anour acquisitions. The 280 basis point increase of $21.5 million, or 22.3%. Gross profit as a percentage of revenues was 60.5% for the nine months ended September 30, 2017 compared to 62.5% for the nine months ended September 30, 2016. The decrease in gross margin percentage was due to the impact of our recent acquisitions, which carry lower profit margins than our existing business, as well assynergies resulting from the aforementioned reduction in MCT Medicare pricing effective January 1, 2017.Expense.Expense Six Months Ended Change (in thousands, except percentages) June 30,
2018 June 30,
2017 $ % General and administrative expense $ 55,460 $ 30,283 $ 25,177 83.1 % Percentage of revenues 28.3 % 26.6 % was $55.6 millionincreased for the ninesix months ended SeptemberJune 30, 2017 compared2018 due primarily to $40.6the $19.6 million impact of the LifeWatch acquisition, $6.6 million of intangible asset amortization attributable to LifeWatch and $3.7 million of additional headcount-related expense, partially offset by $4.2 million in synergies stemming from the integration of LifeWatch. Six Months Ended Change (in thousands, except percentages) June 30,
2018 June 30,
2017 $ % Sales and marketing expense $ 22,415 $ 15,332 $ 7,083 46.2 % Percentage of revenues 11.4 % 13.4 % ninesix months ended SeptemberJune 30, 2016. The increase of $15.0 million, or 37.0%,2018 was due to the addition$10.4 million impact of $11.1 million from the LifeWatch acquisition of LifeWatch, $1.4 million of additional employee related costs, aand $1.0 million increase in technology costs and a $0.8 million increase in consultingdue to higher sales meeting costs, partially offset by $4.0 million of synergies relateddue to the acquisitions. As a percentintegration of total revenues, generalLifeWatch and administrative$0.4 million of lower training and travel costs. Six Months Ended Change (in thousands, except percentages) June 30,
2018 June 30,
2017 $ % Bad debt expense $ 11,754 $ 5,207 $ 6,547 125.7 % Percentage of revenues 6.0 % 4.6 % was 28.5% for the ninesix months ended SeptemberJune 30, 2017 compared to 26.3% for the nine months ended September 30, 2016.Sales and Marketing Expense. Sales and marketing expense was $25.1 million for the nine months ended September 30, 2017 compared to $21.7 million for the nine months ended September 30, 2016. The increase of $3.4 million, or 15.5%,2018 was due to a $3.2the $4.4 million increase related toimpact of the LifeWatch acquisition, of LifeWatch and a $2.0 million 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 12.8% for the nine months ended September 30, 2017 compared to 14.0% for the nine months ended September 30, 2016.Bad Debt Expense. Bad debt expense was $9.0 million for the nine months ended September 30, 2017 compared to $7.8 million for the nine months ended September 30, 2016. The increase of $1.2 million, or 15.1%, was due to increased Healthcare revenue due in part to our acquisition of LifeWatch and the timing of revenuesHealthcare collections, as well as a $1.1 million specific reserve related to a customer bankruptcy in the Corporate and collections. As a percentage of total revenues, bad debt expense was 4.6% for the nine months ended September 30, 2017 compared to 5.1% for the nine months ended September 30, 2016. Substantially all of our bad debt expense relates to the Healthcare segment.Other category. Bad debt expense in the Research and Technology segments was minimal and is recorded on a specific account basis.Expense.Expense Six Months Ended Change (in thousands, except percentages) June 30,
2018 June 30,
2017 $ % Research and development expense $ 6,022 $ 4,948 $ 1,074 21.7 % Percentage of revenues 3.1 % 4.3 % was $8.2 million for the ninesix months ended SeptemberJune 30, 2017 compared to $5.9 million for the nine months ended September 30, 2016. The increase of $2.3 million, or 39.7%, was2018 increased due to the addition$1.7 million impact of $0.6the LifeWatch acquisition, offset partially by $0.9 million of synergies realized from the acquisitionintegration of LifeWatch. Six Months Ended Change (in thousands, except percentages) June 30,
2018 June 30,
2017 $ % Other charges $ 10,293 $ 6,390 $ 3,903 61.1 % Percentage of revenues 5.3 % 5.6 % $1.0$1.8 million increase in consulting services related to the development of our next generation devicereserve for a note receivable with a bankrupt customer, $1.2 million for patent litigation and a $0.6 million increase in employee related costs. As a percent of total revenues, research and development expense was 4.2% for the nine months ended September 30, 2017 compared to 3.8% for the nine months ended September 30, 2016.Other Charges. During the nine months ended September 30, 2017, we incurred $14.5$0.8 million of other charges primarilyexpenses including legal, professional fees and depreciation, partially offset by a $0.7 million reduction in contingent consideration related to a 2016 acquisition.as well as severance costsassociated with the LifeWatch acquisition, $0.6 million related to other restructuring activities, $0.5 million for patent litigation and $0.3 million of other expenses. Six Months Ended Change (in thousands, except percentages) June 30,
2018 June 30,
2017 $ % Interest expense $ (4,574 ) $ (781 ) $ (3,793 ) 485.7 % Loss on equity method investment (184 ) (196 ) 12 (6.1 )% Other non-operating income/(expense), net 737 (3,413 ) 4,150 (121.6 )% Total Other expense $ (4,021 ) $ (4,390 ) $ 369 (8.4 )% Percentage of revenues 2.1 % 3.9 % acquisition of LifeWatch. These charges wereZTech ruling (see “Part I; Item 1. Financial Statements; Notes to Consolidated Financial Statements; Note 15. Legal Proceedings”), partially offset by a $2.0an unrealized foreign exchange gain of $1.0 million decrease in fair value of acquisition-related contingent consideration. For the nine months ended September 30, 2017, other charges were 7.5% of total revenues.During the nine months ended September 30, 2016, we incurred $5.8 million of other charges primarily related to legal fees for patent litigation as well as professional services related toassociated with our acquisitions. For the nine months ended September 30, 2016, other charges were 3.8% of total revenues.Interest Expense. Interest expense was $2.6 million for the nine months ended September 30, 2017 compared to $1.4 million for the nine months ended September 30, 2016. The increase was primarily due to the interest from the $205.0 million term loan entered into in July 2017.Loss on Extinguishment of Debt. Loss on extinguishment of debt was $0.5 million for the nine months ended September 30, 2017 and represented a write off of the unamortized debt issuance costs when we paid off our General Electric Credit Agreement in July 2017. There was no loss on extinguishment of debt for the nine months ended September 30, 2016.Loss on Equity Method Investment. Loss on equity method investment was $0.3 million for the nine months ended September 30, 2017 compared to $0.2 million for the nine months ended September 30, 2016.net. Other non-operating expense was $2.8 million for the ninesix months ended SeptemberJune 30, 2017 compared to other expense of $0.1 million for the nine months ended September 30, 2016. The increase was primarily due to a non-operating charge ofimpacted by $2.5 million recorded in the first quarter ofassociated with our 2017 for a settlement with the United States Department of Health and Human Services - Office for Civil Rights related to the theft of two unencrypted laptop computers in 2011 and the $0.9 million change in the fair value of a $1.3 million charge related toforeign currency option purchased in connection with the write off of the derivative instrument premium, partially offset by a gain of $1.3 million for a settlement with a former owner of Mednet.Taxes.Taxes Six Months Ended Change (in thousands, except percentages) June 30,
2018 June 30,
2017 $ % Benefit from/(provision for) income taxes $ 1,642 $ (404 ) $ 2,046 (506.4 )% Effective tax rate 11.9 % (17.4 )% ninesix months ended SeptemberJune 30, 2018, we recognized an income tax benefit due primarily to a discrete benefit recorded for equity compensation deductions. For the three months ended June 30, 2017, we recorded a nominal income tax benefit.expense. 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 35%in the range of 14% to 16%, absent changes in tax laws or significant changes in uncertain tax positions. For the nine months ended September 30, 2016, we recorded an income tax benefit of $0.1 million.Net Loss Attributable to Noncontrolling Interests. The amount of net loss attributable to noncontrolling interests of $0.3 million for the nine months ended September 30, 2017 is related to the post-acquisition activity of the 1.5% of LifeWatch shares that we have not yet acquired and the 45% of LifeWatch Turkey that we do not own.Net Income (Loss) attributable to BioTelemetry, Inc. We recognized a net loss attributable to BioTelemetry of $0.4 million for the nine months ended September 30, 2017 compared to net income attributable to BioTelemetry of $13.0 million for the nine months ended September 30, 2016.Our Annual Report on Form 10-K for the year ended December 31, 2016 includes a detailed discussion ofcontractual obligations and commitments. capital resources:(in thousands, except ratios) June 30,
2018 December 31,
2017Cash and cash equivalents $ 39,434 $ 36,022 Healthcare accounts receivable, net of allowance for doubtful accounts 35,332 25,190 Other accounts receivable, net of allowance for doubtful accounts 14,601 13,296 Availability under revolving credit facility 50,000 50,000 Working capital $ 59,249 $ 39,153 Current ratio 2.3 1.8 Total capital lease obligations $ 3,536 $ 5,509 Total debt $ 198,953 $ 199,356 information presented below updates and should be read in conjunction with the information disclosed in that Form 10-K.As of September 30, 2017, our principal source of liquidity wasfollowing table highlights certain cash and cash equivalents of $26.2 million and net healthcare and other accounts receivables of $36.8 million. We had working capital of $29.5 million as of September 30, 2017.We generated $10.7 million of cash from operations for the nine months ended September 30, 2017. Our ongoing operations during the nine months ended September 30, 2017 resulted in a net loss of $0.6 million, which included $29.8 million of non-cash itemsflow activities: Six Months Ended (in thousands) June 30,
2018 June 30,
2017Net income $ 15,480 $ 1,922 Non-cash adjustments to net income 33,342 17,447 Cash used for working capital (32,686 ) (8,636 ) Cash provided by operating activities 16,136 10,733 Cash used in investing activities (9,937 ) (7,869 ) Cash (used in)/provided by financing activities $ (2,621 ) $ 963 relatedrelate to bad debt, depreciation, amortization and stock-basedstock compensation expense. These items were partially offset by $18.5For the six months ended June 30, 2018, our non-cash adjustments increased compared to the comparative prior year period due primarily to $6.7 million of cash used for working capital.We used $180.0increased amortization, $5.7 million of cash in investing activities for the nine months ended September 30, 2017. We used $166.2increased depreciation and $6.5 million of cash, net of cash acquired, forincreased bad debt expense, predominantly related to the acquisition of LifeWatch, and $11.9offset partially by a $3.3 million of cash for capital purchases primarily related to medical devicesincrease in the Healthcare and Research segments for use in our ongoing operations and an investment in internally developed software for the nine months ended September 30, 2017.Julyconjunction with the LifeWatch acquisition in 2017, we entered intoestablished a $205.0 million term loan and a $50.0 million revolving credit facilitynew Credit Agreement with SunTrust Bank as a lender and an agent forlenders named therein in the lenders. The proceedsamount of the Loans were used pay off our General Electric Credit Agreement balance of $24.9$205.0 million and acquired LifeWatch debt of $3.0 million, pay a portion ofextinguished the consideration for the acquisition of LifeWatchprevious Healthcare Financial Solutions, LLC Credit Agreement. For further details regarding these agreements, please see “Part II; Item 8. Financial Statements and pay related transaction fees and expenses for the acquisition of LifeWatch. At September 30, 2017, the revolving credit facility remained undrawn.Contractual Obligations and CommitmentsOur contractual obligations reflected in Part II, Item 7 of our 2016 Annual Report on Form 10-K for the fiscal year ended December 31, 2016 have materially changed as a result of the LifeWatch acquisition. Except for the debt obligation as of December 31, 2016, which was refinanced with SunTrust Bank in conjunction with the LifeWatch acquisition, our existing obligations at December 31, 2016 have not materially changed. Below are the updates to the undiscounted payment commitments as of September 30, 2017 in conjunction with the LifeWatch acquisition and the related SunTrust refinancing:
Payments due by period* the accrued interest has been excluded from these amounts as the rate is variable, determined annually, as defined by the credit agreement.balanceand cash equivalents as of SeptemberJune 30, 2017 was $26.22018 were $39.4 million. We do not invest in any short-term or long-term securities, nor do we hold any derivative financial instruments for trading securities.SeptemberJune 30, 2017,2018, we had $205.0$199.0 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 II; Item 8. Financial Statements and Supplementary Data; Notes to Consolidated Financial Statements; Note 10. Credit Agreement” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.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.SeptemberJune 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. This evaluation of the effectiveness of the Company’s internal control over financial reporting did not include the internal controls of LifeWatch, which was acquired in the third quarter of 2017, due to the timing of the acquisition. LifeWatch will be included in our evaluation of the effectiveness of the Company’s internal control over financial reporting for periods beginning after January 1, 2018.Changes in Internal Control over Financial ReportingOn July 12, 2017, we completed the acquisition of LifeWatch. We are in the process of integrating the acquired LifeWatch entities and our management is in the process of evaluating any related changes to our internal control over financial reporting as a result of this integration. Except for any changes relating to this integration, there has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) for the nine months ended September 30, 2017, that materially affected or are reasonably likely to materially affect our internal control over financial reporting.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.ExhibitNumber2.110.1Incorporated by and among Biotelemetry, Inc. and SunTrust Bank, as agent for the lenders and swingline lender, dated July 12, 2017.ReferenceFiled/Furnished Herewith 31.1Form File No. Exhibit Filing Date 31.1 † 31.231.2 † 3232 + 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+ Furnished herewith. BIOTELEMETRY, INC.BIOTELEMETRY, INC. Date: November 7, 2017July 27, 2018 CPA