Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

FORM 10-Q


(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017

March 31, 2020

OR

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to

______

Commission File Number Number: 000-55039

logo1a13.jpg
BioTelemetry, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware

46-2568498

Delaware46-2568498
(State or Other Jurisdictionother jurisdiction of Incorporationincorporation or Organization)

organization)

(I.R.S. Employer Identification Number)

No.)

1000 Cedar Hollow Road

Malvern, Pennsylvania

Pennsylvania

19355

(Address of Principal Executive Offices)

principal executive offices)

(Zip Code)

(610)

(610) 729-7000

(Registrant’s Telephone Number, including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 per shareBEATNASDAQ Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  o

Indicate by check mark whether the registrant has submitted electronically and 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  x  No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filero

Accelerated filerx

Emerging growth company

Non-accelerated filero

Smaller reporting companyo

(Do not check if a smaller reporting company)

Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o  No  x

As of November 1, 2017, 32,408,118April 30, 2020, 34,144,802 shares of the registrant’s common stock $0.001 par value per share, were outstanding.





Table of Contents

BIOTELEMETRY, INC.

QUARTERLY REPORT ON FORM



BioTelemetry, Inc.
Quarterly Report on Form 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2017

For the Period Ended March 31, 2020

TABLE OF CONTENTS

Page
No.

PART I.

FINANCIAL INFORMATION

Page
PART I

Consolidated Financial Statements (Unaudited)

(unaudited)

4

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

31

31

32

32

32

32

32

32

33

34

Unless the context otherwise indicates or requires, the terms “we,we,“our,our,“us,us,“BioTelemetry”BioTelemetry and the “Company,Company,” as used in this Quarterly Report on Form 10-Q, refer to BioTelemetry, Inc. and its directly and indirectly owned subsidiaries as a combined entity, except where otherwise stated or where it is clear through the context that the terms refermean only to BioTelemetry, Inc. exclusive of its subsidiariessubsidiaries. We do not use the ® or a specific subsidiary™ symbol in each instance in which one of BioTelemetry, Inc.

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.



CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This document includes certain forward-looking statements within the meaning of the “Safe Harbor”Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 regarding, among other things, our growth prospects, the prospects offor our products and our confidence in our future. These statements may be identified by words such as “expect,expect,“anticipate,anticipate,“estimate,estimate,“intend,intend,“plan,plan,“believe,believe,“promises”promises and other words and terms of similar meaning. Examples of forward-looking statements include statements we make regarding our ability to increase demand for our products and services, to leverage our Mobile Cardiac Outpatient TelemetryTM (“MCOTTM”) platform, to expand into new markets, to grow our market share, our expectations regarding revenue trends in our segments and the achievement of cost efficiencies through process improvement and gross margin improvements.improvement. Such forward lookingforward-looking statements are based on current expectations and involve inherent risks and uncertainties, including important factors that could delay, divert or change any of these expectations, and could cause actual outcomes and results to differ materially from current expectations. These factors include, among other things:

·

our ability to identify acquisition candidates, acquire them on attractive terms and successfully integrate their operations into our business;

·                  the effectiveness of our cost savings initiatives;

·

our ability to educate physicians and continue to obtain prescriptions for our products and services;

·

changes to insurance coverage and reimbursement levels by Medicare and commercial payors for our products and services;

·

our ability to attract and retain talented executive management and sales personnel;

·

the commercialization of new competitive products;

·

acceptance of our new products and services, such as our mobile cardiac telemetry (“MCT”) patch;
the impact of the COVID-19 pandemic;
the impact of the October 2019 information technology incident;
our ability to obtain and maintain required regulatory approvals for our products, services and manufacturing facilities;

·

changes in governmental regulations and legislation;

·

adverse regulatory action;
our ability to obtain and maintain adequate protection of our intellectual property;

·                  acceptance of our new products and services;

·                  adverse regulatory action;

·

interruptions or delays in the telecommunications systems and/or information technology systems that we use;

·

our ability to successfully resolve outstanding legal proceedings; and

·                  the other factors that are described in Item 1A. “Risk Factors” of our latest Annual Report on Form 10-K.

the other factors that are described in “Part I; Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019, as well as the factors that are described in “Part II; Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q.
We undertake no obligation to publicly update any forward-looking statement, whether as a result


of new information, future events, or otherwise, except as may be required by law.


PART I — FINANCIAL INFORMATION


Item 1.  Consolidated Financial Statements

BIOTELEMETRY, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

 

 

(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

 

(in thousands, except share and par value data)
(Unaudited)
March 31,
2020
 December 31,
2019
ASSETS   
Current assets:   
Cash and cash equivalents$106,845
 $68,614
Healthcare accounts receivable, net of allowance for credit losses of $37,980 and $31,780, at March 31, 2020 and December 31, 2019, respectively74,864
 71,851
Other accounts receivable, net of allowance for credit losses of $548 and $201, at March 31, 2020 and December 31, 2019, respectively18,727
 15,625
Inventory7,612
 5,738
Prepaid expenses and other current assets5,026
 6,505
Total current assets213,074
 168,333
Property and equipment, net of accumulated depreciation of $75,103 and $76,095, at March 31, 2020 and December 31, 2019, respectively58,330
 56,380
Intangible assets, net125,816
 129,596
Goodwill301,150
 301,321
Deferred tax assets8,547
 12,626
Other assets33,509
 17,464
Total assets$740,426
 $685,720
LIABILITIES AND EQUITY   
Current liabilities:   
Accounts payable$25,339
 $24,198
Accrued liabilities23,379
 27,318
Current portion of finance lease obligations373
 394
Current portion of long-term debt
 3,844
Total current liabilities49,091
 55,754
Long-term portion of finance lease obligations272
 289
Long-term debt227,425
 190,823
Other long-term liabilities86,640
 71,937
Total liabilities363,428
 318,803
Stockholders’ equity:   
Common stock—$0.001 par value as of March 31, 2020 and December 31, 2019; 200,000,000 shares authorized as of March 31, 2020 and December 31, 2019; 34,138,516 and 34,023,053 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively34
 34
Paid-in capital457,000
 453,366
Accumulated other comprehensive loss(784) (469)
Accumulated deficit(79,252) (86,014)
Total equity376,998
 366,917
Total liabilities and equity$740,426
 $685,720
See accompanying notes.

Notes to Consolidated Financial Statements.

BIOTELEMETRY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND
(Unaudited)

 Three Months Ended
 March 31,
(in thousands, except per share data)2020 2019
Revenue$113,031

$103,979
Cost of revenue42,523
 39,201
Gross profit70,508
 64,778
Operating expenses:   
General and administrative31,881
 27,607
Sales and marketing13,446
 12,440
Credit loss expense6,020
 5,148
Research and development3,568
 3,333
Other charges2,084
 3,070
Total operating expenses56,999
 51,598
Income from operations13,509
 13,180
Other expense:   
Interest expense(2,107) (2,482)
Loss on equity method investments
 (32)
Other non-operating income/(expense), net931
 (1,054)
Total other expense, net(1,176) (3,568)
Income before income taxes12,333
 9,612
(Provision for)/benefit from income taxes(5,224) 2,073
Net income$7,109
 $11,685
    
Net income per common share:   
Basic$0.21
 $0.35
Diluted$0.19
 $0.32
Weighted average number of common shares outstanding:   
Basic34,186
 33,654
Dilutive common stock equivalents2,403
 2,752
Diluted36,589
 36,406
See accompanying Notes to Consolidated Financial Statements.
BIOTELEMETRY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands, except share and per share amounts)

 

 

Three Months Ended
September 30,

 

Nine months Ended
September 30,

 

 

 

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

 


 Three Months Ended
 March 31,
(in thousands)2020 2019
Net income$7,109
 $11,685
Other comprehensive loss:   
Foreign currency translation loss(315) (2)
Comprehensive income$6,794
 $11,683
See accompanying notes.

Notes to Consolidated Financial Statements.

BIOTELEMETRY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

Nine months Ended
September 30,

 

 

 

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

 



 Three Months Ended
 March 31,
(in thousands)2020 2019
OPERATING ACTIVITIES   
Net income$7,109
 $11,685
Adjustments to reconcile net income to net cash provided by operating activities:   
Credit loss expense6,020
 5,148
Depreciation and amortization10,485
 10,021
Stock-based compensation3,382
 2,549
Accretion of debt discount261
 311
Deferred income taxes4,079
 (1,416)
Change in fair value of acquisition-related contingent consideration(290) 
Other non-cash items1,201
 32
Changes in operating assets and liabilities:   
Healthcare and other accounts receivable(12,135) (11,397)
Inventory(1,874) (1,633)
Prepaid expenses and other assets3,007
 (588)
Accounts payable1,141
 8,026
Accrued and other liabilities(9,683) (5,194)
Net cash provided by operating activities12,703
 17,544
INVESTING ACTIVITIES   
Acquisition of business, net of cash acquired
 (44,566)
Purchases of property and equipment and investment in internally developed software(6,984) (5,334)
Net cash used in investing activities(6,984) (49,900)
FINANCING ACTIVITIES   
Proceeds related to the exercising of stock options and employee stock purchase plan1,719
 4,311
Payments of tax withholdings related to vesting of share-based awards(1,467) (4,911)
Principal payments on long-term debt(197,825) (1,281)
Proceeds from borrowings on revolving credit facility232,000
 
Payment of debt issuance costs(1,678) 
Principal payments on finance lease obligations(179) (1,163)
Net cash provided by/(used in) financing activities32,570
 (3,044)
Effect of exchange rate changes on cash(58) (2)
Net increase/(decrease) in cash and cash equivalents38,231
 (35,402)
Cash and cash equivalents - beginning of period68,614
 80,889
Cash and cash equivalents - end of period$106,845
 $45,487
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION   
Non-cash purchases of property and equipment$5,045
 $2,584
Cash paid for interest1,960
 2,106
Cash paid for taxes$50
 $
See accompanying notes.

Notes to Consolidated Financial Statements.

BIOTELEMETRY, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In thousands, except share amounts)

 

 

BioTelemetry, Inc. Equity

 

 

 

 

 

 

 

Common Stock

 

Paid-in

 

Accumulated
Other
Comprehensive

 

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

 





 BioTelemetry, Inc. Equity
 Common Stock Paid-in Capital 
Accumulated
Other
Comprehensive
Loss
 Accumulated Deficit Total Equity
(in thousands, except shares)Shares Amount    
Balance at December 31, 201934,023,053
 $34
 $453,366
 $(469) $(86,014) $366,917
Cumulative effect of change in accounting principle
 
 
 
 (347) (347)
Share issuances related to stock compensation plans143,180
 
 1,719
 
 
 1,719
Stock-based compensation
 
 3,382
 
 
 3,382
Shares withheld to cover taxes on vesting of share-based awards(27,717) 
 (1,467) 
 
 (1,467)
Currency translation adjustment
 
 
 (315) 
 (315)
Net income
 
 
 
 7,109
 7,109
Balance at March 31, 202034,138,516
 $34
 $457,000
 $(784) $(79,252) $376,998


 BioTelemetry, Inc. Equity
 Common Stock Paid-in Capital 
Accumulated
Other
Comprehensive
Income
 Accumulated Deficit Total Equity
(in thousands, except shares)Shares Amount    
Balance at December 31, 201833,406,364
 $33
 $426,054
 $256
 $(115,858) $310,485
Share issuances related to stock compensation plans460,952
 1
 4,310
 
 
 4,311
Stock-based compensation
 
 2,549
 
 
 2,549
Shares withheld to cover taxes on vesting of share-based awards(63,580) 
 (4,911) 
 
 (4,911)
Deferred purchase price consideration - equity portion
 
 8,890
 
 
 8,890
Currency translation adjustment
 
 
 (2) 
 (2)
Net income
 
 
 
 11,685
 11,685
Balance at March 31, 201933,803,736
 $34
 $436,892
 $254
 $(104,173) $333,007



See accompanying notes.

Notes to Consolidated Financial Statements.

BIOTELEMETRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(In thousands, except share and per share amounts)




1.Summary of Significant Accounting Policies

a) Principles of Consolidation & Reclassifications
The accompanying unaudited consolidated financial statements have been prepared in accordance 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 wholly owned 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(which are of a normal and recurring nature andnature) considered necessary for a fair presentation of BioTelemetry, Inc.’s (“BioTelemetry,” “Company,” “we,” “our” or “us” )to present fairly the financial position as of September 30, 2017March 31, 2020 and December 31, 2016,2019 and the results of operations, statements of comprehensive income, cash flows, and equity for the three monthsinterim periods ended March 31, 2020 and nine months ended September 30, 20172019 have been included. All intercompany transactions and 2016balances have been eliminated in consolidation. The results of operations for any interim period are not indicative of the results of the full year. Certain information and cash flowsfootnote disclosures normally included in consolidated financial statements presented in accordance with U.S. GAAP, but which are not required for the nine months ended September 30, 2017 and 2016.interim reporting purposes, have been omitted. The accompanying unaudited consolidated financial data and other information disclosedstatements should be read in these notes toconjunction with the consolidated financial statements related to the three 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 Share

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:

 

 

Three Months Ended
September 30,

 

Nine months Ended
September 30,

 

 

 

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

 

December 31, 2019.

Certain 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.

Reclassifications

Certainmade to prior year amounts have been reclassified for consistency withperiod statements to conform to the current period presentation. This consistsThese consist of disaggregating the components within other income (expense) in thecombining our non-cash depreciation and amortization expenses into one line on our consolidated statements of operations.  The reclassificationcash flows and separating the non-cash operating item of change in fair value of acquisition-related contingent consideration from other non-cash items on our consolidated statements of cash flows. These reclassifications had no impact on previously reported net income (loss),working capital, consolidated results of operations, cash flows or accumulated deficit.

b) Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates.
c) Fair Value of Financial Instruments

Fair value is defined as the exit price, the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as defined below. Observable inputs are inputs a market participant would use in valuing an asset or liability based on market data obtained from sources independent of the Company.us. Unobservable inputs are inputs that reflect the Company’sour own assumptions about the factors a market participant would use in valuing an asset or liability developed using the best information available in the circumstances. The classification of an asset’s or liability’s level within the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

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.

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.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


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.
Our financial instruments consist primarily of cash and cash equivalents, Healthcare accounts receivable, other accounts receivable, accounts payable, short-termacquisition-related contingent consideration, current portion of long-term debt and long-term debt. With the exception of acquisition-related contingent consideration and long-term debt, the carrying value of these financial instruments approximates their fair value because of their short-term nature (classified as Level 1).  For
Our long-term debt based 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.

benchmark yields, actual trade data, broker/dealer quotes and other similar data obtained from quoted market prices or independent pricing vendors.

The fair value of acquisition-related contingent consideration (classified as Level 3) is measured on a recurring basis using unobservable inputs such asa Monte Carlo simulation. This model uses assumptions, including estimated projected payment dates, probabilitiesrevenues, estimated stock price volatility in future periods, estimated discount rates and discounts for the lack of meeting specified milestones and other such variables resulting in payment amounts which are discounted back to present value using a probability-weighted discounted cash flow model (classified as Level 3).  Adjustments to contingent consideration are recorded under other charges.

marketability of common stock. In addition to the recurring fair value measurements, the fair value of certain assets acquired and liabilities assumed in connection with a business combination are recorded at fair value, primarily using a discounted cash flow model (classified as Level 3). This valuation technique requires us to make certain assumptions, including but not limited to, future operating performance, and cash flows and revenue growth rates, royalty raterates and other such variables, which are discounted to present value using a discount rate that reflects the risk factors associated with future cash flow, the characteristics of the assets acquired and liabilities assumed and the experience of the acquired business.

Derivative Instruments

During the second quarter Non-financial assets such as goodwill, intangible assets, property and equipment and right-of-use (“ROU”) assets 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, intangible assets, property and equipment and ROU assets annually or whenever events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable.

d) Accounts Receivable and Allowance for Credit Losses
Healthcare accounts receivable, including contract assets, are recorded at the time Healthcare segment revenue is recognized and is presented on the consolidated balance sheet net of an allowance for credit losses. For our contracted payors, we determine revenue based on negotiated prices for the services provided. Based on our history, we have experience collecting substantially all of the negotiated contracted rates and are therefore not providing an implicit price concession. Because of continuing changes in the health 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 cash flows.
Other accounts receivable are related to the Research segment and Corporate and Other category and are recorded at the time revenue is recognized, when products are shipped or services are performed.
When calculating an allowance for credit losses, we calculate the expected credit loss based on past events, current conditions, and reasonable and supportable forecasts that affect the collectability of our receivables, even if we believe that no loss has been incurred as a component of prepaid expensesthe measurement date. This includes, but is not limited to, historical collection trends, the current state of the healthcare market, and other current assets.  We did not exercise this option and the contract expired during the third quarter of 2017, resulting in aprojected future industry trends.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


We write off receivables when the likelihood for collection is remote, we believe collection efforts have been fully exhausted and we do not intend to devote additional resources in attempting to collect. We assess write-offs on a monthly basis.
e) Acquisition-Related Contingent Consideration
Acquisition-related contingent consideration is our obligation, arising from a business combination, to transfer additional assets and/or equity interests to the seller if certain future events occur or conditions are met. The fair value of the premiumcontingency is estimated as of $1,322 which wasthe acquisition date using certain unobservable inputs (and therefore classified as Level 3 in the fair value hierarchy) and is recorded as a componentliability. We re-measure the estimated fair value of acquisition-related contingent consideration at each reporting date. Adjustments subsequent to the acquisition measurement period are recorded in other non-operating income (expense), netcharges in the consolidated statements of operations. Changes to the inputs used in the measurement of acquisition-related contingent consideration include estimated projected revenues, estimated stock price volatility in future periods, estimated discount rates and discounts for the lack of marketability of common stock. Acquisition-related contingent consideration may change significantly as our inputs and assumptions noted above evolve and additional data is obtained. The inputs and assumptions used in estimating fair value require significant judgment. The use of different assumptions and judgments could result in different fair value estimates that may have a material impact on our results from operations and comprehensive income (loss).

Equity Method Investments

financial position.

f) Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, Healthcare accounts receivable, including contract assets related to our cardiac monitoring services and other accounts receivable. We accountmaintain our cash and cash equivalents with high 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 investmentscredit losses in accordance with the procedures described above. Past-due amounts are written off against the allowance for credit losses when collections are believed to be unlikely and all collection efforts have ceased.
At March 31, 2020 and December 31, 2019, 1 payor, Medicare, accounted for 21% and 22%, respectively, of our gross Healthcare accounts receivable.
g) Leases
We lease our administrative and service facilities, as well as certain office equipment, monitoring devices and information technology equipment under arrangements classified as leases under Accounting Standards Codification (“ASC”) 842 - Leases (“ASC 842”).
We recognize ROU assets at the inception of the arrangement as the present value of the lease payments plus our initial direct costs (if any), less any lease incentives. The corresponding liability is computed as the present value of the lease payments at inception. Assets are classified as either operating or finance ROU assets according to the classification criteria in ASC 842. Upon the adoption of ASC 842, we elected the transition practical expedients to not separate lease and non-lease components where we are the lessor when the requisite criteria is met to be treated as such. The present value of the lease payments is computed using the equity methodrate implicit in the lease (if known) or our incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis of accounting ifa similar term at an amount equal to the investment provides us the abilitylease payments.
Operating lease costs are charged to exercise significant influence, but not control,operations on a straight-line basis over the investee.  Significant influencelease term. Interest
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


charged on the finance lease liabilities is generally deemedcharged to exist ifinterest expense, while the Company’s ownership interest in the voting stockamortization of the investee ranges between 20% and 50%, although other factors, such as representationfinance lease ROU assets is also charged to operations on a straight-line basis.
Under our policy, we do not record an ROU asset or corresponding liability for arrangements where the investee’s boardinitial lease term is one year or less. Those leases are expensed on a straight-line basis over the term of directors, are considered in determining whether the equity method of accounting is appropriate.  Underlease.
For our operating leases, we record the equity method of accounting, the investment is recorded at cost in the consolidated balance sheetROU assets as a component of other assets, the current lease liability as a component of accrued liabilities, and is periodically adjustedthe long-term lease liability as a component of other long-term liabilities on our consolidated balance sheet. For our finance leases, we record the ROU asset and the accumulated amortization for capital contributions, dividends receivedthe finance ROU asset as a component of property and our shareequipment, net, with the current and long-term portions of the investee’s earnings or losses together with other-than-temporary impairments which are recordedfinance lease obligations as loss on equity method investment in the consolidated statements of operations and comprehensive income (loss).

Noncontrolling interests

The consolidated financial statements reflect the application of ASC 810, Consolidations, which establishes accounting and reporting standards that require: (i) the ownership interest in subsidiaries held by parties other than the parent to be clearly identified and presented in theseparate lines within our consolidated balance sheet within shareholder’s equity, but separate fromsheet. We amortize the parent’s equity; (ii)finance ROU assets over the amount of consolidated net income attributable to the parent and the noncontrolling interest to be clearly identified and presented on the faceshorter of the consolidated statements of income; and (iii) changes in a parent’s ownership interest whileremaining lease term or 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 by the shares not tendered or subsequently acquired through September 30, 2017 are presented as noncontrolling interests in our consolidated financial statements.  The fair valueestimated life of the noncontrolling interest was determinedasset.

h) Stock-Based Compensation
ASC 718 - Compensation - Stock Compensation (“ASC 718”), addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for: (i) equity instruments of the enterprise 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 Assets

Goodwill 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 an entity measure the cost of equity-based service awards issued to employees, such as stock options and restricted stock units then(“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). The compensation expense associated with performance stock units (“PSUs”) is recognized ratably over the implied fair valueperiod 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.

Forrecorded 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 achieved probability.

We have historically recorded stock-based compensation expense based on the number of stock options or stock units we expect to vest using our historical forfeiture experience and we periodically update those forfeiture rates. We estimate forfeitures under the true-up provision of ASC 718. We record additional expense if the actual forfeiture rate is lower than estimated and record a discounted cash flow methodology that includes assumptions for, among other things, forecasted income, cash flow, growth rates, income tax rates, expected tax benefits and long-term discount rates, allrecovery of which require significant judgment.  The market approach utilizes our market data.  There are inherent uncertainties related to these factors andprior expense if the judgment applied in the analysis.  actual forfeiture rate is higher than estimated.
We believe that the combination of an income and a market approach provides a reasonable basis to estimate the fair value of our reporting units.

Acquired intangible assetsstock options using the Black‑Scholes option valuation model. The Black‑Scholes option valuation model requires the use of certain subjective assumptions. The most significant of these assumptions are recorded at fair valuethe 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 acquisition date.historical average of our stock price. The estimated fair valuesexpected term represents the period of time that share‑based awards granted are expected to be outstanding. Other assumptions used in the Black‑Scholes option valuation model include the risk‑free interest rate and useful livesexpected dividend yield. The risk‑free interest rate for periods pertaining to the expected term of intangible assets are determined by assessing many factors including estimates of future operating performance and cash flow ofeach option is based on 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 consistsU.S. Treasury yield of a comparisonsimilar duration in effect at the time of grant. We have never paid, and do not expect to pay, dividends in the fair value of the indefinite-lived intangible asset to the carrying value of the asset.foreseeable future.

We estimate the fair value of our PSUs using a Monte Carlo simulation. This model uses assumptions, including the indefinite-lived intangibles using the relief from royalty method.

Accounting Pronouncements Recently Adopted

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Improvements to Employee Share-Based Payment Accounting.  The standard revises the accounting for certain aspectsrisk free interest rate, expected volatility of share-based compensation arrangementsour stock price 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, 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 asthose 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 adoptionperformance group, dividends 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 useperformance group members and expected life of the “with and without” method of accounting for equity-generated NOL carryforwards.  We have elected toawards. As noted above, we continue to estimate forfeitures under the true-up provision of ASC 718.

In July 2015,718. If it is deemed

BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


probable that the FASB issued ASU 2015-11, SimplifyingPSU performance targets will be met, compensation expense is recorded for these awards ratably over the Measurementrequisite service period. The PSUs are forfeited to the extent the performance criteria are not met within the service period.
i) Income Taxes
We account for income taxes under the liability method, as described in ASC 740 - Income Taxes (“ASC 740”). Deferred income taxes are recognized for the tax consequences of Inventory.  The standard requires inventorytemporary differences between the tax and consolidated financial statement reporting bases of assets and liabilities. When we determine that we will not be able to realize our deferred tax assets, we adjust the carrying value of the deferred tax asset through the valuation allowance.
We record unrecognized tax benefits in accordance with ASC 740 on the basis of a two-step process in which (i) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (ii) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be measured atrealized upon ultimate settlement with the lowerrelated tax authority.
Under ASC 740, the effects of cost orchanges in tax rates and tax laws on deferred tax balances are recognized in the period in which the new legislation is enacted. The total effect of tax law changes on deferred tax balances is recorded as a component of income tax expense.
j) Net Income/(Loss) Per Share
We compute net realizable value.income/(loss) per share in accordance with ASC 260 - Earnings Per Share. Basic net income/(loss) per share is computed by dividing net income/(loss) by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by giving effect to all potential dilutive common stock equivalents, including stock options, RSUs, PSOs and PSUs, using the treasury stock method and shares expected to be issued in connection with acquisition-related contingent consideration arrangements when dilutive.
Certain stock options, which are priced higher than the average market price of our shares for the periods ended March 31, 2020 and March 31, 2019 would be anti-dilutive and therefore have been excluded from the weighted average shares used in computing diluted net income per share. These options could become dilutive in future periods. Similarly, certain recently granted RSUs and PSUs are also excluded using the treasury stock method as their impact would be anti-dilutive. The guidance will not apply to inventoriesdilutive effect of weighted average shares outstanding excludes approximately 0.7 million shares for the three month period ended March 31, 2020, and excludes approximately 0.3 million shares for the three month period ended March 31, 2019, as their effect would have been anti-dilutive on our net income per share.
k) Segment Information
ASC 280 - Segment Reporting, establishes standards for reporting information regarding operating segments in annual consolidated financial statements. Operating segments are identified as components of an enterprise for which costseparate discrete financial information is determined usingavailable for evaluation by the last-in, first-out methodchief operating decision maker, or decision-making group, in making decisions on how to allocate resources and assess performance.
We report our business under 2 segments: Healthcare and Research. The Healthcare segment is focused on remote cardiac monitoring to identify cardiac arrhythmias or heart rhythm disorders and to
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


monitor the retail inventory method.functionality of implantable cardiac devices. We offer cardiologists, electrophysiologists, neurologists and primary care physicians a full spectrum of solutions, which provides them with a single source of cardiac monitoring services. The Research segment is engaged in centralized core laboratory services providing cardiac monitoring, imaging services, scientific consulting and data management services for drug and medical device trials. Included in the Corporate and Other category is the manufacturing, testing and marketing of cardiac and blood glucose monitoring devices to medical companies, clinics and hospitals and corporate overhead and other items not allocated to any of our reportable segments.
l) Recent Accounting Pronouncements
Accounting Pronouncements Recently Adopted
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-03, Codification Improvements to Financial Instruments (“ASU 2020-03”). ASU 2020-03 clarifies a number of issues, including certain issues related to leases and revolving credit arrangements. Our adoption of this standard in the first quarter of 2017update upon its release did not have a material impact onto our consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

In January 2017,August 2018, the FASB released issued ASU 2017-01, Business Combinations: Clarifying2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Definition of a Business, whichDisclosure Requirements for Fair Value Measurement (“ASU 2018-13”). This update eliminates certain disclosures related to transfers and valuation processes, clarifies the definitionrequirement for measurement uncertainty disclosures, and requires additional disclosures for Level 3 fair value measurements, including the range and weighted average of a business with the objective of adding guidancesignificant unobservable inputs used to assist entities with evaluating whether transactions should be accounteddevelop Level 3 fair value measurements. ASU 2018-13 is effective for as acquisitions or disposals of assets or businesses.  The amendments in this ASU should be applied prospectivelyfiscal years, and are effective forinterim periods within those fiscal years, beginning after December 15, 2017, including interim periods within those fiscal years, with early2019. Our adoption permitted.  No disclosures are required at transition.  We will adoptof this standard effectiveupdate on January 1, 2018 and do2020 did not expect the standard to have a material impact to our consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. This update, along with subsequent updates and amendments, introduces the current expected credit loss model, which requires an entity to measure credit losses for certain financial instruments and financial assets, including trade receivables. Under this update, upon initial recognition and at each reporting period, an entity is required to recognize an allowance that reflects the entity’s current estimate of credit losses expected to be incurred over the life of the financial instrument. Our adoption of this update on January 1, 2020 resulted in an immaterial adjustment to accumulated deficit, and we have modified our disclosures in accordance with the new guidance.
Accounting Pronouncements Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) the transition from LIBOR and other interbank offered rates to alternative reference interest rates. This ASU can be applied immediately; however, the guidance will only be available until December 31, 2022. We are in the process of evaluating the impact of this update on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment.  The standard eliminates step twostatements and related disclosures.



BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


2. Revenue Recognition
We recognize revenue in the current two-step impairment test under accordance with ASC 350.  Under the new standard, a goodwill impairment will be recorded for any excess 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.

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.

In May 2014, the FASB issued ASU 2014-09, 606 - Revenue from Contracts with Customers (“ASC 606”), which has been updated through several revisions and clarifications since its original issuance.  The standard will requirerequires revenue recognized to represent the transfer of promised goods or services to customers at an amount that reflects the consideration whichthat a company expects to receive in exchange for those goods or services.  The standard also requires new, expanded disclosures regarding

Disaggregation of Revenue
We disaggregate revenue recognition.  The standard will be effective January 1, 2018,from contracts with early adoption permissible beginning January 1, 2017.

customers by payor type and major service line. We have substantially completeddetermined that disaggregating revenue into these categories achieves the detailed reviewdisclosure objective of illustrating the differences in the nature, amount, timing and uncertainty of our contract portfoliorevenue streams. Disaggregated revenue by payor type and major service line was as follows:

 Three Months Ended March 31, 2020
 Reporting Segment   Total Consolidated
(in thousands)Healthcare Research Other 
Payor/Service Line       
Remote cardiac monitoring services - Medicare$40,128
 $
 $
 $40,128
Remote cardiac monitoring services - commercial payors55,579
 
 
 55,579
Clinical trial support and related services
 13,820
 
 13,820
Technology devices, consumables and related services
 
 3,504
 3,504
Total$95,707
 $13,820
 $3,504
 $113,031

 Three Months Ended March 31, 2019
 Reporting Segment   Total Consolidated
(in thousands)Healthcare Research Other 
Payor/Service Line       
Remote cardiac monitoring services - Medicare$33,935
 $
 $
 $33,935
Remote cardiac monitoring services - commercial payors54,074
 
 
 54,074
Clinical trial support and related services
 12,964
 
 12,964
Technology devices, consumables and related services
 
 3,006
 3,006
Total$88,009
 $12,964
 $3,006
 $103,979

Remote Cardiac Monitoring Services Revenue (Healthcare segment)
Healthcare segment revenue streamsis generated by remote cardiac monitoring to identify potential differencescardiac arrhythmias or heart rhythm disorders and monitoring the functionality of implantable cardiac devices. We offer cardiologists, electrophysiologists, neurologists and primary care physicians a full spectrum of solutions, which provides them with a single source of cardiac monitoring services.
Performance obligations are determined based on the nature of the services provided. With our remote cardiac monitoring services, the patient receives the benefits of the service over time, resulting in accountingrevenue recognition over time based on the output method. We believe that this method provides an accurate depiction of the transfer of value over the term of the performance obligation because the level of effort in providing these services is consistent during the service period.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


A summary of the payment arrangements with payors is as follows:
Contracted payors (including Medicare): We determine the transaction price based on negotiated prices for services provided, on a case rate basis, as provided for under the relevant Current Procedural Terminology (“CPT”) codes.
Non-contracted payors: Non-contracted commercial and government insurance carriers often reimburse out-of-network rates provided for under the relevant CPT codes on a case rate basis. Our transaction price includes implicit price concessions based on our historical collection experience for our non-contracted patients.
We are utilizing the portfolio approach practical expedient in ASC 606 for our patient contracts in the Healthcare segment. We account for the contracts within each portfolio as a resultcollective group, rather than individual contracts. Based on our history with these portfolios and the similar nature and characteristics of the new standard.

We expect that there will be an impact to our financial reporting disclosures as well as any related business operations processes and internal controls over financial reporting.  As part of the assessment performed through the date of this filing,patients within each portfolio, we have created an implementation working group, which includes internal and third-party resources.  As part of our implementation plan,concluded that the financial statement effects are not materially different than if accounting for revenue on a contract-by-contract basis.

For the contracted portfolio, we have 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. We have also concluded that historical information is largely representative of forward-looking information. 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.  credit loss expense.

For 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, orcash collections utilizing the expected value method. Subsequent adjustments to the transaction price are recorded as an adjustment to Healthcare segment revenue and not as credit loss expense.
We have not made any significant changes to judgments in applying ASC 606 to the Healthcare segment during the three months ended March 31, 2020 and 2019.
Clinical Trial Support and Related Services Revenue (Research segment)
Research segment revenue is generated by providing centralized core laboratory services, including cardiac monitoring, imaging services, scientific consulting and data management services for drug and medical device trials. These amounts are due from pharmaceutical companies and contract research organizations. We bill our customers on a fee-for-service basis. Under a typical contract, some customers pay us a portion of our fee upon contract execution as an upfront refundable deposit. Upfront deposits are deferred and then recognized as the services are performed. If a contract is canceled prior to service being provided, the upfront deposit is refunded.
Performance obligations are determined based on the nature of the services provided. 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 customer contracts have legally enforceable terms that are predominately thirty days due to termination for convenience clauses, which are held by the customer with no significant penalty. Given the short-term nature of these contracts and the structure of our billing practices, our billing practices approximate our performance if nomeasured by an output method, where each output is an individual occurrence of each performance obligation. Accordingly, we utilize the invoice
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


practical expedient as defined in ASC 606, resulting in recognition of revenue in the amount that we have the right to invoice.
We have historical experience when cash is received.  Adjustmentsof collecting substantially all of the fees for services incurred and thus believe that no material loss has been incurred as of the measurement date. As such, we are not providing an implicit price concession but, rather, have chosen to accept the risk of default, and adjustments to the estimated net realizable value,transaction price are recorded as credit loss expense.
We have not made any significant changes to judgments in applying ASC 606 to the Research segment during the three months ended March 31, 2020 and 2019.
Other Revenue (Other category)
Our Other category revenue is primarily derived from the sale of non-invasive cardiac monitors to healthcare companies, wireless blood glucose meters and test strips to wholesale distributors of diabetes supplies and diabetic patients, as well as product repairs. Performance obligations are primarily the sale of devices, related goods and repairs provided by us. These contracts transfer control to a customer at a point in time based on final settlementthe transfer of title for the underlying good or service. We provide standard warranty provisions.
We determine the transaction price based on fixed consideration in our contractual agreements with our customers and allocate the third-party payors,transaction price to each performance obligation based on the relative stand-alone selling price. We determine the relative stand-alone selling price utilizing our observable prices for the sale of the underlying goods. We have historical experience of collecting substantially all and thus believe that no material loss has been incurred as of the measurement date. As such, we are not providing an implicit price concession but, rather, have chosen to accept the risk of default, and adjustments to the transaction price are recorded upon settlement.

·                  Researchas credit loss expense.

We have not made any significant changes to judgments in applying ASC 606 to the Other category during the three months ended March 31, 2020 and 2019.
Contract Assets and Contract Liabilities
ASC 606 requires an entity to present a revenue — The Company has concluded thatcontract as a contract asset when the majority of the clinical research arrangements inentity performs its Research segment will represent a single performance obligation.  We expect to account 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 as services are rendered.

·                  Contract Costs — The Company has concluded that all material costs to acquire customer contracts will continue to be expensed as we have elected the practical expedient of expensing contract costs when incurred as the amortization period of the asset that we would have recognized is one year or less.  We are evaluating the impact of fulfillment cost capitalization in conjunction with its measure of progress selectionobligations under the inputcontract by transferring goods or output method for Research revenue.  We currently expense allservices to a customer before the customer pays consideration or before payment is due. ASC 606 also requires an entity to present a revenue contract costs.

·                  Transition Method —We will be electingas a contract liability in instances when a customer pays consideration, or an entity has a right to adopt ASU 2014-09 usingan amount of consideration that is unconditional (e.g., receivable), before the modified retrospective approach.

In additionentity transfers a good or service to the open matters discussed above, significant implementation matterscustomer.

As of March 31, 2020 and December 31, 2019, we had contract assets of $18.4 million and $15.1 million, respectively, related to be addressed prior to adopting ASU 2014-09 include determining the transition adjustment resulting from the new accounting standardcardiac monitoring services, which are included as a component of Healthcare accounts receivable on our consolidated financial statements,balance sheets. We also had contract assets of $1.9 million 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$1.7 million, respectively, related to our year-end disclosures, withOther category revenue contracts, which are included as a focuscomponent of other accounts receivable on implementation status updatesour consolidated balance sheets.
As of March 31, 2020 and December 31, 2019, we had contract liabilities of $1.5 million and $1.6 million, respectively, primarily related to the impact ASU 2014-09 will haveResearch segment where customers paid upfront deposits upon contract execution for future services to be performed by us. If the contract is canceled, these upfront
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


deposits are refundable if service was not yet provided. Our contract liabilities are included as a component of accrued liabilities on our consolidated financial statements andbalance sheets.
For the three months ended March 31, 2020, the amount recognized as revenue from the contract liabilities balance as of December 31, 2019 was $0.5 million. Similarly, for the three months ended March 31, 2019, the amount recognized as revenue from the contract liabilities balance as of December 31, 2018 was $3.1 million. There were no significant changes or impairment losses incurred related footnotes.

to contract balances during the three months ended March 31, 2020.

Allowance For Credit Losses
We expect to complete our assessmentrecord an allowance for credit losses based on historical collection trends, the current state of the full financial impacthealthcare market and current and projected future industry trends. Disaggregated allowance by portfolio was as follows:
 Three Months Ended March 31, 2020
 Portfolio Total Consolidated
(in thousands)Healthcare Other 
Beginning balance$31,780
 $201
 $31,981
Cumulative effect of change in accounting principle
 347
 347
Current period credit loss expense*
6,020
 
 6,020
Write-offs
 
 
Recoveries collected180
 
 180
Ending Balance$37,980
 $548
 $38,528

* formerly bad debt expense


3. Acquisitions
ADEA Medical AB
During the second quarter of ASU 2014-092019, we acquired all of the remaining outstanding equity of ADEA Medical AB, now known as BioTel Europe AB (“ADEA” or “BioTel Europe”), a limited company incorporated and registered under the laws of Sweden. BioTel Europe provides cardiac monitoring in northern Europe.
Pursuant to the acquisition agreement, we agreed to issue the owners of ADEA 50,000 shares of our common stock, with a fair value of approximately $2.1 million, as well as to pay $0.2 million in cash. The shares that were issued came with restrictions: the restrictions related to 10,000 shares expired in the fourth quarter of 2019, and the restrictions on the remaining 40,000 shares, which are currently available to satisfy indemnification obligations, are set to expire in the second quarter of 2022.
Prior to the second quarter of 2019, we accounted for our 23.8% stake in ADEA as an equity method investment. We accounted for the acquisition of the remaining equity of ADEA as a step acquisition, which required us to re-measure our previous ownership interest to fair value prior to application of purchase accounting, and we recognized the immaterial difference between the fair value and the carrying value of the equity method investment at that time. The total purchase price of ADEA was $3.3 million, primarily consisting of the equity and cash consideration paid in the second quarter of 2019, plus the amounts paid
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


for our initial investment in ADEA in 2018. We then allocated this purchase price to the assets acquired and liabilities assumed. The acquired net assets consisted primarily of customer relationships and non-compete agreements. 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. We have recognized $2.6 million of goodwill as a result of the acquisition, all of which has been assigned to the Healthcare segment. NaN of this goodwill will be deductible for tax purposes.
We finalized our fair value estimates related to the ADEA acquisition during the next three months ended September 30, 2019. There were no changes to the total purchase price, and expectthe measurement period adjustment related to adopt ASU 2014-09 when it becomes effective on Januarydeferred income taxes during the three months ended September 30, 2019 was not material.
We do not consider this acquisition to be significant to our results of operations. The transaction costs related to this acquisition and revenues and results of operations of ADEA prior to our acquisition were all immaterial.
Geneva Healthcare, Inc.
On March 1, 2018.

2.Acquisitions

LifeWatch AG

On July 12, 2017,2019, we acquired Geneva Healthcare, Inc., now known as Geneva Healthcare, LLC (“Geneva”), for cash consideration of $45.9 million. In addition, pursuant to the Company, through its wholly-owned subsidiary Cardiac Monitoring Holding Company, LLC, acquired approximately 97.0%terms of the outstanding sharesAgreement and Plan of LifeWatch AG for aggregateMerger, dated January 25, 2019, by and among Geneva, BioTelemetry, Inc., Tyersall Merger Sub, Inc., and the Securityholders’ Representative (the “Geneva Agreement”), on the third anniversary date of the closing date, the Securityholders (as defined in the Geneva Agreement) are eligible to receive additional consideration in the form of 3,615,840cash payments, as well as shares of BioTelemetry common stock, with a fairtotal estimated present value of $116,792 and cash in the amount of $165,782.  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$32.0 million as of the March 1, 2019 acquisition date.

Through September 30, 2017, we purchased 343,525 additional sharesdate, for a total aggregate purchase price of LifeWatch for cash consideration of $4,765 and the issuance of 19,806 shares with a fair value of $648.  We intend to acquire the remaining untendered LifeWatch shares pursuant to a squeeze-out procedure in accordance with Swiss law and takeover regulation.  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.

Also on July 12, 2017, in connection$77.9 million. Concurrent with the closing of the acquisition, the Securityholders made elections as to the percentage mix of LifeWatch,their total additional consideration to be settled in cash or common stock.

The estimated additional consideration of $32.0 million, as of the March 1, 2019 acquisition date, consists of the following:
The Securityholders will, subject to potential deductions pursuant to the Geneva Agreement, receive additional consideration of $20.0 million, a total of $11.1 million of which will be paid in cash, and the remaining value will be settled in shares. We will issue a total of 131,594 shares of our common stock to settle the share-related portion of the obligation, based on the elections made by the Securityholders and the formulas within the Geneva Agreement.
The estimated present value of the future cash payment of $11.1 million, which totals $9.7 million as of the acquisition date, as well as the estimated fair value of our common stock of $9.1 million, has been included within the purchase price for Geneva. The estimated present value of the future cash payment is recorded as a component of other long-term liabilities and will be accreted to its redemption value through interest expense through the payment date. The estimated fair value of the 131,594 shares our common stock has been recorded within paid-in-capital.
The Securityholders will also be eligible to receive additional consideration, in the form of both cash and shares, based on a predetermined formula that is driven by the future revenues of
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


Geneva and refinancingdoes not have a predetermined limit. The total estimated acquisition-related contingent consideration as of its existing debt, the Company entered intoMarch 1, 2019 acquisition date was $13.2 million, which is also included in the purchase price of Geneva. The $13.2 million is recorded within other long-term liabilities and will be marked to market through earnings on a Credit Agreement pursuant to whichquarterly basis throughout 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 aearn-out period. The equity portion of the cashacquisition-related contingent consideration forrequires liability classification and mark-to-market accounting pursuant to the acquisitionprovisions of LifeWatch,ASC 815 - Derivatives and (c) pay related transaction feesHedging.
We acquired Geneva as part of our business strategy to go deeper and expenseswider into the cardiac monitoring market. Geneva has developed an innovative proprietary cloud-based platform that aggregates data from the leading cardiac device manufacturers, enabling the Company to remotely monitor a physician’s patients with implantable cardiac devices such as pacemakers, defibrillators and loop recorders. Geneva’s platform provides physicians a single portal to order patient monitoring, review monitoring results and request routine device checks, helping drive significant in-office efficiencies and patient compliance. We have continued to merge this functionality with that of the acquisition of LifeWatch;Healthcare segment user interface, which we believe will drive greater workflow 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, withdata management efficiencies to 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.  clients we serve.

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 CompanyWe have recognized $186,456$59.9 million of goodwill as a result of the acquisition, all of which has been assigned to the Healthcare segment.

The amounts below represent our preliminary fair value estimates as NaN of September 30, 2017 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 related to certain tangible assets acquired and liabilities assumed, including deferred taxes, identifiable intangible assets, as well as the determination of the amount of thethis goodwill that will be deductible for tax purposes.

The Company expectsamounts in the table below represent our final fair value estimates related to finalize all accountingthe Geneva acquisition as of March 1, 2019. Measurement period adjustments recorded during 2019 consisted primarily of decreasing additional consideration by $2.2 million and increasing net deferred tax assets by $2.9 million. We finalized our fair value estimates related to the Geneva acquisition during the three months ended December 31, 2019.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


(in thousands, except years)Amount 
Weighted
Average Life
(Years)
Fair value of assets acquired:   
Cash and cash equivalents$1,376
  
Healthcare accounts receivable1,500
  
Prepaid expenses and other current assets234
  
Identifiable intangible assets:   
Customer relationships3,500
 12
Technology8,900
 7
Trade names2,500
 15
Total identifiable intangible assets14,900
  
Deferred tax assets1,013
  
Total assets acquired19,023
  
Fair value of liabilities assumed:   
Accounts payable215
  
Accrued liabilities872
  
Total liabilities assumed1,087
  
    
Total identifiable net assets17,936
  
Goodwill59,944
  
Net assets acquired$77,880
  

We incurred $1.4 million of acquisition related costs associated with Geneva for the acquisition of LifeWatch within one year of the acquisition date.

 

 

Amount

 

Weighted
Average Life
(Years)

 

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

 

 

 

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 of acquisition-related costs related to LifeWatch for the three and nine month periods ended September 30, 2017, respectively. TheseDecember 31, 2019. The costs were included in other charges in our consolidated statements of operationsincome. The revenues and comprehensive income (loss).

The following unaudited pro forma financial information has been prepared using historical financial resultsof Geneva for periods prior to our acquisition were immaterial to our consolidated operating results.



4. Inventory
Inventory consists of the Companyfollowing:
(in thousands)March 31,
2020
 December 31,
2019
Raw materials and supplies$5,125
 $4,429
Finished goods2,487
 1,309
Total inventory$7,612
 $5,738



5. Fair Value Measurements
We have determined that our long-term debt, classified as Level 2, has a fair value consistent with its carrying value, net of debt discount and LifeWatch as if the acquisition had occurreddeferred charges, of $227.4 million and $194.7 million as of January 1, 2016.  Certain adjustmentsMarch 31, 2020 and December 31, 2019, respectively.
Acquisition-related contingent consideration represents our contingent payment obligations related to the elimination of transaction costs, as well as the addition of interest on the debt, depreciationour acquisitions and amortization related tois measured at fair value, adjustmentsbased on the tangible and identifiable intangible assets acquired, and the changesignificant inputs not observable in the share count resulting frommarket,
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


which represents a Level 3 measurement within the share issuance have been reflected for the purposesfair value hierarchy. The valuation of the unaudited pro forma financial information presented below.acquisition-related contingent consideration uses assumptions we believe would be made by a market participant. We believeassess these estimates on an ongoing basis as additional data impacting 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:

 

 

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

 

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.obtained. 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 excessbalance of the fair value of the purchase price overacquisition-related contingent consideration is recognized within other long-term liabilities on our consolidated balance sheet. Changes in 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:

 

 

Amount

 

Weighted
Average Life
(Years)

 

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

 

 

 

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:

 

 

Three Months Ended
September 30, 2016

 

Nine Months Ended
September 30, 2016

 

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

 

Contingent Consideration

The Agreement includes the potential for a performance-based earn out up to $5,000 upon reaching certain milestones.  The fair value of theacquisition-related contingent consideration, associated withafter the Telcare acquisition was $2,700final determination 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 liabilitiesresulting from changes 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:

 

 

Total Contingent
Consideration

 

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

 

VirtualScopics, 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 amountedvariables used 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 overcompute the fair value, are recorded in other charges in the consolidated statements of operations.

The following table provides a reconciliation of the net assets acquired has been recognized as goodwill, which representsbeginning and ending balances of acquisition-related contingent consideration:
 Three Months Ended
 March 31,
(in thousands)2020 2019
Beginning balance$12,940
 $
Acquisition-related contingent consideration
 15,990
Change in fair value of acquisition-related contingent consideration(290) 
Ending balance$12,650
 $15,990

In conjunction with the expected future benefits arising from the assembled workforceGeneva acquisition, and other synergies attributable to cost savings opportunities.  The Company recognized $4,343 of goodwill asafter 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 $2922019, we recognized $13.2 million of deferred tax assets resulting from state NOLs.  The total consideration and related allocation for VirtualScopics is summarized as follows:

 

 

 

 

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

 

 

 

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:

 

 

Nine Months Ended
September 30, 2016

 

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

 

ePatch Division of DELTA Danish Electronics, Light, and Acoustics

On 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, includingacquisition-related 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:

 

 

 

 

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

 

 

 

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 Consideration

The 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 includedMarch 1, 2019 as a component of other long-term liabilities inas the accompanying consolidated balance sheets.

contingency will be finalized after the third anniversary of the closing date.

The following summarizesestimated fair value of the changes in ouracquisition-related contingent consideration duringrelated to the nine months ended September 30, 2017:

 

 

Total Contingent
Consideration

 

Balance at December 31, 2016

 

$

605

 

Change in fair value of acquisition-related contingent consideration

 

(605

)

Balance at September 30, 2017

 

$

 

3.Inventory

Inventory consistsGeneva acquisition was determined using a Monte Carlo simulation, that considered numerous variables, including estimated projected revenues, future stock price, discount rates and discounts for lack of the following:

 

 

September 30, 2017

 

December 31, 2016

 

Raw materials

 

$

3,185

 

$

2,866

 

Finished goods

 

2,901

 

2,310

 

Total inventory

 

$

6,086

 

$

5,176

 

Inventory, which includes purchased parts, materials, direct labor and applied manufacturing overhead, is stated at the lowermarketability of cost or net realizable value, with cost determined by usecommon stock. These estimates are subject to a significant level of the first-in, first-out method.

4.Property and Equipment

Property and equipment consists of the following:

 

 

Estimated
Useful Life
(Years)

 

September
30,
2017

 

December
31,
2016

 

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

 

Depreciation expense associated with property and equipment, inclusive of amortization of assets recorded under capital leases, was $5,682 and $2,627 forjudgment.

During the three months ended September 30, 2017 and 2016, respectively, and $11,233 and $7,884 forMarch 31, 2020, the nine months ended September 30, 2017 and 2016, respectively.

5.acquisition-related contingent consideration related to the Geneva acquisition declined $0.3 million primarily due to changes in estimates associated with our future stock price, with the impact being recognized as a component of other charges.



6. Goodwill and Intangible Assets

Goodwill was recognized at the time of our acquisitions. The following table presents the carrying amount of goodwill allocated to our reportable segments, as 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 nine months ended September 30, 2017 was primarily due to the LifeWatch acquisition, partially offset by measurement period adjustments related to our 2016 acquisitions.

The changes in the carrying amounts of goodwill by segment were as follows:

 

 

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

 

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 is due to the LifeWatch acquisition.

March 31, 2020:

 Reporting Segment Corporate and Other  
(in thousands)Healthcare Research  Total
Balance at December 31, 2019$276,014
 $16,293
 $9,014
 $301,321
Currency translation(171) 
 
 (171)
Balance at March 31, 2020$275,843
 $16,293
 $9,014
 $301,150

BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


The gross carrying amounts and accumulated amortization of our intangible assets as of September 30, 2017 and December 31, 2016 are as follows:

 

 

Estimated
Useful Life

 

September
30,

2017

 

December
31,

2016

 

 

 

(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

 

(in thousands, except years)
Weighted
Average Life
(Years)
 March 31,
2020
 December 31,
2019
Gross Carrying Value:     
Customer relationships10.3 $149,365
 $149,420
Technology, including internally developed software6.7 22,852
 21,892
Backlog4.0 3,100
 3,100
Trade names15.0 2,500
 2,500
Covenants not to compete4.7 413
 424
Total intangible assets, gross  178,230
 177,336
Accumulated Amortization:     
Customer relationships  (41,907) (38,270)
Technology, including internally developed software  (6,916) (6,153)
Backlog  (3,035) (2,842)
Trade names  (180) (138)
Covenants not to compete  (376) (337)
Total accumulated amortization  (52,414) (47,740)
Total intangible assets, net  $125,816
 $129,596

The estimated amortization expense for our finite-lived intangible assets for the remainder of 2017,2020, the next four fiscal years, and thereafter, is summarized as follows at September 30, 2017:

2017

 

$

3,836

 

2018

 

15,573

 

2019

 

15,845

 

2020

 

15,294

 

2021

 

14,868

 

Thereafter

 

71,648

 

Total estimated amortization

 

$

137,064

 

Amortization expenseas of March 31, 2020:

(in thousands) 
Remainder of 2020$13,750
202118,160
202217,651
202317,131
202416,540
Thereafter42,584
Total estimated amortization$125,816



BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


7. Accrued Liabilities
Accrued liabilities consist of the following:
(in thousands)March 31,
2020
 December 31,
2019
Compensation$10,089
 $13,167
Right of use liabilities - operating leases5,484
 5,187
Professional fees3,298
 4,128
Contract liabilities1,524
 1,584
Non-income taxes665
 427
Interest
 569
Operating costs757
 637
Other1,562
 1,619
Total$23,379
 $27,318



8. Credit Agreement
2020 Credit Agreement
On January 27, 2020, we entered into an Amended and Restated Credit Agreement (the “2020 Credit Agreement”) with Truist Bank (successor to SunTrust Bank) as agent (the “Agent”) for the three months ended September 30, 2017lenders (the “Lenders”), and 2016 was $3,337as issuing bank and $1,062, respectively, and amortization expenseswingline lender, which amends the SunTrust Credit Agreement (as defined below) entered into by the parties on July 12, 2017.
Pursuant to the 2020 Credit Agreement, the Lenders agreed to provide us a $400.0 million senior secured revolving credit facility, which includes a $25.0 million sublimit for the nine months ended September 30, 2017issuance of standby letters of credit and 2016 was $5,326 and $2,735, respectively.

6.Equity Method Investment

In December 2015, we acquired an ownership interest in Well Bridge Health, Inc. (“WellBridge”) througha $40.0 million sublimit for swingline loans. The proceeds of the conversion of an outstanding note receivable and the related accrued interest.  The investment is accounted forrevolving facility were used to refinance indebtedness under the equity method. In December 2015,SunTrust Credit Agreement (as defined below) and to fund working capital and general corporate purposes.

Our revolving credit facility bears interest, at our election, of (i) with respect to Eurodollar borrowings, LIBOR plus the equity method basis difference of $891 was allocatedapplicable Eurodollar margin and (ii) with respect to equity method goodwill.base rate borrowings, the Base Rate (the “prime rate” as published in the Wall Street Journal) plus the applicable Base Rate margin. The applicable margin for both LIBOR and Base Rate loans is determined by reference to our Consolidated Total Net Leverage Ratio, as defined in the 2020 Credit Agreement. As of September 30, 2017, our investment in WellBridge represented 31% of itsMarch 31, 2020, the applicable margin is 1.125% for Eurodollar borrowings and 0.125% for base rate borrowings.
The outstanding stock.  A summarybalance of our investmentrevolving credit facility is due on January 27, 2025. Optional prepayments may be made at any time, without premium or penalty, upon written notice as prescribed in Wellbridgethe 2020 Credit Agreement. Interest on base rate borrowings is payable quarterly while interest on Eurodollar borrowings is generally payable monthly.
The outstanding balance of the facility is secured by substantially all of our assets and a pledge of our capital stock, as follows:

 

 

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

 

7.well as a pledge of 65% of the capital stock of our first tier material foreign subsidiaries.

The carrying amount of our revolving credit facility was $227.4 million as of March 31, 2020, which is the principal amount outstanding, net of $4.6 million of unamortized deferred financing costs to
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


be amortized over the remaining term of the 2020 Credit Agreement

Concurrent with. 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 acquisition2020 Credit Agreement. Our unused commitment fee as of LifeWatch, as discussed in Note 2. Acquisitions,March 31, 2020 was 0.175%.

We may increase commitments to the revolving facility or establish new incremental term loans at any time on or before the final maturity date of the revolving facility, which is January 27, 2025. Incremental commitments to the revolving facility or term loans under the 2020 Credit Agreement will be used to fund future acquisitions, working capital and general corporate purposes.
2017 SunTrust Credit Agreement
In 2017, we entered into a credit agreement with SunTrust Bank, as a lender and an agent for the lenders (the “Lenders”SunTrust Credit Agreement). Pursuant to the credit agreement,SunTrust Credit Agreement, the Lenderslenders agreed to make loans to the Companyus as follows;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.

purposes.

The loans bearbore interest at an annual rate, at theour 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 JournalJournal) plus the applicable margin).margin. The applicable margin isfor both LIBOR and Base Rate loans was determined by reference to the Company’sour 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)SunTrust Credit Agreement.

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.

The carrying amount of the term loan was $199,047 as of September 30, 2017, which is the principal amount outstanding, net of $5,953 of unamortized deferred financing costs to be amortized over the remaining term of the credit facility.

Debt Modification
In connection with the SunTrust credit agreement,our 2020 Credit Agreement, we paidrepaid the $24,875 outstanding indebtedness under the SunTrust Credit Agreement between. Our refinancing via the Company and Healthcare Financial Solutions, LLC, previously the General Electric Capital Corporation, as agent2020 Credit Agreement was accounted for the lenders, and as a lender,debt modification pursuant to the provisions of ASC 470-50 - Debt - Modifications and Extinguishments.
Covenants
The 2020 Credit Agreement contains affirmative and financial covenants regarding the operations of our business and certain negative covenants that, among other things, limit our ability to incur additional indebtedness, grant certain liens, make certain investments, merge or consolidate, make certain restricted payments and engage in certain asset dispositions, including a sale of all, or substantially all, of our property. As of March 31, 2020, we terminatedwere in compliance with our covenants.


9. Leases
We lease our administrative and service facilities, as well as certain office equipment, monitoring devices and information technology equipment under arrangements classified as leases under ASC 842.
We have non-cancelable operating leases expiring at various dates through 2031. Certain leases are renewable at the General Electric Credit Agreement.end of the lease term at our option, none of which are certain at this time. We wrote-off the unamortized deferred financing feeshave also entered into and acquired finance leases with various expiration dates through 2025, which are used primarily to finance office equipment, monitoring devices and other information technology equipment.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


The components of our lease expense are as follows:
 Three Months Ended
 March 31,
(in thousands)2020 2019
Operating lease cost:   
Operating lease cost$1,579
 $1,408
Short-term lease cost189
 146
Total operating lease cost1,768
 1,554
    
Finance lease cost:   
Amortization of right-of-use assets89
 865
Interest on lease liabilities6
 24
Total finance lease cost95
 889
    
Total lease cost$1,863
 $2,443

Supplemental balance sheet information related to the existing debtleases as of $543, whichMarch 31, 2020 and December 31, 2019 is included in loss on extinguishmentas follows:
 March 31, 2020 December 31, 2019
(in thousands, except percentages and years)
Operating
Leases
 
Finance
Leases
 
Operating
Leases
 
Finance
Leases
Property and equipment, net$
 $481
 $
 $493
Other assets32,189
 
 16,400
 
Total right-of-use assets32,189
 481
 16,400
 493
        
Accrued liabilities5,484
 
 5,187
 
Current portion of finance lease obligations
 373
 
 394
Long-term portion of finance lease obligations
 272
 
 289
Other long-term liabilities29,451
 
 14,029
 
Total lease obligations$34,935
 $645
 $19,216
 $683
        
Weighted average remaining lease term (years)7.9
 2.1
 5.0
 1.9
Weighted average discount rate3.7% 4.1% 4.4% 4.5%

BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


Future maturities of debt in our consolidated statements of operations and comprehensive income (loss).

8.Equity

Stock-Based Compensation

In May 2017, the shareholders and Board of Directors approved the BioTelemetry, Inc. 2017 Omnibus Incentive Plan (“OIP”).  The OIP plan replaces the previous stock plan, the BioTelemetry, Inc. 2008 Equity Incentive Plan.  Stock options, restricted stock units (“RSUs”), performance stock units (“PSUs”) and performance stock options (“PSOs”)lease liabilities are granted under the OIP.  At September 30, 2017, 2,780,965 shares remain available for grant under the OIP.

We recognized $1,485 and $1,138 of stock-based compensation expense for the three months ended September 30, 2017 and 2016, respectively.  We recognized $5,685 and $3,757 of stock-based compensation expense for the nine months ended September 30, 2017 and 2016, respectively.

Stock option and RSU activity is summarized as follows:

 

 

Stock Options

 

Restricted Stock Units

 

 

 

Number of
Shares

 

Weighted
Average
Exercise Price

 

Number of
Shares

 

Weighted Average
Grant Date Fair
Value

 

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

 

PSO and PSU activity is summarized as follows:

 

 

Performance Stock Options

 

Performance Stock Units

 

 

 

Number of
Shares

 

Weighted
Average
Exercise Price

 

Number of
Shares

 

Weighted Average
Grant Date Fair
Value

 

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

 

 

$

 

Stock-based compensation expense is only recognized for outstanding PSUs where the performance conditions are deemed probable for achievement.  For PSUs deemed probable for achievement, stock-based compensation expense is recognized ratably over the expected vesting period.  For the three and nine months ended September 30, 2017, no stock-based compensation expense was recognized

(in thousands)
Operating
Leases
 
Finance
Leases
Remainder of 2020$5,074
 $329
20216,230
 210
20225,100
 109
20234,326
 10
20244,042
 9
Thereafter15,547
 1
Total minimum lease payments40,319
 668
Less imputed interest(5,384) (23)
Present value of lease liabilities$34,935
 $645

Supplemental cash flow information related to the PSUs.  For the three and nine months ended September 30, 2016, we incurred stock-based compensation expense of $0 and $444, respectively, related to PSUs.

PSOs are valued and stock-based compensation expenseleases 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.

as follows:
 Three Months Ended
 March 31,
(in thousands)2020 2019
Cash paid for amounts included in the measurement of lease liabilities:   
Operating cash flows from operating leases$(1,558) $(1,472)
Operating cash flows from finance leases(6) (24)
Financing cash flows from finance leases(179) (1,163)
    
Right-of-use assets obtained in exchange for lease obligations, net of incentives:   
Operating leases17,055
 21,810
Finance leases$68
 $787


Employee Stock Purchase Plan

For the nine months ended September 30, 2017, 47,966 shares were purchased in accordance with the 2008 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 May 2017, the shareholders and Board of Directors approved the BioTelemetry, Inc. 2017 Employee Stock Purchase Plan (“2017 ESPP”), with 500,000 shares reserved for issuance under the 2017 ESPP, which will replace the 2008 ESPP.  For the nine months ended September 30, 2017, 47,249 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 nine months ended September 30, 2017 were $720.  At September 30, 2017, 452,751 shares remain available for purchase under the 2017 ESPP.

9.

10. Other Charges

We account for expenses associated with exit or disposal activities in accordance with ASC 420, Exit or Disposal Cost Obligations,our acquisitions and record the expenses in other charges in our consolidated statements of operations and comprehensive income (loss) and record the related accrual in the accrued liabilities line on our consolidated balance sheets.  These costs are primarily comprised of severance and employee related costs.

We account for expensesactivity associated with acquisition and integration related costs and certain ongoing 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. Integration costs are primarily due to employee-related costs. Other charges are costs that are not considered necessary to the ongoing business operations. We have reclassified the disclosure of our 2019 costs to more closely align with the discussion in “Part I; Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report and in our earnings release, and this reclassification did not change the total amount of other charges, which are summarized as follows:

BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


 Three Months Ended
 March 31,
(in thousands)2020 2019
Acquisition and integration costs$163
 $1,936
Information technology incident costs, net of insurance proceeds(276) 
Change in fair value of acquisition-related contingent consideration(290) 
Patent and other litigation1,906
 1,029
Other costs581
 105
Total$2,084
 $3,070

As a result of the October 2019 information technology incident, we received $1.4 million of insurance proceeds during the first quarter of 2020.


11. Equity
Common Stock
As of March 31, 2020 and December 31, 2019, we were authorized to issue 200,000,000 shares of common stock. As of March 31, 2020 and December 31, 2019, we had 34,138,516 and 34,023,053, respectively, shares issued and outstanding.
Preferred Stock
As of March 31, 2020 and December 31, 2019, we were authorized to issue 10,000,000 shares of preferred stock. As of March 31, 2020 and December 31, 2019, there were 0 shares of preferred stock issued or outstanding.


12. Stock-Based Compensation
We have 3 stock plans: our 2017 Omnibus Incentive Plan (“OIP”), our 2008 Equity Incentive Plan (the “2008 Plan”) and our 2003 Equity Incentive Plan (the “2003 Plan”) (collectively, the “Plans”). 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, PSOs, PSUs 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.
2017 Omnibus Incentive Plan (OIP)
On May 11, 2017, our stockholders approved the OIP, which replaced the 2008 Plan. Stock options, RSUs, PSUs and PSOs have been granted under the OIP. Under the terms of the OIP, any cancellation, forfeiture or expiry of equity awards granted under the 2008 Plan roll into the availability under the OIP. There were 1,611,963 shares available for grant under the OIP as of March 31, 2020.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


2008 Equity Incentive Plan
Our 2008 Plan became effective on March 18, 2008 and replaced our 2003 Plan. Under the terms of the 2008 Plan, all available shares in the 2003 Plan share reserve automatically rolled into the 2008 Plan. Any cancellations or forfeitures of granted stock options under the 2003 Plan also automatically rolled into the 2008 Plan. There are 0 shares available to grant under the 2008 Plan subsequent to the approval of the OIP.
Stock option and PSO activity is summarized as follows:
Stock Options
Number of
Stock Options
 
Weighted
Average
Exercise
Price
 Weighted Average Remaining Contractual Term
(Years)
 Aggregate Intrinsic Value
(in thousands)
Outstanding as of December 31, 20192,691,059
 $22.67
 
 

Granted188,403
 51.12
 
 

Forfeited
 
 
 

Exercised(6,223) 11.45
 
 

Outstanding as of March 31, 20202,873,239
 $24.56
 5.7 $54,796
Exercisable as of March 31, 20201,981,650
 $13.52
 4.4 $52,408
Expected to vest as of March 31, 2020827,468
 $49.10
 8.6 $2,216

Performance Stock Options
Number of
PSOs
 
Weighted
Average
Exercise
Price
 Weighted Average Remaining Contractual Term
(Years)
 Aggregate Intrinsic Value
(in thousands)
Outstanding as of December 31, 201930,000
 $21.45
    
Granted
 
    
Forfeited
 
    
Exercised
 
    
Outstanding as of March 31, 202030,000
 $21.45
 6.8 $512
Exercisable as of March 31, 202030,000
 $21.45
 6.8 $512

The table below summarizes certain additional information with respect to our options:
  Three Months Ended
  March 31,
(in thousands, except per option amounts)2020 2019
Aggregate intrinsic value of options exercised$194
 $16,059
Cash received from the exercise of stock options71
 2,923
Weighted average grant date fair value per option$28.51
 $42.35

BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


The total compensation cost of options granted but not yet vested was $22.4 million as of March 31, 2020, which is expected to be recognized over a weighted average period of approximately three years.
RSU and PSU activity is summarized as follows:
 Restricted Stock Units Performance Stock Units
 
Number
of RSUs
 
Weighted Average
Grant Date Fair
Value
 
Number
of PSUs
 
Weighted Average
Grant Date Fair
Value
Units outstanding as of December 31, 2019270,052
 $41.70
 90,020
 $55.06
Granted77,214
 51.18
 51,839
 60.36
Forfeited(1,500) 39.94
 
 
Vested(77,260) 26.71
 
 
Units outstanding as of March 31, 2020268,506
 $48.75
 141,859
 $57.00

Consistent with prior years, during 2020, we granted awards to certain participants in the form of PSUs. These PSUs will vest at the end of a three-year performance period only if long-term financial goals have been achieved, with the vested shares then increased or decreased based on our total shareholder return relative to the companies in the Russell 2000 Index during the same period. The 51,839 2020 PSUs were granted at “target” levels; however, for share pool purposes, we have reserved an additional 51,839 shares in the event that the combined financial performance and market conditions achieve maximum levels. For the periods ending September 30,2018, 2019 and 2020 PSUs combined, we have 141,859 shares reserved as of March 31, 2020 in the event that actual results achieve “maximum” levels. Should any PSU grant not achieve the maximum level, the excess of the maximum shares reserved over the “achieved” level will be returned to the share pool availability.
Additional information about our RSUs is summarized as follows:
  Three Months Ended
  March 31,
(in thousands)2020 2019
Aggregate market value of RSUs vested$4,135
 $11,554

The total compensation cost of RSUs and PSUs granted but not yet vested, inclusive of the PSUs for which vesting has been deemed probable as of March 31, 2020, was $9.9 million, which is expected to be recognized over a weighted average period of approximately two years. Additionally, there were 588,359 RSUs vested but not released at March 31, 2020.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


Employee Stock Purchase Plan
In May 2017, other charges have been partially offset by reductionsour stockholders approved the BioTelemetry, Inc. 2017 Employee Stock Purchase Plan (“2017 ESPP”) with 500,000 shares reserved for issuance, which replaced the 2008 Employee Stock Purchase Plan. Substantially all of our employees are eligible to participate in contingent consideration.  A summarythe 2017 ESPP. Under the 2017 ESPP, each participant may purchase option value of these expensesour shares, through payroll deductions, not to exceed $25,000 of grant date fair value in a calendar year. The purchase price per share is equal to the lower of 85% of the closing market price on the first day of the offering period, or 85% of the closing 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 are made in March and September. For the three months ended March 31, 2020, an aggregate of 59,697 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 three months ended March 31, 2020 were $1.6 million. At March 31, 2020, 172,974 shares remain available for purchase under the 2017 ESPP.
Our aggregate stock-based compensation expense is summarized as follows:

 

 

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

 

10.

 Three Months Ended
 March 31,
(in thousands)2020 2019
Stock options$2,674
 $1,459
Restricted stock units1,307
 919
Performance stock units(831) (81)
Employee stock purchase plan232
 252
Total stock-based compensation expense$3,382
 $2,549



13. Income Taxes

The income tax provision for interim periods is determined using an estimated annual effective tax rate adjusted for discrete items, if any, which are taken into account in the quarterly period in which they occur. We review and update our estimated annual effective tax rate each quarter. IncomeWe recorded an income tax provision of $5.2 millionfor the three months ended March 31, 2020, based on our estimated annual effective tax rate. We recognized an income tax benefit of $435 and $31 was recorded$2.1 million for the three and nine months ended September 30, 2017, respectively,March 31, 2019, primarily due to a discrete benefit recorded for equity compensation deduction under ASU 2016-09.  We recorded an income tax expense of $141 and an income tax benefit of $54 for the three and nine months ended September 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.

deductions.

At September 30, 2017March 31, 2020 and December 31, 2016,2019, we had deferred tax assets, net of deferred tax liabilities and valuation allowance, of $15,498$8.5 million and $36,636,$12.6 million, respectively.  The
We recognize interest and penalties related to unrecognized tax benefits within the (provision for)/benefit from income taxes line in the consolidated statements of operations. During the three months ended March 31, 2020, we recognized an immaterial amount of interest expense in the consolidated statements of operations associated with our unrecognized tax benefits.
At March 31, 2020 and December 31, 2019, we had net deferredreserves of $33.9 million and $34.8 million, respectively, for unrecognized tax assetbenefits, which are recorded as a component of September 30, 2017 reflects a preliminary estimate of the deferred taxes from the LifeWatch acquisition.

11.other long-term liabilities within our consolidated balance sheets.

BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)




14. Segment Information

We operate under three2 reportable segments: Healthcare Research and Technology.Research. The Healthcare segment is focused on the diagnosis andremote cardiac monitoring ofto identify cardiac arrhythmias or heart rhythm disorders and to monitor the functionality of implantable cardiac devices. We offer cardiologists, electrophysiologists, neurologists and primary care physicians a full spectrum of solutions, which provides them with our comprehensive suitea single source of remote cardiac monitoring solutions in a healthcare setting.  Ourservices. These services include MCT, event, traditional Holter, extended Holter, Pacemaker, International Normalized Ratio and Implantable Loop Recorder and other implantable cardiac device monitoring. 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 medicalcardiac 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.

our reportable segments.

Expenses that can be specifically identified with a segment have been included as deductions in determining pre-tax segment income.income/(loss). Any remaining expenses including researchintegration 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.

For the three months ended:

 

 

Healthcare

 

Research

 

Technology

 

Corporate and
Other

 

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
Other

 

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

 

For the nine months ended:

 

 

Healthcare

 

Research

 

Technology

 

Corporate and
Other

 

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
Other

 

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

 

12.Legal Proceedings

The final outcome of any current or future litigation or governmental or internal investigations cannot be accurately predicted, nor can we predict any resulting penalties, fines or other sanctions that may be imposed at the discretion of federal or state regulatory authorities.  We record accruals for such contingencies to the extent that we conclude it is probable that a liability has been incurred and the amount of the loss can be estimated.

In the third 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.

 Three Months Ended March 31, 2020
 Reporting Segment 
Corporate
and Other
  
(in thousands)Healthcare Research  Consolidated
Revenue$95,707
 $13,820
 $3,504
 $113,031
Gross profit64,424
 5,675
 409
 70,508
Income/(loss) before income taxes29,876
 2,043
 (19,586) 12,333
Depreciation and amortization8,435
 1,066
 984
 10,485
Capital expenditures6,211
 391
 382
 6,984
 Three Months Ended March 31, 2019
 Reporting Segment 
Corporate
and Other
  
(in thousands)Healthcare Research  Consolidated
Revenue$88,009
 $12,964
 $3,006
 $103,979
Gross profit59,864
 4,334
 580
 64,778
Income/(loss) before income taxes29,608
 764
 (20,760) 9,612
Depreciation and amortization8,291
 928
 802
 10,021
Capital expenditures4,442
 482
 410
 5,334


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.

In January 2017, ZTech, Inc., Biorita LLC, and the Cleveland Clinic Foundation (the “Claimants”) filed an arbitration demand against LifeWatch with the American Arbitration Association.  Claimants allege 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 alleges 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 seek 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, and the arbitration hearing is scheduled for February 2018, 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.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2016,2019, 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.

Company

Company Background

We are the leading remote medical technology company focused on the delivery of health information to improve quality of life and reduce cost of care. We provide remote cardiac monitoring, services, centralized core laboratory services and manufacture cardiac andfor clinical trials, remote blood glucose monitoring devices.  We operate under three reportable segments:  Healthcare, Research and Technology.  The Healthcare segment is focused on the diagnosisoriginal equipment manufacturing that serves both healthcare and monitoringclinical research customers.
A more detailed description of cardiac arrhythmias, or heart rhythm disorders.  We offer cardiologists and electrophysiologists 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”) 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, Pacemaker and International Normalized Ratio (“INR”) monitoring.  The Research segment is engaged in central core laboratory services providing cardiac monitoring, imaging, scientific consulting and data management services for pharmaceutical and medical device clinical trials.  The Technology segment focuses on the development, manufacturing, testing and marketing of medical devices to medical companies, clinics and hospitals.

Recent Acquisitions

On 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 stock and cash in the amount of approximately $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.  As of September 30, 2017, we owned 98.5% of LifeWatch AG and expect 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.  Telcarebusiness is included in the Technology segment.

On May 11, 2016, we completed the acquisition“Part I; Item 1. Business” 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 shares 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.

Critical Accounting Policies and Estimates

Revenue Recognition

Healthcare

Healthcare revenue includes revenue from MCT, Event, Holter, Pacemaker and INR monitoring services.  We receive a significant portion of our revenue from third-party commercial insurance organizations and governmental entities.  We also receive reimbursement directly from patients through co-pays and self-pay arrangements.  Billings for services reimbursed by contracted third-party payors, including Medicare, are recorded as revenue, net of contractual allowances.  Adjustments to the estimated receipts, based on final settlement with the third-party payors, are recorded upon settlement.  If we do not have sufficient historical information regarding collectability from a given payor to support revenue recognition at the time of service, revenue is recognized when cash is received.  Unearned amounts are appropriately deferred until the service has been completed.  For the three months ended September 30, 2017 and 2016, revenue from Medicare as a percentage 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.

Research

Research revenue includes revenue for core laboratory services, including cardiac monitoring, imaging, scientific consulting and data management services.  Our Research revenue is provided on a fee-for-service basis, and revenue is recognized as the related services are performed.  We also provide consulting services on a time and materials basis and this revenue is recognized as the services are performed.  Our site support revenue, consisting of equipment rentals and sales along with related supplies and logistics management, are recognized at the time of sale or over the rental period.  Under a typical contract, customers pay us a portion of our fee for these services upon contract execution as an upfront deposit.  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.

Technology

Technology 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 - Healthcare

We 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 Accounts

Accounts 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 receivables for the nine months ended September 30, 2017 and 2016, respectively.  The impact was a reduction of gross receivables and a reduction in the allowance for doubtful accounts.  There were no material write-offs in the Research and Technology segments.  We recorded bad debt expense of $3.8 million and $9.0 million, respectively, for 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 Charges

We 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 litigation 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.

Results of Operations

Three Months Ended September 30, 2017 and 2016

Revenues.  Total revenues for the three months ended September 30, 2017 were $81.0 million compared to $53.1 million for the three months ended September 30, 2016, reflecting an increase of $27.9 million, or 52.7%.  Healthcare revenue increased $29.1 million due to 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 an 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 as the aforementioned reduction in MCT Medicare pricing effective January 1, 2017.

General and Administrative Expense.  General and administrative expense was $25.3 million for the three months ended September 30, 2017 compared to $13.9 million for the three months ended September 30, 2016.  The increase of $11.4 million or 82.8%, was due to the addition of $11.1 million from the acquisition of LifeWatch as well as a $0.3 million increase in consulting expenses, partially offset by acquisition synergies.  As a percent of total revenues, general and administrative expense was 31.3% for the three months ended September 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%, 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 due to the timing 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% for 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 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.  Bad debt expense in the Research and Technology segments was minimal and is recorded on a specific account basis.

Research and Development Expense.  Research and development 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 September 30, 2016.  The increase was primarily due to a gain of $1.3 million for a settlement with a former owner of Mednet, partially offset by $0.4 million related to the write off of the derivative instrument premium.

Income Taxes.  For the three months ended September 30, 2017, we recorded an income tax benefit of $0.4 million.  After considering discrete tax benefits from the exercise of stock options, but excluding the impact of the acquisition of LifeWatch, we expect our 2017 annual effective tax rate to be approximately 35%, 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.

Nine Months Ended September 30, 2017 and 2016

Revenues.  Total revenues for the nine months ended September 30, 2017 were $195.0 million compared to $154.4 million for the nine months ended September 30, 2016, reflecting an increase of $40.6 million, or 26.3%.  Healthcare revenue increased $32.4 million primarily due to our acquisition of LifeWatch, which accounted for $27.4 million in revenue, and increased 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 million due to growth in as well as the full year impact of the acquisition of the imaging business, VirtualScopics, which occurred during the second quarter of 2016, partially offset by lower cardiac study volumes.  Technology revenue increased $3.7 million, due to the acquisition of Telcare during the fourth quarter of 2016.

Gross Profit.  Gross profit increased to $117.9 million for the nine months ended September 30, 2017 from $96.4 million for the nine months ended September 30, 2016, reflecting an 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 as the aforementioned reduction in MCT Medicare pricing effective January 1, 2017.

General and Administrative Expense.  General and administrative expense was $55.6 million for the nine months ended September 30, 2017 compared to $40.6 million for the nine months ended September 30, 2016.  The increase of $15.0 million, or 37.0%, was due to the addition of $11.1 million from the acquisition of LifeWatch, $1.4 million of additional employee related costs, a $1.0 million increase in technology costs and a $0.8 million increase in consulting costs, partially offset by synergies related to the acquisitions.  As a percent of total revenues, general and administrative expense was 28.5% for the nine months ended September 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%,was due to a $3.2 million increase related to the 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 revenue due in part to our acquisition of LifeWatch and the timing of revenues 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.  Bad debt expense in the Research and Technology segments was minimal and is recorded on a specific account basis.

Research and Development Expense.  Research and development expense was $8.2 million for the nine months ended September 30, 2017 compared to $5.9 million for the nine months ended September 30, 2016.  The increase of $2.3 million, or 39.7%, was due to the addition of $0.6 million from the acquisition of LifeWatch, a $1.0 million increase in consulting services related to the development of our next generation device 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 million of other charges primarily related to legal and professional fees, as well as severance costs related to the acquisition of LifeWatch.  These charges were partially offset by a $2.0 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 to 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.

Other non-operating expense, net.  Other non-operating expense was $2.8 million for the nine months ended September 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 of $2.5 million recorded in the first quarter of 2017 for a settlement with the Office for Civil Rights related to the theft of two unencrypted laptop computers in 2011 and a $1.3 million charge related to 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.

Income Taxes.  For the nine months ended September 30, 2017, we recorded a nominal income tax benefit.  After considering discrete tax benefits from the exercise of stock options, but excluding the impact of the acquisition of LifeWatch, we expect our 2017 annual effective tax rate to be approximately 35%, 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.

Liquidity and Capital Resources

Our Annual Report on Form 10-K for the year ended December 31, 2016 includes a detailed discussion of our liquidity, contractual obligations and commitments.  The information presented below updates and should be read in conjunction with the information disclosed in that Form 10-K.

As of September 30, 2017, our principal source of liquidity was 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 items primarily related to bad debt, depreciation, amortization and stock-based compensation expense.  These items were partially offset by $18.5 million of cash used for working capital.

We used $180.0 million of cash in investing activities for the nine months ended September 30, 2017.  We used $166.2 million of cash, net of cash acquired, for the acquisition of LifeWatch and $11.9 million of cash for capital purchases primarily related to medical devices 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.

In July 2017, we entered into a $205.0 million term loan and a $50.0 million revolving credit facility with SunTrust Bank, as a lender and an agent for the lenders.  The proceeds of the Loans were used pay off our General Electric Credit Agreement balance of $24.9 million and acquired LifeWatch debt of $3.0 million, pay a portion of the consideration for the acquisition of LifeWatch 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 Commitments

Our contractual obligations reflected in Part II, Item 7 of our 2016 Annual Report on Form 10-K for the fiscal year ended December 31, 20162019.

Executive Summary
The following is a summary of certain financial highlights and trends related to the quarter ended March 31, 2020:
Recognized $113.0 million in revenue, an increase of 8.7% over the prior year period. This result represents our 31st consecutive quarter of year-over-year revenue growth.
Medicare rates for 2020 did not change significantly from 2019 rates.
Early in the quarter, we renegotiated our credit agreement to more favorable financial terms, giving us more flexibility in the future.
In response to COVID-19’s impact on the economic environment, we have materially changedbeen able to scale our operations to current demand and believe we have sufficient liquidity available through our operating cash flow. In addition, to further support our business, we also have access to government stimulus payments and our credit facility.
Recent Developments
In March 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic, and, in the following weeks, many U.S. states and localities issued lockdown orders impacting demand for our services. We are following the mandates from public health officials and government agencies, including implementation of enhanced cleaning measures, social distancing guidelines and work from home policies. To date, we have not seen a significant impact to our supply chain with regards to our ability to obtain supplies, inventory or materials or a significant change in prices. We continue to monitor the situation closely.
We expect the ultimate significance of the impact on our financial condition, results of operations and cash flows will be dictated by the length of time that such circumstances continue and any further governmental and public actions taken in response, including how quickly state governments decide to lift restrictions. While these unknowns make it more challenging for us to estimate future performance, our business is flexible in terms of our ability to adjust the cost structure to the appropriate level in response to the demand for our services. As such, we believe we will have sufficient liquidity available through our


operating cash flow. In addition, to further support our business, we also have access to government stimulus payments and our credit facility.
On January 27, 2020, we entered into an Amended and Restated Credit Agreement with Truist Bank (successor to SunTrust Bank) (the “2020 Credit Agreement”), which amends the SunTrust Credit Agreement entered into by the parties on July 12, 2017. The 2020 Credit Agreement provides us with a $400.0 million senior secured revolving credit facility. We used this revolving credit facility to repay the debt under the SunTrust Credit Agreement. For more details, refer to “Part I; Item 1. Financial Statements and Supplementary Data; Notes to Consolidated Financial Statements; Note 8. Credit Agreement” of this report.

Critical Accounting Policies and Estimates
We have prepared the consolidated financial statements and accompanying notes included in “Part I; Item 1. Financial Statements” of this report in accordance with U.S. generally accepted accounting principles. This requires us to make estimates and assumptions that affect the amounts reported in our consolidated 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 those estimates under different assumptions or conditions.
We periodically reevaluate our accounting policies, assumptions, and estimates and make adjustments when facts and circumstances warrant. Our significant accounting 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” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. The accounting policies and related assumptions that we consider to be more critical to the preparation of our consolidated financial statements and accompanying notes and involve the most significant management judgments and estimates are described in “Part II; Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations; Critical Accounting Policies and Estimates” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Results of Operations
Three Months Ended March 31, 2020 and March 31, 2019
Revenue
 Three Months Ended    
 March 31, Change
(in thousands, except percentages)2020 2019 $ %
Healthcare$95,707
 $88,009
 $7,698
 8.7%
Research13,820
 12,964
 856
 6.6%
Other3,504
 3,006
 498
 16.6%
Total revenue$113,031
 $103,979
 $9,052
 8.7%
Total revenue for the three months ended March 31, 2020 increased 8.7% due to growth in revenue across all of our businesses. The increase in Healthcare revenue was driven by the higher demand for our


implantable loop recorder monitoring and extended Holter (ePatch™) services. Research revenue continues to benefit from new cardiac studies utilizing ePatch™ as well as the acceleration of certain imaging studies. Other revenue increased due to continued growth of diabetic product sales. Our year-over-year revenue growth comes despite the effects of COVID-19, which negatively impacted volume, particularly in Healthcare, in the second half of March.
Gross Profit
 Three Months Ended    
 March 31, Change
(in thousands, except percentages)2020 2019 $ %
Gross profit$70,508
 $64,778
 $5,730
 8.8%
Percentage of revenue62.4% 62.3%    
Gross profit for the three months ended March 31, 2020 increased in line with the higher revenue.
General and Administrative Expense
 Three Months Ended    
 March 31, Change
(in thousands, except percentages)2020 2019 $ %
General and administrative expense$31,881
 $27,607
 $4,274
 15.5%
Percentage of revenue28.2% 26.6%    
General and administrative expense for the three months ended March 31, 2020 increased primarily due to additional headcount and related costs, largely in our information technology areas, as well as increased technology expenses. These increases are being driven by our ongoing growth and investment in our business systems and infrastructure as well as the full quarter impact of the Geneva acquisition.
Sales and Marketing Expense
 Three Months Ended    
 March 31, Change
(in thousands, except percentages)2020 2019 $ %
Sales and marketing expense$13,446
 $12,440
 $1,006
 8.1%
Percentage of revenue11.9% 12.0%    
Sales and marketing expense for the three months ended March 31, 2020 increased primarily due to increased headcount and related expense associated with the expansion of our field sales team and the development of a specialized sales team focused on the deployment of our Geneva platform.


Credit Loss Expense
 Three Months Ended    
 March 31, Change
(in thousands, except percentages)2020 2019 $ %
Credit loss expense$6,020
 $5,148
 $872
 16.9%
Percentage of revenue5.3% 5.0%    
Credit loss expense (formerly bad debt expense) for the three months ended March 31, 2020 increased primarily due to the higher Healthcare revenue and the timing of Healthcare collections. Credit loss expense for the three months ended March 31, 2020 in Research and the Other category was minimal.
Research and Development Expense
 Three Months Ended    
 March 31, Change
(in thousands, except percentages)2020 2019 $ %
Research and development expense$3,568
 $3,333
 $235
 7.1%
Percentage of revenue3.2% 3.2%    
Research and development expense for the three months ended March 31, 2020 increased due to additional headcount and related expense. Our research and development team continues to focus on bringing new products and technologies to market, including the further incorporation of artificial intelligence and machine learning into our services.
Other Charges
 Three Months Ended    
 March 31, Change
(in thousands, except percentages)2020 2019 $ %
Other charges$2,084
 $3,070
 $(986) (32.1)%
Percentage of revenue1.8% 3.0%    
Other charges for the three months ended March 31, 2020 decreased primarily due to insurance proceeds of $1.4 million related to our October 2019 information technology incident. For further details, please see “Part I; Item 1, Financial Statements; Note 10. Other Charges.”


Other Expense
 Three Months Ended    
 March 31, Change
(in thousands, except percentages)2020 2019 $ %
Interest expense$(2,107) $(2,482) $375
 (15.1)%
Loss on equity method investment
 (32) 32
 (100.0)%
Other non-operating income/(expense), net931
 (1,054) 1,985
 (188.3)%
Total other expense, net$(1,176) $(3,568) $2,392
 (67.0)%
Percentage of revenue1.0% 3.4%    
Total other expense, net for the three months ended March 31, 2020 decreased primarily due to the effect of non-cash foreign currency transaction gains. Additionally, as a result of the LifeWatch acquisition.  Exceptpartial quarter impact of our 2020 Credit Agreement, which was effective from January 27, 2020, we incurred lower interest expense. The 2020 Credit Agreement reduced our applicable LIBOR margin at the current Consolidated Total Net Leverage Ratio (as defined in the 2020 Credit Agreement) by 37.5 basis points. For further details regarding the 2020 Credit Agreement, please see “Part I; Item 1, Financial Statements; Note 8. Credit Agreement.”
Income Taxes
 Three Months Ended    
 March 31, Change
(in thousands, except percentages)2020 2019 $ %
(Provision for)/benefit from income taxes$(5,224) $2,073
 $(7,297) (352.0)%
Effective tax rate42.4% (21.6)%    
For the three months ended March 31, 2020, we recorded an income tax provision based on our estimated annual effective tax rate. For the three months ended March 31, 2019, we recorded an income tax benefit primarily due to a discrete benefit recorded for equity compensation deductions. The change in income tax expense is driven by higher equity compensation deductions in the prior year.



Liquidity and Capital Resources
The following table highlights certain information related to our liquidity and capital resources:
(in thousands, except ratios)March 31,
2020
 December 31,
2019
Cash and cash equivalents$106,845
 $68,614
Healthcare accounts receivable, net of allowance for credit losses74,864
 71,851
Other accounts receivable, net of allowance for credit losses18,727
 15,625
Availability under revolving credit facility168,000
 50,000
    
Working capital$163,983
 $112,579
Current ratio4.3
 3.0
    
Total operating lease obligations$34,935
 $19,216
Total finance lease obligations645
 683
Total debt$227,425
 $194,667
The following table highlights certain cash flow activities:
 Three Months Ended
(in thousands)March 31,
2020
 March 31,
2019
Net income$7,109
 $11,685
Non-cash adjustments to net income25,138
 16,645
Cash used for working capital(19,544) (10,786)
Cash provided by operating activities12,703
 17,544
    
Cash used in investing activities(6,984) (49,900)
    
Cash provided by/(used in) financing activities$32,570
 $(3,044)
Cash Provided By Operating Activities
The decrease in cash provided by operating activities was primarily due to the decrease in net income. Non-cash adjustments to net income increased for the debt obligation as of Decemberthree months ended March 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 updates2020 primarily due to the undiscounted payment commitments aschange in deferred tax expense recognized during 2020 from the usage of September 30, 2017net operating losses, increases in conjunctionother non-cash expenses, credit loss expense and stock-based compensation, offset partially by the changes in acquisition-related contingent consideration. Cash used for working capital increased primarily due to the timing of cash payments.
Cash Used In Investing Activities
During the three months ended March 31, 2019, we spent $44.6 million, net of cash acquired, related to our Geneva acquisition. We increased our purchases for equipment and internally developed software in 2020, consistent with the LifeWatch acquisitionour higher Healthcare service volumes and the related SunTrust refinancing:

 

 

(in thousands)
Payments due by period

 

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

 


*continuation of the accrued interest has been excluded from these amounts aslaunch of our next generation products used in our monitoring services.



Cash Provided By Financing Activities
The increase in cash provided by financing activities during the rate is variable, determined annually, as defined bythree months ended March 31, 2020 was primarily due to a $35.0 million draw on the credit agreement.

facility.
On January 27, 2020, we entered into an Amended and Restated Credit Agreement (the “2020 Credit Agreement”) with Truist Bank (successor to SunTrust Bank) in the form of a revolving credit facility. The 2020 Credit Agreement provides us more favorable financial terms, giving us more flexibility in the future. As of March 31, 2020, we have $168.0 million of availability under our revolving credit facility. For further details regarding this agreement, please see “Part I; Item 1. Financial Statements; Notes to Consolidated Financial Statements; Note 8. Credit Agreement” of this report.
While we have taken certain measures to enhance our liquidity position and provide additional financial flexibility in response to the COVID-19 situation, including drawing down additional funds on our revolving credit facility, we believe that our operating cash receipts will be sufficient to cover our operating cash needs. We will also benefit from cash receipts in the second quarter related to various COVID-related government stimulus programs.

Item 3. Quantitative and Qualitative Disclosures aboutAbout Market Risk

Our cash balanceand cash equivalents as of September 30, 2017 was $26.2March 31, 2020 were $106.8 million. We do not invest in any short-term or long-term securities, nor do we hold any derivative financial instruments for trading securities.

or speculative purposes.

At September 30, 2017,March 31, 2020, we had $205.0$227.4 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 $2.3 million. For further details regarding our debt, rates or applicable margin, please refer to
“Part I; Item 1, Financial Statements; Notes to Consolidated Financial Statements; Note 8. Credit Agreement” within this Quarterly Report on Form 10-Q and “Part II; Item 8. Financial Statements and Supplementary Data; Notes to Consolidated Financial Statements; Note 11. Credit Agreement” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.



Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (“Exchange 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.

It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) of the Exchange Act as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer (the Principal Executive Officer) and Chief Financial Officer (the Principal Financial Officer) have concluded that our disclosure controls and procedures were effective as of September 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.

March 31, 2020. 

Changes in Internal Control overOver Financial Reporting

On 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

There were no 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) underduring the Exchange Act) for the nine months ended September 30, 2017,period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.




PART II - OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, in the ordinary course of business, and like others in the industry, we receive requests for information from government agencies in connection with their regulatory or investigational authority or are involved in traditional employment or business litigation.  We review such requests and notices and take appropriate action.

On April 5, 2019, a complaint filed under seal in the U.S. District Court for the Eastern District of Pennsylvania against the Company by private relators under the Federal False Claims Act, and analogous state acts, was unsealed. The U.S. Department of Justice notified the District Court of its decision not to intervene in the case at this time, and the case is currently stayed until May 2020 while the U.S. Department of Justice determines whether it will intervene in the case.
The relators’ complaint alleges, among other things, that the Company engaged in the offshoring of certain activities and improper performance of work at certain U.S. locations in violation of applicable law. The relators seek unspecified damages on behalf of the U.S. and various states and municipalities.
The Company is evaluating the complaint, but, at this point, it believes the allegations in the complaint are without merit and intends to vigorously defend the litigation. The Company also does not believe these claims will have a material impact on its business operations or strategic plans.
The final outcome of any current or future litigation or governmental or internal investigations cannot be accurately predicted, nor can we predict any resulting penalties, fines or other sanctions that may be imposed at the discretion of federal or state regulatory authorities. We record accruals for such contingencies to the extent that we conclude it is probable that a liability has been incurred and the amount of the loss can be estimated.


Item 1A.  Risk Factors

In evaluating an investment in BioTelemetry common stock, investors should consider carefully, among other things, 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, 2016,2019, as well as the information contained in this Quarterly Report on Form 10-Q, which could materially affect our business, financial condition or future results. The risks described in this Quarterly Report on Form 10-Q and the our Annual Report on Form 10-K are not the only risks facing BioTelemetry. Additional risks and uncertainty not currently known to us or that we currently deem immaterial also may materially adversely affect our business, financial condition or future results.
The COVID-19 pandemic has negatively impacted our business.
The COVID-19 pandemic has disrupted the global economy and has negatively impacted large populations, including people and businesses that are directly or indirectly involved with the operation of our Company and the manufacturing and distribution of our products and services. Despite these impacts, it is important to note that our business operations have remained operational and available to service the demand of our customers. The full scope and economic impact of the COVID-19 pandemic is still unknown and there are many risks from COVID-19 that could generally and negatively impact economies and healthcare providers in the area where we do business. At this time, we have identified the following COVID-19 related risks that we believe have a greater likelihood of negatively impacting our company, including:


Federal, State and local shelter-in-place mandates and other reportsbusiness restrictions, which limit the ability of potential patients to see their physicians and registration statements filedobtain a prescription for our services and our employees’ ability to conduct their jobs, including our sales force’s ability to travel and meet clients and referring physicians in person.
Localized outbreaks of COVID-19 in job functions at our Company that are unable to be performed remotely and are critical to providing our products and services (e.g. distribution).
The burden on hospitals and medical personnel resulting in the cancellation of non-essential medical appointments, which our business relies on to obtain prescriptions for our services.
Increased cybersecurity risks.
Increased unemployment rates, which may result in decreased insurance coverage in the locations we serve.
Erosion of the capital markets, which may make it more difficult to obtain financing that we may need to fund and continue our operations.
Demand for and our ability to sell and market our products and services have been and we expect will continue to be adversely affected by usthe COVID-19 pandemic and responses thereto.
Restrictions on the ability to travel, social distancing policies, orders and restriction, including those described above, and recommendations regarding fears of COVID-19 spreading within healthcare facilities has caused both patients and providers to delay or cancel appointments and procedures that result in the use of our products and services. We are unable to accurately predict when these policies, orders and restrictions will be relaxed or lifted, and there can be no assurances that patients or providers will restart appointments or procedures that result in the use of our products or services upon termination of these policies, orders and restrictions, particularly if there remains any continued community outbreak of COVID-19.
A prolonged economic contraction or recession may also result in employer layoffs of their employees in markets where we conduct business, which could result in lower demand. We have already experienced reduced sales as a result of the effects of the COVID-19 pandemic. If our sales continue to decline, or if such lost sales are not recoverable in the future, our business and results of operations will be significantly adversely affected.
Our sales and marketing personnel often rely on in-person and on site access to healthcare providers, which is currently restricted as hospitals and physicians’ offices reduce access to essential personnel only. These restrictions have harmed our sales and marketing efforts, and continued restrictions would have a negative impact on our sales and results of operations. An increase of COVID-19-related hospital admissions may overload hospitals with unexpected patients, thereby delaying further appointments and procedures that result in the SEC.

use of our products or services but that may be deemed elective by the hospital.
The global outbreak of COVID-19 continues to rapidly evolve. The ultimate impact of the COVID-19 outbreak is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business or the global economy as a whole. However, these effects have harmed our business, financial condition and results of operations in the near term and could have a continuing material impact on our operations and sales.



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.


Item 3.  Defaults Upon Senior Securities

Not applicable.


Item 4.  Mine Safety Disclosures

Not applicable.


Item 5.  Other Information

Not applicable.





Item 6.  Exhibits

EXHIBIT INDEX

    Incorporated by Reference Filed/Furnished Herewith
Exhibit
Number
 Description Form File No. Exhibit Filing Date 
10.1  10-K 001-33993 10.13 February 28, 2020  
31.1          
31.2          
32          +
101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded withing the Inline XBRL document.         
101.DEF XBRL Taxonomy Extension Definition Linkbase Document.         
101.SCH XBRL Taxonomy Extension Schema Document.         
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.         
101.LAB XBRL Taxonomy Extension Label Linkbase Document.         
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.         
104 Cover Page Interactive Data File, formatted in Inline XBRL (contained in Exhibit 101).          

Exhibit
Number

2.1

Filed herewith.

Transaction Agreement by and among Lifewatch AG, Biotelemetry, Inc. and Cardiac Monitoring Holding Company, LLC, dated April 4, 2017.

10.1

+

Credit Agreement by and among Biotelemetry, Inc. and SunTrust Bank, as agent for the lenders and swingline lender, dated July 12, 2017.

31.1

Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities and Exchange Act of 1934, as amended.

31.2

Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities and Exchange Act of 1934, as amended.

32

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB

XBRL Taxonomy Label Linkbase Document

101.PRE

XBRL Taxonomy Presentation Linkbase Document

101.DEF

XBRL Taxonomy Definition Linkbase Document

Furnished herewith.




BioTelemetry, Inc.


SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

BIOTELEMETRY, INC.

BIOTELEMETRY, INC.

Date: November 7, 2017

May 6, 2020

By:

/s/ Heather C. Getz

Heather C. Getz, CPA

Executive Vice President, and Chief Financial and Administrative Officer

(Principal Financial Officer and authorized officer of the Registrant)

34



46