Item 1. Financial Statements
BIOTELEMETRY, INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except share and par value data)
|
(Unaudited)
June 30,
2020
|
|
December 31,
2019
|
|
ASSETS
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
$
|
84,003
|
|
|
$
|
68,614
|
|
|
Healthcare accounts receivable, net of allowance for credit losses of $37,530 and $31,780, at June 30, 2020 and December 31, 2019, respectively
|
65,525
|
|
|
71,851
|
|
|
Other accounts receivable, net of allowance for credit losses of $542 and $201, at June 30, 2020 and December 31, 2019, respectively
|
15,088
|
|
|
15,625
|
|
|
Inventory
|
6,929
|
|
|
5,738
|
|
|
Prepaid expenses and other current assets
|
4,371
|
|
|
6,505
|
|
|
Total current assets
|
175,916
|
|
|
168,333
|
|
|
Property and equipment, net of accumulated depreciation of $78,066 and $76,095, at June 30, 2020 and December 31, 2019, respectively
|
60,275
|
|
|
56,380
|
|
|
Intangible assets, net
|
128,324
|
|
|
129,596
|
|
|
Goodwill
|
301,333
|
|
|
301,321
|
|
|
Deferred tax assets
|
7,156
|
|
|
12,626
|
|
|
Other assets
|
36,653
|
|
|
17,464
|
|
|
Total assets
|
$
|
709,657
|
|
|
$
|
685,720
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
$
|
21,491
|
|
|
$
|
24,198
|
|
|
Accrued liabilities
|
48,006
|
|
|
27,318
|
|
|
Current portion of finance lease obligations
|
255
|
|
|
394
|
|
|
Current portion of long-term debt
|
—
|
|
|
3,844
|
|
|
Total current liabilities
|
69,752
|
|
|
55,754
|
|
|
Long-term portion of finance lease obligations
|
224
|
|
|
289
|
|
|
Long-term debt
|
157,655
|
|
|
190,823
|
|
|
Other long-term liabilities
|
98,198
|
|
|
71,937
|
|
|
Total liabilities
|
325,829
|
|
|
318,803
|
|
|
Stockholders’ equity:
|
|
|
|
|
Common stock—$0.001 par value as of June 30, 2020 and December 31, 2019; 200,000,000 shares authorized as of June 30, 2020 and December 31, 2019; 34,185,144 and 34,023,053 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively
|
34
|
|
|
34
|
|
|
Paid-in capital
|
461,279
|
|
|
453,366
|
|
|
Accumulated other comprehensive loss
|
(514
|
)
|
|
(469
|
)
|
|
Accumulated deficit
|
(76,971
|
)
|
|
(86,014
|
)
|
|
Total stockholders’ equity
|
383,828
|
|
|
366,917
|
|
|
Total liabilities and stockholders’ equity
|
$
|
709,657
|
|
|
$
|
685,720
|
|
See accompanying Notes to Consolidated Financial Statements.
BIOTELEMETRY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
(in thousands, except per share data)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Revenue
|
$
|
89,407
|
|
|
$
|
111,803
|
|
|
$
|
202,438
|
|
|
$
|
215,782
|
|
|
Other revenue
|
9,702
|
|
|
—
|
|
|
9,702
|
|
|
—
|
|
|
Total revenue
|
99,109
|
|
|
111,803
|
|
|
212,140
|
|
|
215,782
|
|
|
Cost of revenue
|
37,582
|
|
|
41,563
|
|
|
80,105
|
|
|
80,764
|
|
|
Gross profit
|
61,527
|
|
|
70,240
|
|
|
132,035
|
|
|
135,018
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
General and administrative
|
31,099
|
|
|
30,587
|
|
|
62,980
|
|
|
58,194
|
|
|
Sales and marketing
|
10,521
|
|
|
12,795
|
|
|
23,967
|
|
|
25,235
|
|
|
Credit loss expense
|
6,166
|
|
|
5,379
|
|
|
12,186
|
|
|
10,527
|
|
|
Research and development
|
2,699
|
|
|
3,532
|
|
|
6,267
|
|
|
6,865
|
|
|
Other charges
|
5,003
|
|
|
2,234
|
|
|
7,087
|
|
|
5,304
|
|
|
Total operating expenses
|
55,488
|
|
|
54,527
|
|
|
112,487
|
|
|
106,125
|
|
|
Income from operations
|
6,039
|
|
|
15,713
|
|
|
19,548
|
|
|
28,893
|
|
|
Other expense:
|
|
|
|
|
|
|
|
|
Interest expense
|
(1,702
|
)
|
|
(2,538
|
)
|
|
(3,809
|
)
|
|
(5,020
|
)
|
|
Loss on equity method investments
|
—
|
|
|
(154
|
)
|
|
—
|
|
|
(186
|
)
|
|
Other non-operating income/(expense), net
|
(1,400
|
)
|
|
86
|
|
|
(469
|
)
|
|
(968
|
)
|
|
Total other expense, net
|
(3,102
|
)
|
|
(2,606
|
)
|
|
(4,278
|
)
|
|
(6,174
|
)
|
|
Income before income taxes
|
2,937
|
|
|
13,107
|
|
|
15,270
|
|
|
22,719
|
|
|
Provision for income taxes
|
(656
|
)
|
|
(4,807
|
)
|
|
(5,880
|
)
|
|
(2,734
|
)
|
|
Net income
|
$
|
2,281
|
|
|
$
|
8,300
|
|
|
$
|
9,390
|
|
|
$
|
19,985
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.07
|
|
|
$
|
0.25
|
|
|
$
|
0.27
|
|
|
$
|
0.59
|
|
|
Diluted
|
$
|
0.06
|
|
|
$
|
0.23
|
|
|
$
|
0.26
|
|
|
$
|
0.55
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
34,290
|
|
|
33,825
|
|
|
34,238
|
|
|
33,806
|
|
|
Dilutive common stock equivalents
|
2,319
|
|
|
2,493
|
|
|
2,431
|
|
|
2,638
|
|
|
Diluted
|
36,609
|
|
|
36,318
|
|
|
36,669
|
|
|
36,444
|
|
See accompanying Notes to Consolidated Financial Statements.
BIOTELEMETRY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
(in thousands)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Net income
|
$
|
2,281
|
|
|
$
|
8,300
|
|
|
$
|
9,390
|
|
|
$
|
19,985
|
|
|
Other comprehensive income/(loss):
|
|
|
|
|
|
|
|
|
Foreign currency translation gain/(loss)
|
270
|
|
|
(711
|
)
|
|
(45
|
)
|
|
(713
|
)
|
|
Comprehensive income
|
$
|
2,551
|
|
|
$
|
7,589
|
|
|
$
|
9,345
|
|
|
$
|
19,272
|
|
See accompanying Notes to Consolidated Financial Statements.
BIOTELEMETRY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
June 30,
|
|
(in thousands)
|
2020
|
|
2019
|
|
OPERATING ACTIVITIES
|
|
|
|
|
Net income
|
$
|
9,390
|
|
|
$
|
19,985
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
Credit loss expense
|
12,186
|
|
|
10,527
|
|
|
Depreciation and amortization
|
21,364
|
|
|
20,213
|
|
|
Stock-based compensation
|
7,060
|
|
|
6,026
|
|
|
Accretion of debt discount
|
498
|
|
|
621
|
|
|
Deferred income taxes
|
4,100
|
|
|
1,980
|
|
|
Change in fair value of acquisition-related contingent consideration
|
1,850
|
|
|
(1,810
|
)
|
|
Other non-cash items
|
909
|
|
|
(398
|
)
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
Healthcare and other accounts receivable
|
(5,670
|
)
|
|
(19,643
|
)
|
|
Inventory
|
(1,191
|
)
|
|
1,286
|
|
|
Prepaid expenses and other assets
|
(520
|
)
|
|
(3,366
|
)
|
|
Accounts payable
|
(2,707
|
)
|
|
3,837
|
|
|
Accrued and other liabilities
|
22,276
|
|
|
(3,128
|
)
|
|
Net cash provided by operating activities
|
69,545
|
|
|
36,130
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
Acquisition of business, net of cash acquired
|
—
|
|
|
(44,766
|
)
|
|
Purchases of property and equipment and investment in internally developed software
|
(17,110
|
)
|
|
(16,092
|
)
|
|
Net cash used in investing activities
|
(17,110
|
)
|
|
(60,858
|
)
|
|
FINANCING ACTIVITIES
|
|
|
|
|
Proceeds related to the exercising of stock options and employee stock purchase plan
|
2,508
|
|
|
4,729
|
|
|
Payments of tax withholdings related to vesting of share-based awards
|
(1,655
|
)
|
|
(4,955
|
)
|
|
Principal payments on long-term debt
|
(197,825
|
)
|
|
(2,563
|
)
|
|
Principal payments on revolving credit facility
|
(70,000
|
)
|
|
—
|
|
|
Proceeds from borrowings on revolving credit facility
|
232,000
|
|
|
—
|
|
|
Payment of debt issuance costs
|
(1,684
|
)
|
|
—
|
|
|
Principal payments on finance lease obligations
|
(332
|
)
|
|
(1,659
|
)
|
|
Net cash used in financing activities
|
(36,988
|
)
|
|
(4,448
|
)
|
|
Effect of exchange rate changes on cash
|
(58
|
)
|
|
(1
|
)
|
|
Net increase/(decrease) in cash and cash equivalents
|
15,389
|
|
|
(29,177
|
)
|
|
Cash and cash equivalents - beginning of period
|
68,614
|
|
|
80,889
|
|
|
Cash and cash equivalents - end of period
|
$
|
84,003
|
|
|
$
|
51,712
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
|
|
Non-cash purchases of property and equipment
|
$
|
4,761
|
|
|
$
|
1,645
|
|
|
Non-cash fair value of equity issued for acquisition of business
|
—
|
|
|
2,142
|
|
|
Non-cash fair value of customer lists acquired
|
5,470
|
|
|
—
|
|
|
Cash paid for interest
|
3,065
|
|
|
4,327
|
|
|
Cash paid for taxes
|
$
|
636
|
|
|
$
|
312
|
|
See accompanying Notes to Consolidated Financial Statements.
BIOTELEMETRY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Paid-in Capital
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Accumulated Deficit
|
|
Total Stockholders’ Equity
|
|
(in thousands, except shares)
|
Shares
|
|
Amount
|
|
|
|
|
|
Balance at March 31, 2020
|
34,138,516
|
|
|
$
|
34
|
|
|
$
|
457,000
|
|
|
$
|
(784
|
)
|
|
$
|
(79,252
|
)
|
|
$
|
376,998
|
|
|
Share issuances related to stock compensation plans
|
51,949
|
|
|
—
|
|
|
789
|
|
|
—
|
|
|
—
|
|
|
789
|
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
3,678
|
|
|
—
|
|
|
—
|
|
|
3,678
|
|
|
Shares withheld to cover taxes on vesting of share-based awards
|
(5,321
|
)
|
|
—
|
|
|
(188
|
)
|
|
—
|
|
|
—
|
|
|
(188
|
)
|
|
Currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
270
|
|
|
—
|
|
|
270
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,281
|
|
|
2,281
|
|
|
Balance at June 30, 2020
|
34,185,144
|
|
|
$
|
34
|
|
|
$
|
461,279
|
|
|
$
|
(514
|
)
|
|
$
|
(76,971
|
)
|
|
$
|
383,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Paid-in Capital
|
|
Accumulated
Other
Comprehensive
Income/(Loss)
|
|
Accumulated Deficit
|
|
Total Stockholders’ Equity
|
|
(in thousands, except shares)
|
Shares
|
|
Amount
|
|
|
|
|
|
Balance at March 31, 2019
|
33,803,736
|
|
|
$
|
34
|
|
|
$
|
436,892
|
|
|
$
|
254
|
|
|
$
|
(104,173
|
)
|
|
$
|
333,007
|
|
|
Share issuances related to stock compensation plans
|
36,022
|
|
|
—
|
|
|
418
|
|
|
—
|
|
|
—
|
|
|
418
|
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
3,477
|
|
|
—
|
|
|
—
|
|
|
3,477
|
|
|
Shares withheld to cover taxes on vesting of share-based awards
|
(838
|
)
|
|
—
|
|
|
(44
|
)
|
|
—
|
|
|
—
|
|
|
(44
|
)
|
|
Issuance of stock related to business combination
|
50,000
|
|
|
—
|
|
|
2,142
|
|
|
—
|
|
|
—
|
|
|
2,142
|
|
|
Deferred purchase price consideration - equity portion
|
—
|
|
|
—
|
|
|
250
|
|
|
—
|
|
|
—
|
|
|
250
|
|
|
Currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
(711
|
)
|
|
—
|
|
|
(711
|
)
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,300
|
|
|
8,300
|
|
|
Balance at June 30, 2019
|
33,888,920
|
|
|
$
|
34
|
|
|
$
|
443,135
|
|
|
$
|
(457
|
)
|
|
$
|
(95,873
|
)
|
|
$
|
346,839
|
|
See accompanying Notes to Consolidated Financial Statements.
BIOTELEMETRY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Paid-in Capital
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Accumulated Deficit
|
|
Total Stockholders’ Equity
|
|
(in thousands, except shares)
|
Shares
|
|
Amount
|
|
|
|
|
|
Balance at December 31, 2019
|
34,023,053
|
|
|
$
|
34
|
|
|
$
|
453,366
|
|
|
$
|
(469
|
)
|
|
$
|
(86,014
|
)
|
|
$
|
366,917
|
|
|
Cumulative effect of change in accounting principle
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(347
|
)
|
|
(347
|
)
|
|
Share issuances related to stock compensation plans
|
195,129
|
|
|
—
|
|
|
2,508
|
|
|
—
|
|
|
—
|
|
|
2,508
|
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
7,060
|
|
|
—
|
|
|
—
|
|
|
7,060
|
|
|
Shares withheld to cover taxes on vesting of share-based awards
|
(33,038
|
)
|
|
—
|
|
|
(1,655
|
)
|
|
—
|
|
|
—
|
|
|
(1,655
|
)
|
|
Currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
(45
|
)
|
|
—
|
|
|
(45
|
)
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,390
|
|
|
9,390
|
|
|
Balance at June 30, 2020
|
34,185,144
|
|
|
$
|
34
|
|
|
$
|
461,279
|
|
|
$
|
(514
|
)
|
|
$
|
(76,971
|
)
|
|
$
|
383,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Paid-in Capital
|
|
Accumulated
Other
Comprehensive
Income/(Loss)
|
|
Accumulated Deficit
|
|
Total Stockholders’ Equity
|
|
(in thousands, except shares)
|
Shares
|
|
Amount
|
|
|
|
|
|
Balance at December 31, 2018
|
33,406,364
|
|
|
$
|
33
|
|
|
$
|
426,054
|
|
|
$
|
256
|
|
|
$
|
(115,858
|
)
|
|
$
|
310,485
|
|
|
Share issuances related to stock compensation plans
|
496,974
|
|
|
1
|
|
|
4,728
|
|
|
—
|
|
|
—
|
|
|
4,729
|
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
6,026
|
|
|
—
|
|
|
—
|
|
|
6,026
|
|
|
Shares withheld to cover taxes on vesting of share-based awards
|
(64,418
|
)
|
|
—
|
|
|
(4,955
|
)
|
|
—
|
|
|
—
|
|
|
(4,955
|
)
|
|
Issuance of stock related to business combination
|
50,000
|
|
|
—
|
|
|
2,142
|
|
|
—
|
|
|
—
|
|
|
2,142
|
|
|
Deferred purchase price consideration - equity portion
|
—
|
|
|
—
|
|
|
9,140
|
|
|
—
|
|
|
—
|
|
|
9,140
|
|
|
Currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
(713
|
)
|
|
—
|
|
|
(713
|
)
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19,985
|
|
|
19,985
|
|
|
Balance at June 30, 2019
|
33,888,920
|
|
|
$
|
34
|
|
|
$
|
443,135
|
|
|
$
|
(457
|
)
|
|
$
|
(95,873
|
)
|
|
$
|
346,839
|
|
See accompanying Notes to Consolidated Financial Statements.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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, the instructions to Form 10-Q, and Rule 10-01 of Regulation S-X and include the accounts of BioTelemetry, Inc. and its wholly owned subsidiaries (“BioTelemetry,” the “Company,” “we,” “our” or “us”). In the opinion of management, all adjustments (which are of a normal and recurring nature) considered necessary to present fairly the financial position as of June 30, 2020 and December 31, 2019 and the results of operations, statements of comprehensive income, cash flows, and equity for the interim periods ended June 30, 2020 and 2019 have been included. All intercompany transactions and balances 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 footnote disclosures normally included in consolidated financial statements presented in accordance with U.S. GAAP, but which are not required for interim reporting purposes, have been omitted. The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
A reclassification has been made to prior period statements to conform to the current period presentation. This consists of combining our non-cash depreciation and amortization expenses into one line on our consolidated statements of cash flows. This reclassification had no impact on previously reported 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 us. Unobservable inputs are inputs that reflect our 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.
|
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, acquisition-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).
Our long-term debt (classified as Level 2) is measured using market prices for similar instruments, inputs such as the borrowing rates currently available, 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 our acquisition-related contingent consideration (classified as Level 3) is measured on a recurring basis using a Monte Carlo simulation. The Monte Carlo model uses assumptions, including estimated projected revenues, estimated stock price volatility in future periods, estimated discount rates and discounts for the lack of marketability of common stock. These estimates are subject to a significant level of judgment.
In addition to the recurring fair value measurements, the fair value of certain assets acquired and liabilities assumed in connection with an acquisition 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 future operating performance, cash flows and revenue growth rates, royalty rates 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.
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 impairment 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 of the measurement date. This includes,
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
but is not limited to, historical collection trends, the current state of the healthcare market, and current and projected future industry trends.
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) Accounting for Government Stimulus Receipts
During the second quarter of 2020, we received funding under certain COVID-19 government stimulus programs. Relief Funds distributed by the United States Department of Health and Human Services (“HHS”), appropriated under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which represent reimbursements for a portion of our lost revenue, are recognized as other revenue in our consolidated statements of operations as cash was received in the second quarter of 2020 and we have met the requisite funding criteria. We also received advanced payments for our future services in the second quarter of 2020 related to our Healthcare segment from the Centers for Medicare and Medicaid Services (“CMS”) under their Accelerated and Advance Payment Program, which are recorded as contract liabilities as a component of accrued liabilities on our consolidated balance sheet. We currently do not expect to receive additional funds under these programs.
f) Acquisition-Related Contingent Consideration
Acquisition-related contingent consideration is our obligation, arising from an acquisition, 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 contingency is estimated as of the acquisition date using certain unobservable inputs (and therefore classified as Level 3 in the fair value hierarchy) and is recorded as a liability. 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 charges 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 financial position.
g) 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 maintain 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 credit 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 June 30, 2020 and December 31, 2019, one payor, Medicare, accounted for 22% of our total gross accounts receivable.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
h) 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 expedient 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 rate implicit in the lease (if known) or our incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis of a similar term at an amount equal to the lease payments.
Operating lease costs are charged to operations on a straight-line basis over the lease term. Interest charged on the finance lease liabilities is charged to interest expense, while the amortization of the finance 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 initial lease term is one year or less. Those leases are expensed on a straight-line basis over the term of the lease.
For our operating leases, we record the ROU assets as a component of other assets, the current lease liability as a component of accrued liabilities, and the 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 the finance ROU asset as a component of property and equipment, net, with the current and long-term portions of the finance lease obligations as separate lines within our consolidated balance sheet. We amortize the finance ROU assets over the shorter of the remaining lease term or the estimated life of the asset.
i) 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 fair value of the enterprise’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 (“RSUs”), based on the grant-date fair value of the award and recognize the cost of such awards over the requisite service period (generally, the vesting period of the award). The compensation expense associated with performance stock units (“PSUs”) is recognized ratably over the period between when the performance conditions are deemed probable of achievement and when the awards are vested. Performance stock options (“PSOs”) are valued and stock-based compensation expense is recorded once the performance conditions of the outstanding 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
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
expense if the actual forfeiture rate is lower than estimated and record a recovery of prior expense if the actual forfeiture rate is higher than estimated.
We estimate the fair value of our stock 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 the estimates of the expected volatility of the market price of our stock and the expected term of the award. We base our estimates of expected volatility on the historical average of our stock price. The expected term represents the period of time that share‑based awards granted are expected to be outstanding. Other assumptions used in the Black‑Scholes option valuation model include the risk‑free interest rate and expected dividend yield. The risk‑free interest rate for periods pertaining to the expected term of each option is based on the U.S. Treasury yield of a similar duration in effect at the time of grant. We have never paid, and do not expect to pay, dividends in the foreseeable future.
We estimate the fair value of our PSUs using a Monte Carlo simulation. This model uses assumptions, including the risk free interest rate, expected volatility of our stock price and those of the performance group, dividends of the performance group members and expected life of the awards. As noted above, we continue to estimate forfeitures under the true-up provision of ASC 718. If it is deemed probable that the PSU performance targets will be met, compensation expense is recorded for these awards ratably over the requisite service period. The PSUs are forfeited to the extent the performance criteria are not met within the service period.
j) 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 temporary 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 realized upon ultimate settlement with the related tax authority.
Under ASC 740, the effects of changes 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.
k) Net Income/(Loss) Per Share
We compute net 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.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Certain stock options, which are priced higher than the average market price of our shares for the periods ended June 30, 2020 and 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 dilutive effect of weighted average shares outstanding excludes approximately 0.9 million and 0.8 million shares for the three and six month period ended June 30, 2020, respectively, and excludes approximately 0.6 million and 0.4 million shares for the three and six month period ended June 30, 2019, respectively, as their effect would have been anti-dilutive on our net income per share.
l) 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 separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions on how to allocate resources and assess performance.
We report our business under two segments: Healthcare and Research. The Healthcare segment is focused on remote cardiac monitoring to 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 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.
m) 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 update upon its release did not have a material impact to our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). This update eliminates certain disclosures related to transfers and valuation processes, clarifies the requirement for measurement uncertainty disclosures, and requires additional disclosures for Level 3 fair value measurements, including the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Our adoption of this update on January 1, 2020 did not have a material impact to our consolidated financial statements.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
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 and related disclosures.
2. Revenue Recognition
We recognize revenue in accordance with ASC 606 - Revenue from Contracts with Customers (“ASC 606”), which requires revenue recognized to represent the transfer of promised goods or services to customers at an amount that reflects the consideration that a company expects to receive in exchange for those goods or services.
Disaggregation of Revenue
We disaggregate revenue from contracts with customers by payor type and major service line. We determined that disaggregating revenue into these categories achieves the disclosure objective of illustrating the differences in the nature, amount, timing and uncertainty of our revenue streams. During the second quarter of 2020, we received Relief Funds distributed by HHS that represent reimbursements for a portion of our lost revenue and are recognized as other revenue in our consolidated statements of operations as cash was received and we met the requisite funding requirements. Other revenue is outside of the scope of ASC 606.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Disaggregated revenue by payor type and major service line was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020
|
|
|
Reporting Segment
|
|
Corporate and Other
|
|
Total
|
|
(in thousands)
|
Healthcare
|
|
Research
|
|
|
|
Payor/Service Line
|
|
|
|
|
|
|
|
|
Remote cardiac monitoring services - Medicare
|
$
|
33,281
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
33,281
|
|
|
Remote cardiac monitoring services - commercial payors
|
41,399
|
|
|
—
|
|
|
—
|
|
|
41,399
|
|
|
Clinical trial support and related services
|
—
|
|
|
11,459
|
|
|
—
|
|
|
11,459
|
|
|
Technology devices, consumables and related services
|
—
|
|
|
—
|
|
|
3,268
|
|
|
3,268
|
|
|
Subtotal
|
74,680
|
|
|
11,459
|
|
|
3,268
|
|
|
89,407
|
|
|
Other revenue
|
9,702
|
|
|
—
|
|
|
—
|
|
|
9,702
|
|
|
Total revenue
|
$
|
84,382
|
|
|
$
|
11,459
|
|
|
$
|
3,268
|
|
|
$
|
99,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
|
Reporting Segment
|
|
Corporate and Other
|
|
Total
|
|
(in thousands)
|
Healthcare
|
|
Research
|
|
|
|
Payor/Service Line
|
|
|
|
|
|
|
|
|
Remote cardiac monitoring services - Medicare
|
$
|
36,096
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
36,096
|
|
|
Remote cardiac monitoring services - commercial payors
|
58,908
|
|
|
—
|
|
|
—
|
|
|
58,908
|
|
|
Clinical trial support and related services
|
—
|
|
|
13,879
|
|
|
—
|
|
|
13,879
|
|
|
Technology devices, consumables and related services
|
—
|
|
|
—
|
|
|
2,920
|
|
|
2,920
|
|
|
Total revenue
|
$
|
95,004
|
|
|
$
|
13,879
|
|
|
$
|
2,920
|
|
|
$
|
111,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
|
Reporting Segment
|
|
Corporate and Other
|
|
Total
|
|
(in thousands)
|
Healthcare
|
|
Research
|
|
|
|
Payor/Service Line
|
|
|
|
|
|
|
|
|
Remote cardiac monitoring services - Medicare
|
$
|
73,409
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
73,409
|
|
|
Remote cardiac monitoring services - commercial payors
|
96,978
|
|
|
—
|
|
|
—
|
|
|
96,978
|
|
|
Clinical trial support and related services
|
—
|
|
|
25,279
|
|
|
—
|
|
|
25,279
|
|
|
Technology devices, consumables and related services
|
—
|
|
|
—
|
|
|
6,772
|
|
|
6,772
|
|
|
Subtotal
|
170,387
|
|
|
25,279
|
|
|
6,772
|
|
|
202,438
|
|
|
Other revenue
|
9,702
|
|
|
—
|
|
|
—
|
|
|
9,702
|
|
|
Total revenue
|
$
|
180,089
|
|
|
$
|
25,279
|
|
|
$
|
6,772
|
|
|
$
|
212,140
|
|
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
|
Reporting Segment
|
|
Corporate and Other
|
|
Total
|
|
(in thousands)
|
Healthcare
|
|
Research
|
|
|
|
Payor/Service Line
|
|
|
|
|
|
|
|
|
Remote cardiac monitoring services - Medicare
|
$
|
70,031
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
70,031
|
|
|
Remote cardiac monitoring services - commercial payors
|
112,982
|
|
|
—
|
|
|
—
|
|
|
112,982
|
|
|
Clinical trial support and related services
|
—
|
|
|
26,843
|
|
|
—
|
|
|
26,843
|
|
|
Technology devices, consumables and related services
|
—
|
|
|
—
|
|
|
5,926
|
|
|
5,926
|
|
|
Total revenue
|
$
|
183,013
|
|
|
$
|
26,843
|
|
|
$
|
5,926
|
|
|
$
|
215,782
|
|
Remote Cardiac Monitoring Services Revenue (Healthcare segment)
Healthcare segment revenue is generated by remote cardiac monitoring to identify cardiac 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 revenue 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.
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 collective group, rather than individual contracts. Based on our history with these portfolios and the similar nature and characteristics of the patients within each portfolio, we have 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 historical experience of collecting substantially all of the negotiated contractual rates and 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 not providing an implicit price concession but, rather, have chosen to accept the risk of default, and adjustments to the transaction price are recorded as credit loss expense.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
For our non-contracted portfolio, we are providing an implicit price concession because we do not have a contract with the underlying payor, the result of which requires us to estimate our transaction price based on historical cash 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 and six months ended June 30, 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 measured by an output method, where each output is an individual occurrence of each performance obligation. Accordingly, we utilize the invoice 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 of 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 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 and six months ended June 30, 2020 and 2019.
Technology Device, Consumable and Related Service Revenue (Corporate and Other category)
Our Corporate and 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 the 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 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 of the
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
transaction price 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 as credit loss expense.
We have not made any significant changes to judgments in applying ASC 606 to the Corporate and Other category during the three and six months ended June 30, 2020 and 2019.
Contract Assets and Contract Liabilities
ASC 606 requires an entity to present a revenue contract as a contract asset when the entity performs its obligations under the contract by transferring goods or services to a customer before the customer pays consideration or before payment is due. ASC 606 also requires an entity to present a revenue contract as a contract liability in instances when a customer pays consideration, or an entity has a right to an amount of consideration that is unconditional (e.g., receivable), before the entity transfers a good or service to the customer.
As of June 30, 2020 and December 31, 2019, we had contract assets of $9.9 million and $15.1 million, respectively, related to cardiac monitoring services, which are included as a component of Healthcare accounts receivable on our consolidated balance sheets. As of June 30, 2020 and December 31, 2019, we also had contract assets of $2.0 million and $1.7 million, respectively, related to our Corporate and Other category revenue contracts, which are included as a component of other accounts receivable on our consolidated balance sheets.
As of June 30, 2020 and December 31, 2019, we had contract liabilities of $25.4 million and $1.6 million, respectively. Generally, our contract liabilities primarily relate to the Research segment where customers paid upfront deposits upon contract execution for future services to be performed by us; however, during the second quarter of 2020, we received and held $23.7 million of advanced payments from CMS under their Accelerated and Advance Payment Program for our future services related to our Healthcare segment which are recorded as contract liabilities, in addition to $1.7 million of Research segment upfront deposits, as of June 30, 2020. We expect to begin applying these advanced payments for our future services in the third quarter of 2020.
If the Research contract is canceled, those upfront deposits are refundable if service was not yet provided. Our contract liabilities are included as a component of accrued liabilities on our consolidated balance sheets.
For the three months ended June 30, 2020, the amount recognized as revenue from the contract liabilities balance as of March 31, 2020 was $0.7 million, while for the six months ended June 30, 2020, the amount recognized as revenue from the contract liabilities as of December 31, 2019 was $0.8 million. Similarly, for the three months ended June 30, 2019, the amount recognized as revenue from the contract liabilities balance as of March 31, 2019 was $0.9 million, while for the six months ended June 30, 2019, the amount recognized as revenue from the contract liabilities as of December 31, 2018 was $1.6 million. There were no significant changes or impairment losses incurred related to contract balances during the six months ended June 30, 2020.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Allowance For Credit Losses
We record an allowance for credit losses based on historical collection trends, the current state of the healthcare market and current and projected future industry trends. Disaggregated allowance by portfolio was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020
|
|
|
Portfolio
|
|
Total
|
|
(in thousands)
|
Healthcare
|
|
Other
|
|
|
Beginning balance
|
$
|
37,980
|
|
|
$
|
548
|
|
|
$
|
38,528
|
|
|
Current period credit loss expense*
|
6,105
|
|
|
61
|
|
|
6,166
|
|
|
Write-offs
|
(6,555
|
)
|
|
(67
|
)
|
|
(6,622
|
)
|
|
Ending Balance
|
$
|
37,530
|
|
|
$
|
542
|
|
|
$
|
38,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
|
Portfolio
|
|
Total
|
|
(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*
|
12,125
|
|
|
61
|
|
|
12,186
|
|
|
Write-offs
|
(6,555
|
)
|
|
(67
|
)
|
|
(6,622
|
)
|
|
Recoveries collected
|
180
|
|
|
—
|
|
|
180
|
|
|
Ending Balance
|
$
|
37,530
|
|
|
$
|
542
|
|
|
$
|
38,072
|
|
* formerly bad debt expense
3. Acquisitions
ADEA Medical AB
During the second quarter of 2019, 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. None of this goodwill will be deductible for tax purposes.
We finalized our fair value estimates related to the ADEA acquisition during the three months ended September 30, 2019. There were no changes to the total purchase price, and the measurement period adjustment related to deferred 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, 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 terms of the Agreement and Plan of Merger, 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 cash payments, as well as shares of BioTelemetry common stock, with a total estimated present value of $32.0 million as of the March 1, 2019 acquisition date, for a total aggregate purchase price of $77.9 million. Concurrent with the closing of the acquisition, the Securityholders made elections as to the percentage mix of 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 does not have a predetermined limit. The total estimated acquisition-related contingent consideration as of the March 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 quarterly basis throughout the earn-out period. The equity portion of the acquisition-related contingent consideration requires liability classification and mark-to-market accounting pursuant to the provisions of ASC 815 - Derivatives and Hedging.
We acquired Geneva as part of our business strategy to go deeper and wider 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 Healthcare segment user interface, which we believe will drive greater workflow and data management efficiencies to the 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. We have recognized $59.9 million of goodwill as a result of the acquisition, all of which has been assigned to the Healthcare segment. None of this goodwill will be deductible for tax purposes.
The amounts in the table below represent our final fair value estimates related to the 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 receivable
|
1,500
|
|
|
|
|
Prepaid expenses and other current assets
|
234
|
|
|
|
|
Identifiable intangible assets:
|
|
|
|
|
Customer relationships
|
3,500
|
|
|
12
|
|
Technology
|
8,900
|
|
|
7
|
|
Trade names
|
2,500
|
|
|
15
|
|
Total identifiable intangible assets
|
14,900
|
|
|
|
|
Deferred tax assets
|
1,013
|
|
|
|
|
Total assets acquired
|
19,023
|
|
|
|
|
Fair value of liabilities assumed:
|
|
|
|
|
Accounts payable
|
215
|
|
|
|
|
Accrued liabilities
|
872
|
|
|
|
|
Total liabilities assumed
|
1,087
|
|
|
|
|
|
|
|
|
|
Total identifiable net assets
|
17,936
|
|
|
|
|
Goodwill
|
59,944
|
|
|
|
|
Net assets acquired
|
$
|
77,880
|
|
|
|
We incurred $1.4 million of acquisition-related costs associated with Geneva for the year ended December 31, 2019. The costs were included in other charges in our consolidated statements of income. The revenues and income of Geneva for periods prior to our acquisition were immaterial to our consolidated operating results.
4. Inventory
Inventory consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
June 30,
2020
|
|
December 31,
2019
|
|
Raw materials and supplies
|
$
|
4,741
|
|
|
$
|
4,429
|
|
|
Finished goods
|
2,188
|
|
|
1,309
|
|
|
Total inventory
|
$
|
6,929
|
|
|
$
|
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 deferred charges, of $157.7 million and $194.7 million as of June 30, 2020 and December 31, 2019, respectively.
Acquisition-related contingent consideration represents our contingent payment obligations related to our acquisitions and is measured at fair value, based on significant inputs not observable in the market,
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
which represents a Level 3 measurement within the fair value hierarchy. The valuation of acquisition-related contingent consideration uses assumptions we believe would be made by a market participant. We assess these estimates on an ongoing basis as additional data impacting the assumptions is obtained. The balance of the fair value of acquisition-related contingent consideration is recognized within other long-term liabilities on our consolidated balance sheet. Changes in the fair value of the acquisition-related contingent consideration, after the final determination as of the acquisition date, resulting from changes in the variables used to compute the fair value, are recorded in other charges in the consolidated statements of operations.
The following table provides a reconciliation of the beginning and ending balances of acquisition-related contingent consideration:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
(in thousands)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Beginning balance
|
$
|
12,650
|
|
|
$
|
15,990
|
|
|
$
|
12,940
|
|
|
$
|
—
|
|
|
Acquisition-related contingent consideration
|
—
|
|
|
—
|
|
|
—
|
|
|
15,990
|
|
|
Measurement period adjustments to acquisition-related contingent consideration
|
—
|
|
|
(2,820
|
)
|
|
—
|
|
|
(2,820
|
)
|
|
Change in fair value of acquisition-related contingent consideration
|
2,140
|
|
|
(1,810
|
)
|
|
1,850
|
|
|
(1,810
|
)
|
|
Ending balance
|
$
|
14,790
|
|
|
$
|
11,360
|
|
|
$
|
14,790
|
|
|
$
|
11,360
|
|
In conjunction with the Geneva acquisition, and after a measurement period adjustment recorded in the second quarter of 2019, we recognized $13.2 million of acquisition-related contingent consideration on March 1, 2019 as a component of other long-term liabilities as the contingency will be finalized after the third anniversary of the closing date.
The estimated fair value of the acquisition-related contingent consideration related to the Geneva 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 marketability of common stock. These estimates are subject to a significant level of judgment.
The changes in the acquisition-related contingent consideration related to the Geneva acquisition during the three and six months ended June 30, 2020 and 2019, are primarily due to changes in estimates associated with our future stock price, with the impact being recognized as a component of other charges.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
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 well as the changes to goodwill during the six months ended June 30, 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
|
12
|
|
|
—
|
|
|
—
|
|
|
12
|
|
|
Balance at June 30, 2020
|
$
|
276,026
|
|
|
$
|
16,293
|
|
|
$
|
9,014
|
|
|
$
|
301,333
|
|
The gross carrying amounts and accumulated amortization of our intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except years)
|
Weighted
Average Life
(Years)
|
|
June 30,
2020
|
|
December 31,
2019
|
|
Gross Carrying Value:
|
|
|
|
|
|
|
Customer relationships
|
10.1
|
|
$
|
154,894
|
|
|
$
|
149,420
|
|
|
Technology, including internally developed software
|
6.7
|
|
24,399
|
|
|
21,892
|
|
|
Backlog
|
4.0
|
|
3,100
|
|
|
3,100
|
|
|
Trade names
|
15.0
|
|
2,500
|
|
|
2,500
|
|
|
Covenants not to compete
|
4.7
|
|
425
|
|
|
424
|
|
|
Total intangible assets, gross
|
|
|
185,318
|
|
|
177,336
|
|
|
Accumulated Amortization:
|
|
|
|
|
|
|
Customer relationships
|
|
|
(45,548
|
)
|
|
(38,270
|
)
|
|
Technology, including internally developed software
|
|
|
(7,727
|
)
|
|
(6,153
|
)
|
|
Backlog
|
|
|
(3,100
|
)
|
|
(2,842
|
)
|
|
Trade names
|
|
|
(222
|
)
|
|
(138
|
)
|
|
Covenants not to compete
|
|
|
(397
|
)
|
|
(337
|
)
|
|
Total accumulated amortization
|
|
|
(56,994
|
)
|
|
(47,740
|
)
|
|
Total intangible assets, net
|
|
|
$
|
128,324
|
|
|
$
|
129,596
|
|
During the quarter ended June 30, 2020, we acquired customer relationships in exchange for future payments included in other long-term liabilities on our consolidated balance sheet.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The estimated amortization for our finite-lived intangible assets for the remainder of 2020, the next four fiscal years, and thereafter, is summarized as follows as of June 30, 2020:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
Remainder of 2020
|
$
|
10,127
|
|
|
2021
|
20,050
|
|
|
2022
|
19,541
|
|
|
2023
|
18,763
|
|
|
2024
|
17,231
|
|
|
Thereafter
|
42,612
|
|
|
Total estimated amortization
|
$
|
128,324
|
|
7. Accrued Liabilities
Accrued liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
June 30,
2020
|
|
December 31,
2019
|
|
Compensation
|
$
|
11,630
|
|
|
$
|
13,167
|
|
|
Right of use liabilities - operating leases
|
5,497
|
|
|
5,187
|
|
|
Professional fees
|
3,151
|
|
|
4,128
|
|
|
Contract liabilities
|
25,427
|
|
|
1,584
|
|
|
Non-income taxes
|
489
|
|
|
427
|
|
|
Interest
|
—
|
|
|
569
|
|
|
Operating costs
|
998
|
|
|
637
|
|
|
Other
|
814
|
|
|
1,619
|
|
|
Total
|
$
|
48,006
|
|
|
$
|
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 lenders (the “Lenders”), and as issuing bank and swingline 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 issuance of standby letters of credit and a $40.0 million sublimit for swingline loans. The proceeds of the revolving facility were used to refinance indebtedness under the 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 applicable Eurodollar margin and (ii) with respect to base rate borrowings,
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
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 June 30, 2020, the applicable margin is 1.125% for Eurodollar borrowings and 0.125% for base rate borrowings.
The outstanding balance of our revolving 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 the 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 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 $157.7 million as of June 30, 2020, which is the principal amount outstanding, net of $4.3 million of unamortized deferred financing costs to be amortized over the remaining term of the 2020 Credit Agreement. 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 2020 Credit Agreement. Our unused commitment fee as of June 30, 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 “SunTrust Credit Agreement”). Pursuant to the SunTrust Credit Agreement, the lenders agreed to make loans to us as follows: (i) a term loan in an aggregate principal amount equal to $205.0 million; and (ii) a $50.0 million revolving credit facility for ongoing working capital purposes.
The loans bore interest at an annual rate, at our election, of (i) with respect to LIBOR rate loans, LIBOR plus the applicable margin and (ii) with respect to base rate loans, the Base Rate (the “prime rate” as published in the Wall Street Journal) plus the applicable margin. The applicable margin for both LIBOR and Base Rate loans was determined by reference to our Consolidated Total Net Leverage Ratio, as defined in the SunTrust Credit Agreement.
Debt Modification
In connection with our 2020 Credit Agreement, we repaid the outstanding indebtedness under the SunTrust Credit Agreement. Our refinancing via the 2020 Credit Agreement was accounted for as a 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
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
payments and engage in certain asset dispositions, including a sale of all, or substantially all, of our property. As of June 30, 2020, we were 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 end of the lease term at our option, none of which are certain at this time. We have 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.
The components of our lease expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
(in thousands)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Operating lease cost:
|
|
|
|
|
|
|
|
|
Operating lease cost
|
$
|
1,856
|
|
|
$
|
1,513
|
|
|
$
|
3,435
|
|
|
$
|
2,921
|
|
|
Short-term lease cost
|
109
|
|
|
19
|
|
|
298
|
|
|
165
|
|
|
Total operating lease cost
|
1,965
|
|
|
1,532
|
|
|
3,733
|
|
|
3,086
|
|
|
|
|
|
|
|
|
|
|
|
Finance lease cost:
|
|
|
|
|
|
|
|
|
Amortization of right-of-use assets
|
86
|
|
|
848
|
|
|
175
|
|
|
1,713
|
|
|
Interest on lease liabilities
|
5
|
|
|
14
|
|
|
11
|
|
|
38
|
|
|
Total finance lease cost
|
91
|
|
|
862
|
|
|
186
|
|
|
1,751
|
|
|
|
|
|
|
|
|
|
|
|
Total lease cost
|
$
|
2,056
|
|
|
$
|
2,394
|
|
|
$
|
3,919
|
|
|
$
|
4,837
|
|
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Supplemental balance sheet information related to leases as of June 30, 2020 and December 31, 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
|
(in thousands, except percentages and years)
|
Operating
Leases
|
|
Finance
Leases
|
|
Operating
Leases
|
|
Finance
Leases
|
|
Property and equipment, net
|
$
|
—
|
|
|
$
|
386
|
|
|
$
|
—
|
|
|
$
|
493
|
|
|
Other assets
|
35,420
|
|
|
—
|
|
|
16,400
|
|
|
—
|
|
|
Total right-of-use assets
|
35,420
|
|
|
386
|
|
|
16,400
|
|
|
493
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
5,497
|
|
|
—
|
|
|
5,187
|
|
|
—
|
|
|
Current portion of finance lease obligations
|
—
|
|
|
255
|
|
|
—
|
|
|
394
|
|
|
Long-term portion of finance lease obligations
|
—
|
|
|
224
|
|
|
—
|
|
|
289
|
|
|
Other long-term liabilities
|
32,888
|
|
|
—
|
|
|
14,029
|
|
|
—
|
|
|
Total lease obligations
|
$
|
38,385
|
|
|
$
|
479
|
|
|
$
|
19,216
|
|
|
$
|
683
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term (years)
|
8.0
|
|
|
2.0
|
|
|
5.0
|
|
|
1.9
|
|
|
Weighted average discount rate
|
3.6
|
%
|
|
4.0
|
%
|
|
4.4
|
%
|
|
4.5
|
%
|
Future maturities of lease liabilities as of June 30, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Operating
Leases
|
|
Finance
Leases
|
|
Remainder of 2020
|
$
|
3,472
|
|
|
$
|
159
|
|
|
2021
|
6,632
|
|
|
210
|
|
|
2022
|
5,570
|
|
|
109
|
|
|
2023
|
4,851
|
|
|
10
|
|
|
2024
|
4,624
|
|
|
9
|
|
|
Thereafter
|
19,166
|
|
|
1
|
|
|
Total minimum lease payments
|
44,315
|
|
|
498
|
|
|
Less imputed interest
|
(5,930
|
)
|
|
(19
|
)
|
|
Present value of lease liabilities
|
$
|
38,385
|
|
|
$
|
479
|
|
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Supplemental cash flow information related to leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
(in thousands)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
$
|
(1,720
|
)
|
|
$
|
(1,393
|
)
|
|
$
|
(3,278
|
)
|
|
$
|
(2,865
|
)
|
|
Operating cash flows from finance leases
|
(5
|
)
|
|
(14
|
)
|
|
(11
|
)
|
|
(38
|
)
|
|
Financing cash flows from finance leases
|
(153
|
)
|
|
(496
|
)
|
|
(332
|
)
|
|
(1,659
|
)
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations, net of incentives:
|
|
|
|
|
|
|
|
|
Operating leases
|
2,051
|
|
|
6
|
|
|
19,106
|
|
|
21,816
|
|
|
Finance leases
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
68
|
|
|
$
|
787
|
|
10. Other Charges
We account for expenses associated with our acquisitions and activity associated with 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
(in thousands)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Acquisition and integration costs
|
$
|
1,137
|
|
|
$
|
1,422
|
|
|
$
|
1,300
|
|
|
$
|
2,982
|
|
|
Information technology incident costs, net of insurance proceeds
|
255
|
|
|
—
|
|
|
(21
|
)
|
|
—
|
|
|
Change in fair value of acquisition-related contingent consideration
|
2,140
|
|
|
(1,810
|
)
|
|
1,850
|
|
|
(1,810
|
)
|
|
Patent and other litigation
|
839
|
|
|
2,622
|
|
|
2,745
|
|
|
3,651
|
|
|
Other costs
|
632
|
|
|
—
|
|
|
1,213
|
|
|
481
|
|
|
Total
|
$
|
5,003
|
|
|
$
|
2,234
|
|
|
$
|
7,087
|
|
|
$
|
5,304
|
|
11. Equity
Common Stock
As of June 30, 2020 and December 31, 2019, we were authorized to issue 200,000,000 shares of common stock. As of June 30, 2020 and December 31, 2019, we had 34,185,144 and 34,023,053, respectively, shares issued and outstanding.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Preferred Stock
As of June 30, 2020 and December 31, 2019, we were authorized to issue 10,000,000 shares of preferred stock. As of June 30, 2020 and December 31, 2019, there were no shares of preferred stock issued or outstanding.
12. Stock-Based Compensation
We have three 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 1,500,308 shares available for grant under the OIP as of June 30, 2020.
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 no 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, 2019
|
2,691,059
|
|
|
$
|
22.67
|
|
|
|
|
|
|
|
Granted
|
253,403
|
|
|
47.93
|
|
|
|
|
|
|
|
Forfeited
|
(9,874
|
)
|
|
55.59
|
|
|
|
|
|
|
|
Exercised
|
(36,926
|
)
|
|
23.31
|
|
|
|
|
|
|
|
Outstanding as of June 30, 2020
|
2,897,662
|
|
|
$
|
24.76
|
|
|
5.6
|
|
$
|
69,702
|
|
|
Exercisable as of June 30, 2020
|
1,992,447
|
|
|
$
|
13.69
|
|
|
4.2
|
|
$
|
65,132
|
|
|
Expected to vest as of June 30, 2020
|
840,114
|
|
|
$
|
49.12
|
|
|
8.5
|
|
$
|
4,242
|
|
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2019
|
30,000
|
|
|
$
|
21.45
|
|
|
|
|
|
|
Granted
|
—
|
|
|
—
|
|
|
|
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
|
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
|
|
|
|
Outstanding as of June 30, 2020
|
30,000
|
|
|
$
|
21.45
|
|
|
6.5
|
|
$
|
712
|
|
|
Exercisable as of June 30, 2020
|
30,000
|
|
|
$
|
21.45
|
|
|
6.5
|
|
$
|
712
|
|
The table below summarizes certain additional information with respect to our options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
(in thousands, except per option amounts)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Aggregate intrinsic value of options exercised
|
$
|
648
|
|
|
$
|
864
|
|
|
$
|
842
|
|
|
$
|
16,923
|
|
|
Cash received from the exercise of stock options
|
789
|
|
|
418
|
|
|
860
|
|
|
3,341
|
|
|
Weighted average grant date fair value per option
|
$
|
20.99
|
|
|
$
|
30.24
|
|
|
$
|
26.58
|
|
|
$
|
40.76
|
|
The total compensation cost of options granted but not yet vested was $21.4 million as of June 30, 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, 2019
|
270,052
|
|
|
$
|
41.70
|
|
|
90,020
|
|
|
$
|
55.06
|
|
|
Granted
|
140,747
|
|
|
47.30
|
|
|
51,839
|
|
|
60.36
|
|
|
Forfeited
|
(2,061
|
)
|
|
42.64
|
|
|
(561
|
)
|
|
56.57
|
|
|
Vested
|
(114,078
|
)
|
|
32.90
|
|
|
—
|
|
|
—
|
|
|
Units outstanding as of June 30, 2020
|
294,660
|
|
|
$
|
47.78
|
|
|
141,298
|
|
|
$
|
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 stockholder return relative to the companies in the Russell 2000 Index during the same period. At grant date, 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 2018, 2019 and 2020 PSUs combined, we have 141,298 shares reserved as of June 30, 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.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Additional information about our RSUs is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
(in thousands)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Aggregate market value of RSUs vested
|
$
|
1,556
|
|
|
$
|
1,279
|
|
|
$
|
5,691
|
|
|
$
|
12,833
|
|
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 June 30, 2020, was $10.7 million, which is expected to be recognized over a weighted average period of approximately two years. Additionally, there were 603,931 RSUs vested but not released at June 30, 2020.
Employee Stock Purchase Plan
In May 2020, our stockholders approved the BioTelemetry, Inc. Amended and Restated 2017 Employee Stock Purchase Plan (the “ESPP”) to increase the number of shares reserved for issuance to 1,000,000. Substantially all of our employees are eligible to participate in the ESPP. Under the ESPP, each participant may purchase option value of our 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 ESPP are made in March and September. For the six months ended June 30, 2020, an aggregate of 59,697 shares were purchased in accordance with the ESPP. Net proceeds from the issuance of shares of common stock under the ESPP for the six months ended June 30, 2020 were $1.6 million. At June 30, 2020, 672,974 shares remain available for purchase under the ESPP.
Our aggregate stock-based compensation expense is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
(in thousands)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Stock options
|
$
|
2,041
|
|
|
$
|
1,820
|
|
|
$
|
4,715
|
|
|
$
|
3,279
|
|
|
Restricted stock units
|
1,296
|
|
|
1,074
|
|
|
2,603
|
|
|
1,993
|
|
|
Performance stock units
|
70
|
|
|
152
|
|
|
(761
|
)
|
|
71
|
|
|
Employee stock purchase plan
|
271
|
|
|
431
|
|
|
503
|
|
|
683
|
|
|
Total stock-based compensation expense
|
$
|
3,678
|
|
|
$
|
3,477
|
|
|
$
|
7,060
|
|
|
$
|
6,026
|
|
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. We recorded an income tax provision of $0.7 million and $5.9 million for the three and six months ended June 30, 2020, respectively, based on our estimated annual 2020 effective tax rate. We recognized an income tax provision of $4.8 million and $2.7 million for the three and six months ended June 30, 2019, respectively, based on our estimated annual 2019 effective tax rate adjusted for discrete items.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
At June 30, 2020 and December 31, 2019, we had deferred tax assets, net of deferred tax liabilities and valuation allowance, of $7.2 million and $12.6 million, respectively.
We recognize interest and penalties related to unrecognized tax benefits within the provision for income taxes line in the consolidated statements of operations. During the six months ended June 30, 2020, we recognized an immaterial amount of interest expense in the consolidated statements of operations associated with our unrecognized tax benefits.
At June 30, 2020 and December 31, 2019, we had net reserves of $35.4 million and $34.8 million, respectively, for unrecognized tax benefits, which are recorded as a component of other long-term liabilities within our consolidated balance sheets.
14. Segment Information
We operate under two reportable segments: Healthcare and Research. The Healthcare segment is focused on remote cardiac monitoring to 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 a single source of remote cardiac monitoring services. 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 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.
Expenses that can be specifically identified with a segment have been included as deductions in determining pre-tax segment income/(loss). Any remaining expenses including integration and other charges, as well as the elimination of costs associated with intercompany revenue, are included in Corporate and Other. Also included in Corporate and Other is our net interest expense and other financing expenses. We do not allocate assets to the individual segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020
|
|
|
Reporting Segment
|
|
Corporate
and Other
|
|
|
|
(in thousands)
|
Healthcare
|
|
Research
|
|
|
Consolidated
|
|
Total revenue
|
$
|
84,382
|
|
|
$
|
11,459
|
|
|
$
|
3,268
|
|
|
$
|
99,109
|
|
|
Gross profit
|
56,341
|
|
|
4,426
|
|
|
760
|
|
|
61,527
|
|
|
Income/(loss) before income taxes
|
26,005
|
|
|
919
|
|
|
(23,987
|
)
|
|
2,937
|
|
|
Depreciation and amortization
|
8,962
|
|
|
923
|
|
|
994
|
|
|
10,879
|
|
|
Capital expenditures
|
8,692
|
|
|
395
|
|
|
1,039
|
|
|
10,126
|
|
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
|
Reporting Segment
|
|
Corporate
and Other
|
|
|
|
(in thousands)
|
Healthcare
|
|
Research
|
|
|
Consolidated
|
|
Total revenue
|
$
|
95,004
|
|
|
$
|
13,879
|
|
|
$
|
2,920
|
|
|
$
|
111,803
|
|
|
Gross profit
|
64,387
|
|
|
5,335
|
|
|
518
|
|
|
70,240
|
|
|
Income/(loss) before income taxes
|
32,514
|
|
|
1,052
|
|
|
(20,459
|
)
|
|
13,107
|
|
|
Depreciation and amortization
|
8,327
|
|
|
1,004
|
|
|
861
|
|
|
10,192
|
|
|
Capital expenditures
|
9,080
|
|
|
1,306
|
|
|
372
|
|
|
10,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
|
Reporting Segment
|
|
Corporate
and Other
|
|
|
|
(in thousands)
|
Healthcare
|
|
Research
|
|
|
Consolidated
|
|
Total revenue
|
$
|
180,089
|
|
|
$
|
25,279
|
|
|
$
|
6,772
|
|
|
$
|
212,140
|
|
|
Gross profit
|
120,765
|
|
|
10,101
|
|
|
1,169
|
|
|
132,035
|
|
|
Income/(loss) before income taxes
|
55,881
|
|
|
2,962
|
|
|
(43,573
|
)
|
|
15,270
|
|
|
Depreciation and amortization
|
17,397
|
|
|
1,989
|
|
|
1,978
|
|
|
21,364
|
|
|
Capital expenditures
|
14,903
|
|
|
786
|
|
|
1,421
|
|
|
17,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
|
Reporting Segment
|
|
Corporate
and Other
|
|
|
|
(in thousands)
|
Healthcare
|
|
Research
|
|
|
Consolidated
|
|
Total revenue
|
$
|
183,013
|
|
|
$
|
26,843
|
|
|
$
|
5,926
|
|
|
$
|
215,782
|
|
|
Gross profit
|
124,251
|
|
|
9,669
|
|
|
1,098
|
|
|
135,018
|
|
|
Income/(loss) before income taxes
|
62,122
|
|
|
1,816
|
|
|
(41,219
|
)
|
|
22,719
|
|
|
Depreciation and amortization
|
16,618
|
|
|
1,932
|
|
|
1,663
|
|
|
20,213
|
|
|
Capital expenditures
|
13,522
|
|
|
1,788
|
|
|
782
|
|
|
16,092
|
|
15. Subsequent Event
On July 27, 2020, we entered into an Asset Purchase Agreement, between BioTelemetry, Inc., Telcare Medical Supply, LLC, Centene Corporation and Envolve PeopleCare, Inc. (the “Centene Agreement”), to acquire the On.DemandTM remote patient monitoring and coaching platform. On.DemandTM is a mHealth solution that combines real-time monitoring of biometric data with cellular- and web-based technology, proactive and reactive health coaching, population health reporting and customizable interventions.
Pursuant to the terms of the Centene Agreement, we acquired certain assets and assumed certain liabilities that were utilized in the On.Demand business for $6.5 million in cash as well as a maximum of $2.5 million of contingent consideration. We plan to assign On.Demand to our Corporate and Other category.