Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of BioTelemetry, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of BioTelemetry, Inc. (the Company) as of December 31, 2017 and 2016, and the related consolidated statements of operations and comprehensive income/(loss), cash flows and equity for each of the three years in the period ended December 31, 2017, and the related notes and the financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated
February 26, 2018
expressed an unqualified opinion thereon.
Adoption of New Accounting Standard
As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for share-based payments to employees as a result of the adoption of the amendments to the FASB Accounting Standards Codification resulting from Accounting Standards Update No. 2016-09, “Improvements to Employee Share-Based Payment Accounting,” in 2016 and 2017.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
|
|
|
/s/ ERNST & YOUNG LLP
|
|
|
|
We have served as BioTelemetry Inc.’s auditors since 2004.
|
|
|
Philadelphia, Pennsylvania
|
|
February 26, 2018
|
|
BIOTELEMETRY, INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In thousands, except shares and par value)
|
2017
|
|
2016
|
Assets
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
36,022
|
|
|
$
|
23,052
|
|
Healthcare accounts receivable, net of allowance for doubtful accounts of $15,556 and $12,198 at December 31, 2017 and 2016, respectively
|
25,190
|
|
|
14,594
|
|
Other accounts receivable, net of allowance for doubtful accounts of $1,425 and $665 at December 31, 2017 and 2016, respectively
|
13,296
|
|
|
12,261
|
|
Inventory
|
5,332
|
|
|
5,176
|
|
Prepaid expenses and other current assets
|
10,268
|
|
|
4,477
|
|
Total current assets
|
90,108
|
|
|
59,560
|
|
Property and equipment, net
|
49,194
|
|
|
25,823
|
|
Intangible assets, net
|
141,707
|
|
|
33,472
|
|
Goodwill
|
223,105
|
|
|
41,068
|
|
Deferred tax asset
|
17,681
|
|
|
36,636
|
|
Other assets
|
2,767
|
|
|
2,425
|
|
Total assets
|
$
|
524,562
|
|
|
$
|
198,984
|
|
Liabilities and Equity
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable
|
13,227
|
|
|
12,425
|
|
Accrued liabilities
|
27,357
|
|
|
13,698
|
|
Current portion of capital leases obligations
|
4,023
|
|
|
162
|
|
Current portion of long-term debt
|
2,050
|
|
|
1,250
|
|
Deferred revenue
|
4,298
|
|
|
3,972
|
|
Total current liabilities
|
50,955
|
|
|
31,507
|
|
Long-term portion of capital lease obligations
|
1,486
|
|
|
126
|
|
Long-term debt
|
197,306
|
|
|
23,911
|
|
Other long-term liabilities
|
25,112
|
|
|
4,526
|
|
Total liabilities
|
274,859
|
|
|
60,070
|
|
Stockholders’ equity:
|
|
|
|
Common stock—$.001 par value as of December 31, 2017 and 2016; 200,000,000 shares authorized as of December 31, 2017 and 2016; 32,460,668 and 28,261,503 shares issued and outstanding at December 31, 2017 and 2016, respectively
|
32
|
|
|
28
|
|
Paid-in capital
|
409,517
|
|
|
281,642
|
|
Accumulated other comprehensive loss
|
(114
|
)
|
|
(34
|
)
|
Accumulated deficit
|
(158,678
|
)
|
|
(142,722
|
)
|
Total BioTelemetry, Inc.’s stockholders’ equity
|
250,757
|
|
|
138,914
|
|
Noncontrolling interests
|
(1,054
|
)
|
|
—
|
|
Total equity
|
249,703
|
|
|
138,914
|
|
Total liabilities and equity
|
$
|
524,562
|
|
|
$
|
198,984
|
|
See accompanying Notes to Consolidated Financial Statements.
BIOTELEMETRY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands, except per share amounts)
|
2017
|
|
2016
|
|
2015
|
Revenue:
|
|
|
|
|
|
Healthcare
|
$
|
234,385
|
|
|
$
|
165,664
|
|
|
$
|
145,963
|
|
Research
|
38,790
|
|
|
32,565
|
|
|
21,853
|
|
Technology
|
13,601
|
|
|
10,103
|
|
|
10,697
|
|
Total revenue
|
286,776
|
|
|
208,332
|
|
|
178,513
|
|
Cost of revenue:
|
|
|
|
|
|
Healthcare
|
81,356
|
|
|
53,559
|
|
|
51,693
|
|
Research
|
22,881
|
|
|
18,395
|
|
|
12,728
|
|
Technology
|
10,169
|
|
|
6,928
|
|
|
7,535
|
|
Total cost of revenue
|
114,406
|
|
|
78,882
|
|
|
71,956
|
|
Gross profit
|
172,370
|
|
|
129,450
|
|
|
106,557
|
|
Operating expenses:
|
|
|
|
|
|
General and administrative
|
82,983
|
|
|
55,877
|
|
|
47,882
|
|
Sales and marketing
|
35,322
|
|
|
28,636
|
|
|
27,936
|
|
Bad debt expense
|
13,291
|
|
|
9,931
|
|
|
8,047
|
|
Research and development
|
11,101
|
|
|
8,355
|
|
|
7,111
|
|
Other charges
|
31,436
|
|
|
8,639
|
|
|
6,063
|
|
Total operating expenses
|
174,133
|
|
|
111,438
|
|
|
97,039
|
|
Income/(loss) from operations
|
(1,763
|
)
|
|
18,012
|
|
|
9,518
|
|
Other expense:
|
|
|
|
|
|
Interest expense
|
(4,897
|
)
|
|
(1,830
|
)
|
|
(1,534
|
)
|
Loss on extinguishment of debt
|
(543
|
)
|
|
—
|
|
|
—
|
|
Loss on equity method investment
|
(384
|
)
|
|
(287
|
)
|
|
—
|
|
Other non-operating expense, net
|
(2,809
|
)
|
|
(125
|
)
|
|
(88
|
)
|
Total other expense
|
(8,633
|
)
|
|
(2,242
|
)
|
|
(1,622
|
)
|
Income/(loss) before income taxes
|
(10,396
|
)
|
|
15,770
|
|
|
7,896
|
|
(Provision for)/benefit from income taxes
|
(6,747
|
)
|
|
37,667
|
|
|
(468
|
)
|
Net income/(loss)
|
(17,143
|
)
|
|
53,437
|
|
|
7,428
|
|
Net loss attributable to noncontrolling interests
|
(1,187
|
)
|
|
—
|
|
|
—
|
|
Net income/(loss) attributable to BioTelemetry, Inc.
|
$
|
(15,956
|
)
|
|
$
|
53,437
|
|
|
$
|
7,428
|
|
Other comprehensive income/(loss):
|
|
|
|
|
|
Foreign currency translation loss
|
(80
|
)
|
|
(22
|
)
|
|
(12
|
)
|
Comprehensive income/(loss) attributable to BioTelemetry, Inc.
|
$
|
(16,036
|
)
|
|
$
|
53,415
|
|
|
$
|
7,416
|
|
Net income/(loss) per common share attributable to BioTelemetry, Inc.:
|
|
|
|
|
|
Basic
|
$
|
(0.53
|
)
|
|
$
|
1.91
|
|
|
$
|
0.27
|
|
Diluted
|
$
|
(0.53
|
)
|
|
$
|
1.75
|
|
|
$
|
0.26
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
Basic
|
30,386
|
|
|
27,920
|
|
|
27,116
|
|
Dilutive stock options and restricted stock units
|
—
|
|
|
2,569
|
|
|
1,973
|
|
Diluted
|
30,386
|
|
|
30,489
|
|
|
29,089
|
|
Anti-dilutive stock options and restricted stock units excluded from weighted average calculation
|
463
|
|
|
380
|
|
|
1,103
|
|
See accompanying Notes to Consolidated Financial Statements.
BIOTELEMETRY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(in thousands)
|
2017
|
|
2016
|
|
2015
|
Operating activities
|
|
|
|
|
|
Net income/(loss)
|
$
|
(17,143
|
)
|
|
$
|
53,437
|
|
|
$
|
7,428
|
|
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
|
|
|
|
|
|
Bad debt expense
|
13,291
|
|
|
9,931
|
|
|
8,047
|
|
Depreciation
|
18,337
|
|
|
10,547
|
|
|
8,987
|
|
Amortization of intangibles
|
10,224
|
|
|
3,722
|
|
|
3,501
|
|
Impairment charge
|
12,045
|
|
|
—
|
|
|
—
|
|
Stock-based compensation
|
7,680
|
|
|
6,502
|
|
|
4,952
|
|
Equity method investment loss
|
384
|
|
|
287
|
|
|
—
|
|
Change in fair value of acquisition-related contingent consideration
|
(2,605
|
)
|
|
—
|
|
|
—
|
|
Write off of derivative premium
|
1,322
|
|
|
—
|
|
|
—
|
|
Accretion of debt discount and amortization of deferred charges
|
678
|
|
|
217
|
|
|
259
|
|
Loss on extinguishment of debt
|
543
|
|
|
—
|
|
|
—
|
|
Non-cash gain on legal settlement
|
(1,333
|
)
|
|
—
|
|
|
—
|
|
Non-cash lease (income)/expense
|
(423
|
)
|
|
170
|
|
|
(14
|
)
|
Non-cash tax (benefit)/expense
|
6,050
|
|
|
(38,141
|
)
|
|
245
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
Healthcare and other accounts receivable
|
(15,455
|
)
|
|
(8,707
|
)
|
|
(7,677
|
)
|
Inventory
|
665
|
|
|
(753
|
)
|
|
188
|
|
Prepaid expenses and other assets
|
(694
|
)
|
|
(1,050
|
)
|
|
(3
|
)
|
Accounts payable
|
(9,622
|
)
|
|
3,145
|
|
|
(4,699
|
)
|
Accrued and other liabilities
|
(162
|
)
|
|
(456
|
)
|
|
(464
|
)
|
Liability associated with the Civil Investigative Demand
|
—
|
|
|
—
|
|
|
(6,400
|
)
|
Net cash provided by operating activities
|
23,782
|
|
|
38,851
|
|
|
14,350
|
|
Investing activities
|
|
|
|
|
|
Acquisition of businesses, net of cash acquired
|
(161,479
|
)
|
|
(24,970
|
)
|
|
—
|
|
Purchases of property and equipment and investment in internally developed software
|
(13,697
|
)
|
|
(10,899
|
)
|
|
(13,600
|
)
|
Purchase of derivative instrument
|
(1,322
|
)
|
|
—
|
|
|
—
|
|
Investment in equity method investee
|
(690
|
)
|
|
(312
|
)
|
|
—
|
|
Net cash used in investing activities
|
(177,188
|
)
|
|
(36,181
|
)
|
|
(13,600
|
)
|
Financing activities
|
|
|
|
|
|
Proceeds related to the exercising of stock options and employee stock purchase plan
|
6,071
|
|
|
2,519
|
|
|
1,222
|
|
Tax payments related to the vesting of shares
|
(1,933
|
)
|
|
(2,333
|
)
|
|
(1,575
|
)
|
Issuance of long-term debt
|
205,000
|
|
|
—
|
|
|
—
|
|
Borrowings under revolving loans
|
—
|
|
|
14,500
|
|
|
—
|
|
Principal payments on revolving loans
|
(3,000
|
)
|
|
(11,500
|
)
|
|
—
|
|
Payment of debt issuance costs
|
(6,213
|
)
|
|
—
|
|
|
—
|
|
Principal payments on long-term debt
|
(25,840
|
)
|
|
(1,438
|
)
|
|
(938
|
)
|
Principal payments on capital lease obligations
|
(2,863
|
)
|
|
(321
|
)
|
|
(480
|
)
|
Acquisition of noncontrolling interests
|
(4,765
|
)
|
|
—
|
|
|
—
|
|
Net cash provided by/(used in) financing activities
|
166,457
|
|
|
1,427
|
|
|
(1,771
|
)
|
Effect of exchange rate changes on cash
|
(81
|
)
|
|
(31
|
)
|
|
—
|
|
Net increase/(decrease) in cash and cash equivalents
|
12,970
|
|
|
4,066
|
|
|
(1,021
|
)
|
Cash and cash equivalents—beginning of period
|
23,052
|
|
|
18,986
|
|
|
20,007
|
|
Cash and cash equivalents—end of period
|
$
|
36,022
|
|
|
$
|
23,052
|
|
|
$
|
18,986
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
Non-cash purchases of property and equipment
|
$
|
498
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Non-cash fair value of common stock returned in legal settlement
|
2,753
|
|
|
—
|
|
|
—
|
|
Non-cash fair value of equity issued for acquisition of business
|
117,440
|
|
|
2,885
|
|
|
—
|
|
Cash paid for interest
|
3,888
|
|
|
1,273
|
|
|
1,044
|
|
Cash paid for taxes
|
$
|
1,648
|
|
|
$
|
359
|
|
|
$
|
384
|
|
See accompanying Notes to Consolidated Financial Statements.
BIOTELEMETRY, INC.
CONSOLIDATED STATEMENTS OF EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BioTelemetry, Inc. Equity
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Other
Comprehensive
Income/(Loss)
|
|
|
|
|
|
|
|
Common Stock
|
|
Paid-in
Capital
|
|
|
Accumulated
Deficit
|
|
Noncontrolling Interests
|
|
Total
Equity
|
(in thousands, except shares)
|
Shares
|
|
Amount
|
|
|
|
|
|
Balance December 31, 2014
|
26,693,248
|
|
|
$
|
27
|
|
|
$
|
267,236
|
|
|
$
|
—
|
|
|
$
|
(203,587
|
)
|
|
$
|
—
|
|
|
$
|
63,676
|
|
Share issuances related to stock compensation plans
|
719,564
|
|
|
—
|
|
|
1,222
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,222
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
4,952
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,952
|
|
Shares withheld to cover taxes on vesting of share based awards
|
(167,090
|
)
|
|
—
|
|
|
(1,575
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,575
|
)
|
Issuance of stock related to business combinations
|
32,217
|
|
|
—
|
|
|
235
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
235
|
|
Currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
(12
|
)
|
|
—
|
|
|
—
|
|
|
(12
|
)
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,428
|
|
|
—
|
|
|
7,428
|
|
Balance December 31, 2015
|
27,277,939
|
|
|
27
|
|
|
272,070
|
|
|
(12
|
)
|
|
(196,159
|
)
|
|
—
|
|
|
75,926
|
|
Share issuances related to stock compensation plans
|
917,912
|
|
|
1
|
|
|
2,518
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,519
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
6,502
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,502
|
|
Shares withheld to cover taxes on vesting of share based awards
|
(178,867
|
)
|
|
—
|
|
|
(2,333
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,333
|
)
|
Issuance of stock related to 2014 business combination
|
244,519
|
|
|
—
|
|
|
2,885
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,885
|
|
Currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
(22
|
)
|
|
—
|
|
|
—
|
|
|
(22
|
)
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
53,437
|
|
|
—
|
|
|
53,437
|
|
Balance December 31, 2016
|
28,261,503
|
|
|
28
|
|
|
281,642
|
|
|
(34
|
)
|
|
(142,722
|
)
|
|
—
|
|
|
138,914
|
|
Share issuances related to stock compensation plans
|
722,441
|
|
|
—
|
|
|
6,071
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,071
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
7,680
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,680
|
|
Shares withheld to cover taxes on vesting of share based awards
|
(79,589
|
)
|
|
—
|
|
|
(1,933
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,933
|
)
|
Issuance of stock related to business combination
|
3,615,840
|
|
|
4
|
|
|
116,788
|
|
|
—
|
|
|
—
|
|
|
11,224
|
|
|
128,016
|
|
Acquisition of noncontrolling interest
|
19,806
|
|
|
—
|
|
|
2,022
|
|
|
—
|
|
|
—
|
|
|
(11,091
|
)
|
|
(9,069
|
)
|
Common stock returned in legal settlement
|
(79,333
|
)
|
|
—
|
|
|
(2,753
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,753
|
)
|
Currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
(80
|
)
|
|
—
|
|
|
—
|
|
|
(80
|
)
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15,956
|
)
|
|
(1,187
|
)
|
|
(17,143
|
)
|
Balance December 31, 2017
|
32,460,668
|
|
|
$
|
32
|
|
|
$
|
409,517
|
|
|
$
|
(114
|
)
|
|
$
|
(158,678
|
)
|
|
$
|
(1,054
|
)
|
|
$
|
249,703
|
|
See accompanying Notes to Consolidated Financial Statements.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Description of Business
BioTelemetry, Inc. (“BioTelemetry,” “Company,” “we,” “our” or “us”), a Delaware corporation, provides monitoring services and digital population health management for healthcare providers, medical device manufacturing and centralized core laboratory services for clinical research.
We operate under
three
reportable segments: (1) Healthcare, (2) Research and (3) Technology. The Healthcare segment is focused on the diagnosis and monitoring of cardiac arrhythmias, or heart rhythm disorders. We offer cardiologists and electrophysiologists, neurologists and primary care physicians a full spectrum of solutions which provides them with a single source of cardiac monitoring services. These services range from the differentiated mobile cardiac telemetry service (“MCT”), to event, traditional Holter, extended-wear Holter, Pacemaker and International Normalized Ratio (“INR”) monitoring. Since we became focused on cardiac monitoring in 1999, we have developed a proprietary integrated patient management platform that incorporates a wireless data transmission network, U.S. Food and Drug Administration (“FDA”) cleared algorithms, medical devices and 24-hour monitoring service centers. The Research segment is engaged in central core laboratory services providing cardiac monitoring, imaging services, scientific consulting and data management services for drug and medical device trials. The Technology segment focuses on the development, manufacturing, testing and marketing of cardiovascular and blood glucose monitoring devices to medical companies, clinics and hospitals.
We have grown both organically and through recent acquisitions:
|
|
•
|
On July 12, 2017, we acquired approximately
97%
of the outstanding shares of LifeWatch AG (“LifeWatch”). On that date, we acquired control of LifeWatch and began consolidating its financial statements. In September 2017, we purchased
343,525
additional shares of LifeWatch for cash consideration of
$4.8 million
and the issuance of
19,806
of our shares with a fair value of
$0.6 million
. We completed the acquisition of the remaining shares in December 2017, for aggregate consideration of
$2.9 million
in cash and
58,786
shares with a fair market value of
$2.0 million
which was settled in early January 2018. LifeWatch is included in the Healthcare segment.
|
|
|
•
|
On December 1, 2016, we acquired the stock of Telcare Medical Supply, Inc. and certain assets of Telcare Inc. (collectively, “Telcare”). Telcare is included in the Technology segment.
|
|
|
•
|
On May 11, 2016, we acquired VirtualScopics, Inc. (“VirtualScopics”), a leading provider of clinical trial imaging solutions. VirtualScopics is included in the Research segment.
|
|
|
•
|
On April 1, 2016, we acquired substantially all of the assets of the ePatch division (“ePatch”) of DELTA Danish Electronics, Light, and Acoustics (“DELTA”), inclusive of all products and indications under development. ePatch is included in the Technology segment.
|
For further details related to our recent acquisitions, please see
“Note 3. Acquisitions”
below.
Our common stock is traded on the NASDAQ Global Select Market under our symbol “BEAT.”
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Summary of Significant Accounting Policies
a) Principles of Consolidation & Reclassifications
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and include the accounts of BioTelemetry and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Certain reclassifications have been made to prior period statements to conform to the current period presentation. These consist of:
|
|
•
|
disaggregating the components of other expense in the consolidated statements of operations,
|
|
|
•
|
disaggregating the equity method investment loss from the change in prepaid expenses and other assets in the consolidated statements of cash flows,
|
|
|
•
|
reclassifying research and development costs from the Corporate and Other segment to the Healthcare segment in our segment information disclosures.
|
The reclassifications had no impact on previously reported consolidated net income/(loss), cash flows or accumulated deficit.
b) Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires that management 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.
|
|
|
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.
|
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Our financial instruments consist primarily of cash and cash equivalents, Healthcare accounts receivable, other accounts receivable, accounts payable, contingent consideration, short-term debt and long-term debt. With the exception of the 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 contingent consideration (classified as Level 3) is measured on a recurring basis using unobservable inputs such as projected payment dates, probabilities of meeting specified milestones and other such variables resulting in payment amounts which are discounted back to present value using a probability-weighted discounted cash flow model. Adjustments to contingent consideration are recorded in other charges in the consolidated statements of operations and comprehensive income/(loss).
In addition to the recurring fair value measurements, the fair value of certain assets acquired and liabilities assumed in connection with a business combination are recorded at fair value primarily, using a discounted cash flow model (classified as Level 3). This valuation technique requires us to make certain assumptions, including, but not limited to, future operating performance and cash flows, royalty rate and other such variables which are discounted to present value using a discount rate that reflects the risk factors associated with future cash flow, the characteristics of the assets acquired and liabilities assumed and the experience of the acquired business. Non-financial assets such as goodwill, intangible assets, and property, plant, and equipment are subsequently measured at fair value when there is an indicator of impairment and recorded at fair value only when an impairment is recognized. We assess the impairment of intangible assets annually or whenever events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable.
d) Cash and Cash Equivalents
Cash and cash equivalents are held in financial institutions or in custodial accounts with financial institutions. Cash equivalents are defined as liquid investments and money market funds with maturity from date of purchase of 90 days or less that are readily convertible into cash and have minimal interest rate risk.
e) Accounts Receivable and Allowance for Doubtful Accounts
Healthcare accounts receivable is related to the Healthcare segment and is recorded at the time revenue is recognized, net of contractual allowances, and is presented on the consolidated balance sheet net of an allowance for doubtful accounts. The ultimate collection of accounts receivable may not be known for several months after services have been provided and billed. The percentages and amounts used to record bad debt expense and the allowance for doubtful accounts are supported by various methods and analyses, including current and historical cash collections and the aging of receivables by payor. Because of continuing changes in the health care industry and third-party reimbursement, it is possible that our estimates of collectability could change, which could have a material impact on our operations and cash flows.
Other accounts receivable is related to the Technology and Research segments and is recorded at the time revenue is recognized, or when products are shipped or services are performed. We estimate an
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
allowance for doubtful accounts on a specific account basis, and consider several factors in our analysis including customer specific information and the aging of the account.
We write-off receivables when the likelihood for collection is remote and when we believe collection efforts have been fully exhausted and we do not intend to devote additional resources in attempting to collect. We perform write-offs on a monthly basis. In the Healthcare segment, we wrote-off
$8.8 million
and
$8.4 million
of receivables for the years ended
December 31, 2017
and
2016
, respectively. The impact was a reduction of gross accounts receivable and a reduction in the allowance for doubtful accounts. There were
no
material write-offs in the Technology and Research segments. Additionally, we recorded bad debt expense of
$13.3 million
,
$9.9 million
and
$8.0 million
for the years ended
December 31, 2017
,
2016
and
2015
, respectively.
f) Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash, cash equivalents, Healthcare accounts receivables and other accounts receivables. 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 doubtful accounts in accordance with the procedures described above. Past-due amounts are written-off against the allowance for doubtful accounts when collections are believed to be unlikely and all collection efforts have ceased.
At
December 31, 2017
,
2016
and
2015
,
one
payor, Medicare, accounted for
21%
,
11%
and
13%
, respectively, of our gross accounts receivable.
g) Inventory
Inventory is valued at the lower of cost (using first-in, first-out cost method) or market (net realizable value or replacement cost). Management reviews inventory for specific future usage, and estimates of impairment of individual inventory items are recorded to reduce inventory to the lower of cost or market.
h) Property and Equipment
Property and equipment is recorded at cost, except for assets acquired in business combinations, which are recorded at fair value as of the acquisition date. Depreciation is recorded over the estimated useful life of each class of depreciable assets, and is computed using the straight-line method. Leasehold improvements are amortized over the shorter of the estimated asset life or term of the lease. Repairs and maintenance costs are charged to expense as incurred. Costs of additions and improvements are capitalized.
i) Impairment of Long-Lived Assets
The carrying value of long-lived assets, other than goodwill and indefinite-lived intangible assets, is evaluated when events or changes in circumstances indicate the carrying value may not be recoverable or the useful life has changed. We consider historical performance and anticipated future results in our evaluation of potential impairment. Accordingly, when indicators of impairment are present, we evaluate the carrying value of these assets in relation to the operating performance of the business and the undiscounted cash flows expected to result from the use of these assets. If the carrying amount of a long-lived asset exceeds its expected undiscounted cash flows, an impairment charge is recognized to the extent the carrying amount exceeds its fair value.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
j) Derivative Instruments
During the second quarter of 2017, we purchased a foreign currency option with a notional value of
$194.2 million
to mitigate the foreign exchange risk related to the Swiss Franc denominated purchase price of LifeWatch. This derivative instrument was not designated as a hedge for accounting purposes. We did not exercise this option and the contract expired during the third quarter of 2017, resulting in a charge of
$1.3 million
, which was recorded as a component of other non-operating income/(expense), net in the consolidated statements of operations and comprehensive income/(loss).
k) Equity Method Investments
We account for investments using the equity method of accounting if the investment provides us the ability to exercise significant influence, but not control, over the investee. Significant influence is generally deemed to exist if our ownership interest in the voting stock of the investee ranges between 20% and 50%, although other factors, such as representation on the investee’s board of directors, are considered in determining whether the equity method of accounting is appropriate. Under the equity method of accounting, the investment is recorded at cost in the consolidated balance sheets under other assets and is periodically adjusted for capital contributions, dividends received and our share of the investee’s earnings or losses together with other-than-temporary impairments which are recorded through loss on equity method investment in the consolidated statements of operations and comprehensive income/(loss).
l) Noncontrolling Interest
The consolidated financial statements reflect the application of ASC 810, Consolidations, which establishes accounting and reporting standards that require: (i) the ownership interest in subsidiaries held by parties other than the parent to be clearly identified and presented in the consolidated balance sheet within stockholder’s equity, but separate from the parent’s equity; (ii) the amount of consolidated net income attributable to the parent and the noncontrolling interest to be clearly identified and presented on the face of the consolidated statements of income; and (iii) changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary to be accounted for consistently.
We acquired approximately
97%
of LifeWatch on July 12, 2017. On that date, we acquired control of LifeWatch and began consolidating its financial statements. As of
December 31, 2017
, we owned
100%
of LifeWatch.
LifeWatch owns
55%
of LifeWatch Turkey Holding AG (“LifeWatch Turkey,” domiciled in Switzerland), with their partner, IKSIR TEKNOLOJI SAGLIK VE KIMYA SAN. ve TIC. A.S., a company located in Ankara, Turkey, to provide digital health solutions to the Turkish market. Concurrent with our acquisition of LifeWatch, we acquired control of LifeWatch Turkey and began consolidating their financial statements. As of
December 31, 2017
, LifeWatch Turkey’s net assets were
$3.6 million
and their loss since July 12, 2017 was
$2.3 million
.
Amounts pertaining to the noncontrolling ownership interest of LifeWatch Turkey held by third parties in our operating results are combined and reported as noncontrolling interests in the accompanying consolidated financial statements.
m) Goodwill and Acquired Intangible Assets
Goodwill is the excess of the purchase price of an acquired business over the amounts assigned to assets acquired and liabilities assumed in a business combination. In accordance with
ASC 350, Intangibles
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
— Goodwill and Other
(“ASC 350”), goodwill is reviewed for impairment annually, or when events arise that could indicate that an impairment exists. Initially, we qualitatively assess whether it is more-likely-than-not that an impairment exists for each of our reporting units. Such qualitative factors can include, among others, industry and market conditions, present and anticipated sales and cost factors, overall financial performance and relevant entity-specific events. If we conclude based on our qualitative assessment that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value, we perform an impairment test in accordance with ASC 350. We compare the fair value of our reporting units to their carrying value. If the reporting unit’s carrying value exceeds its fair value, an impairment loss equal to the difference is recognized. The loss recognized shall not exceed the total amount of goodwill allocated to the reporting unit, and the income tax effects from any deductible goodwill on the carrying value of the reporting unit when measuring the goodwill impairment loss, if any, are considered.
For the purpose of performing our goodwill impairment analysis, we consider our business to be composed of
three
reporting units: Healthcare, Technology and Research. When performing a quantitative analysis, we calculate the fair value of the reporting units utilizing a weighting of the income and market approaches. The income approach is based on a discounted cash flow methodology that includes assumptions for, among other things, forecasted income, cash flow, growth rates, income tax rates, expected tax benefits and long-term discount rates, all of which require significant judgment. The market approach utilizes our market data as well as market data from publicly-traded companies that are similar to us. There are inherent uncertainties related to these factors and the judgment applied in the analysis. We believe that the combination of an income and a market approach provides a reasonable basis to estimate the fair value of our reporting units.
Acquired intangible assets are recorded at fair value on the acquisition date. The estimated fair values and useful lives of intangible assets are determined by assessing many factors including estimates of future operating performance and cash flows of the acquired business, the characteristics of the intangible assets and the experience of the acquired business. Independent appraisal firms may assist with the valuation of acquired assets. The impairment test for indefinite-lived intangible assets other than goodwill consists of a comparison of the fair value of the indefinite-lived intangible asset to the carrying value of the asset. We used a qualitative approach to determine impairment for our indefinite-lived as well as for our amortizable intangible assets.
n) Revenue Recognition
We recognize approximately
81%
of our total revenue from patient monitoring services in our Healthcare segment. We receive a significant portion of this revenue from third-party commercial payors and governmental entities. We also receive reimbursement directly from patients through co-pays, deductibles and self-pay arrangements. Revenue from the Medicare program is based on reimbursement rates set by CMS. For the years ended
December 31, 2017
,
2016
and
2015
, revenue from Medicare as a percentage of total revenue was
34%
,
33%
and
34%
, respectively. Revenue from contracted commercial payors is recorded at the negotiated contractual rate. Revenue from non-contracted commercial payors is recorded at net realizable value based on historical payment patterns. Adjustments to the estimated net realizable value, based on final settlement with the third-party payors, are recorded upon settlement. If we do not have consistent historical information regarding collectability from a given payor, revenue is recognized when cash is received. Unearned amounts are appropriately deferred until service has been completed. For the years ended
December 31, 2017
and
2016
, deferred revenues related to the Healthcare segment were
$2.4 million
and
$1.1 million
, respectively; none of these deferred revenues were refundable.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Research revenue includes revenue for core laboratory services. Our Research revenue is provided on a fee-for-service basis, and revenue is recognized as the related services are performed. We also provide consulting services on a time and materials basis and recognize revenue as we perform the services. Our site support revenue, consisting of equipment rentals and sales along with related supplies and logistics management, are recognized at the time of sale or over the rental period. Under a typical contract, customers pay us a portion of our fee for these services upon contract execution as an upfront deposit. Unearned revenue, including upfront deposits, are deferred, and then recognized as the services are performed. For the years ended
December 31, 2017
and
2016
, deferred revenues related to the Research segment were
$4.2 million
and
$2.7 million
, respectively; these deferred revenues were refundable.
Revenue in our Technology segment is received from the sale of products, product repair and supplies which are recognized when shipped, or as service is completed. Deferred revenues related to our Technology segment were immaterial for the years ended
December 31, 2017
and
2016
.
For arrangements with multiple deliverables, the revenue is allocated to each element (both delivered and undelivered items) based on their relative selling prices or management’s best estimate of their selling prices, when vendor-specific or third-party evidence is unavailable.
We record reimbursements received for out-of-pocket expenses, including freight, incurred as revenue in the accompanying consolidated statements of operations and comprehensive income (loss). Revenue generally is recognized net of any taxes collected from customers and subsequently remitted to government authorities.
o) 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 measures the cost of equity-based service awards based on the grant-date fair value of the award and recognizes the cost of such awards over the requisite service period (generally, the vesting period of the award). ASC 718 requires that an entity measure the cost of liability-based service awards based on current fair value that is remeasured subsequently at each reporting date through the settlement date. The compensation expense associated with performance stock units is recognized over the period between when the performance conditions are deemed probable of achievement and when the awards are vested. We account for equity awards issued to non-employees in accordance with ASC 505-50,
Equity-Based Payments to Non-Employees
.
Stock-based compensation expense is only recognized for outstanding performance stock units (“PSUs”) where the performance conditions are deemed probable for achievement. For PSUs deemed probable for achievement, stock-based compensation expense is recognized ratably over the expected vesting period. Performance stock options (“PSOs”) are valued and stock-based compensation expense is only recognized once the performance conditions of the outstanding PSOs have been met.
We have historically recorded stock-based compensation expense based on the number of options or restricted stock units (“RSUs”) we expect to vest using our historical forfeiture experience and periodically update those forfeiture rates to apply to new grants. While we early adopted ASU 2016-09 in the year ended
December 31, 2016
, we have elected to continue to estimate forfeitures under the true-up
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
provision of ASC 718. We record additional expense if the actual forfeiture rate is lower than estimated, and record a recovery of prior expense if the actual forfeiture rate is higher than estimated.
We estimate the fair value of our 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 contractual life 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.
p) Research and Development Costs
Research and development costs are charged to expense as incurred.
q) 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 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 uncertain tax positions 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.
On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJA”) was enacted in the United States. The TCJA represents sweeping changes in U.S. tax law. Under ASC 740, the effects of changes in tax rates and 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.
In response to the TCJA, the Staff of the U.S. Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (“SAB 118”) to provide guidance to registrants in applying ASC 740 in connection with the TCJA. SAB 118 provides that in the period of enactment, the income tax effects of the TCJA may be reported as a provisional amount based on a reasonable estimate (to the extent a reasonable estimate can be determined), which would be subject to adjustment during a “measurement period.” The measurement period begins in the reporting period of the TCJA’s enactment and ends when a registrant has obtained, prepared, and analyzed the information that was needed in order to complete the accounting requirements under ASC 740. SAB 118 also describes supplemental disclosures that should accompany the provisional amounts. We have applied the guidance in SAB 118 to account for the financial accounting impacts of the TCJA as of December 31, 2017, and have provided the applicable supplemental disclosures in
“Note 16. Income Taxes”
below.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
r) 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/(loss) per share is computed by giving effect to all potential dilutive common shares, including stock options and restricted stock units (“RSUs”), using the treasury stock method. Potentially dilutive common shares are not included in the weighted-average shares outstanding for determining net loss per share, as the result would be anti-dilutive.
Certain stock options, which are priced higher than the market price of our shares as of
December 31, 2017
,
2016
and
2015
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 are also excluded using the treasury stock method as their impact would be anti-dilutive.
s) Segment Information
ASC 280,
Segment Reporting
, establishes standards for reporting information regarding operating segments in annual 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
three
segments: Healthcare, Research and Technology. The Healthcare segment is focused on the monitoring of cardiac arrhythmias or heart rhythm disorders in a health care setting. The Research segment provides central core laboratory services in a research environment, which includes certain equipment rental and device sales. The Technology segment focuses on the development, manufacturing, testing and marketing of medical devices to medical companies, clinics and hospitals.
t) Recent Accounting Pronouncements
Accounting Pronouncements Recently Adopted
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09,
Improvements to Employee Share-Based Payment Accounting
. The standard revises the accounting for certain aspects of share-based compensation arrangements and requires any excess tax benefits or tax deficiencies to be recorded directly in the income statement when such awards vest or settle. In addition, the cash flows related to any excess tax benefits will no longer be separately classified as a financing activity, but will rather be classified as an operating activity, along with all other income tax cash flows. The standard also makes certain changes to the way the treasury stock method is applied when calculating diluted net income per share, as well as allows for a policy election to account for forfeitures as they occur, rather than using the estimation method currently prescribed by ASC 718,
Compensation — Stock Compensation
(“ASC 718”). The standard is effective for annual and interim periods beginning after December 15, 2016, with early adoption permitted.
We elected to early adopt the standard during the fourth quarter of 2016. The standard requires the recognition of any pre-adoption date net operating loss (“NOL”) carryforwards from share-based compensation arrangements to be recognized on a modified retrospective basis, through an opening retained earnings adjustment on January 1, 2016. Any income tax effects from share-based compensation
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
arrangements arising after January 1, 2016 will be recognized prospectively in the income statement during the period of adoption.
Upon adoption, we recognized all previously unrecognized tax benefits which resulted in a cumulative-effect adjustment of
$1.8 million
to our accumulated deficit. These previously unrecognized tax benefits were recorded as a deferred tax asset, which was fully offset by a valuation allowance on January 1, 2016, thus there was no net impact from the adoption of ASU 2016-9 as of the same date. In addition, we recognized excess tax benefits as an adjustment to our previously reported benefit from/(provision for) income taxes of
$0.1 million
,
$0.4 million
and
$0.1 million
for the quarters ended March 31, 2016, June 30, 2016 and September 30, 2016, respectively. The weighted average number of common shares outstanding for calculating diluted net income per share increased by
340,000
to
550,000
for each quarter of 2016. Basic and diluted net income per share increased by
$0.01
for the three months ended June 30, 2016. Net income per share for the three months ended March 30, 2016 and September 30, 2016 were not changed by the adoption of ASU 2016-9. Recast quarterly net income and basic and diluted net income per share for the first three quarters of 2016 is disclosed in
“Note 19. Quarterly Financial Data”
below.
Our adoption of the standard did not have any impact to our consolidated statements of cash flows as no NOL carryforwards from share-based compensation arrangements were recognized prior to January 1, 2016, due to our use of the “with and without” method of accounting for equity-generated NOL carryforwards. We have elected to continue to estimate forfeitures under the true-up provision of ASC 718. The adoption of this standard decreased our effective tax rate by
11.1%
for the year ended December 31, 2016.
In July 2015, the FASB issued ASU 2015-11,
Simplifying the Measurement of Inventory
. The standard requires inventory to be measured at the lower of cost or net realizable value. The guidance will not apply to inventories for which cost is determined using the last-in, first-out method or the retail inventory method. Our adoption of this standard in the first quarter of 2017 did not have a material impact on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04,
Simplifying the Test for Goodwill Impairment
. The standard eliminates step two in the current two-step impairment test under ASC 350. Under the new standard, a goodwill impairment is recorded for any excess of a reporting unit’s carrying value over its fair value. A prospective transition approach is required. The standard is effective for annual and interim reporting periods beginning after December 15, 2019 with early adoption permitted for annual and interim goodwill impairment testing dates after January 1, 2017. Our adoption of this standard in the fourth quarter of 2017 did not have a material impact on our consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
In May 2017, the FASB released ASU 2017-09,
Scope of Modification Accounting
, which clarifies the changes to terms or conditions of a share based payment award that requires application of modification accounting under Topic 718. A change to an award should be accounted for as a modification unless the fair value of the modified award is the same as the original award, the vesting conditions do not change and the classification as an equity or liability instrument does not change. This update is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2017. Early application is permitted and prospective application is required for awards modified on or
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
after the adoption date. We will adopt this standard effective January 1, 2018, and this standard will not have a material impact on our financial position, results of operations or disclosures.
In January 2017, the FASB released ASU 2017-01,
Business Combinations: Clarifying the Definition of a Business
, which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The amendments in this ASU should be applied prospectively and are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. No disclosures are required at transition. We will adopt this standard effective January 1, 2018 and do not expect the standard to have a material impact on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases
. The standard will require lessees to recognize most leases on their balance sheet and makes selected changes to lessor accounting. The standard is effective for annual and interim reporting periods beginning after December 15, 2018. A modified retrospective transition approach is required, with certain practical expedients available. We are currently evaluating the impact the adoption of this standard will have on our consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
(“ASU 2014-09), which has been updated through several revisions and clarifications since its original issuance (collectively, the “Standard”). The Standard will require revenue recognized to represent the transfer of promised goods or services to customers at an amount that reflects the consideration which a company expects to receive in exchange for those goods or services. The Standard also requires new, expanded disclosures regarding revenue recognition. The Standard is effective January 1, 2018.
We completed the detailed review of our contract portfolio and revenue streams to identify potential differences in accounting resulting from adopting the Standard.
We implemented the following controls with respect to assessing the potential impact of adopting the Standard:
|
|
•
|
Created an implementation working group, which includes internal and third-party resources;
|
|
|
•
|
Adopted implementation controls that will allow us to properly adopt the Standard;
|
|
|
•
|
Developed a detailed project plan with key milestone dates;
|
|
|
•
|
Outlined our revenue generating activities that fall within the scope of ASU 2014-09; and
|
|
|
•
|
Monitored and assessed the impact of changes to ASU 2014-09 and its interpretations.
|
We have determined the following pertaining to the impact of adopting ASU 2014-09:
|
|
•
|
Healthcare Revenue
- We determined that contracts within our Healthcare segment meet the definition of a contract under the Standard. We have elected to apply the portfolio approach practical expedient to our contracts in the Healthcare segment and account for the contracts within each portfolio as a collective group, rather than individual contracts. Based on our history with these portfolios and the homogenous nature and characteristics of the patient accounts within each portfolio, we have concluded that the financial statement effects are not expected to be materially different than if accounting for revenue based on individual contracts. If the Company has historical experience of collecting substantially all of the negotiated contractual
|
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
rates and the Company has determined, at contract inception, that customers have the intention and ability to pay the promised consideration, the Company has concluded that it has not provided an implicit price concession but, rather, that it has chosen to accept the risk of default by the patient and adjustments to the transaction price would be presented as bad debts. For our non-contracted portfolio, we have determined that we are providing an implicit price concession (a form of variable consideration), resulting in the need to continually estimate our transaction price based on historical cash collections, utilizing the expected value method. Subsequent adjustments to the transaction price will be recorded as an adjustment to Healthcare revenue and not as bad debt expense. Our current accounting policy is such that revenue is recognized upon agreed upon reimbursement rates. If we do not have agreed upon reimbursement rates, we recognize revenue based on historical experience, or if no historical experience, when cash is received. Adjustments to the estimated net realizable value, based on final settlement with the third-party payors, are recorded upon settlement.
|
|
•
|
Research Revenue
- We have concluded that our arrangements with customers meet the definition of a contract under the Standard. We are in the process of finalizing our assessment of whether our material promises within our contracts will represent a single or multiple performance obligations, as well as allocation of the transaction price to the performance obligation(s). We have determined that the legally enforceable term of our research contracts are predominately thirty days due to termination for convenience clauses which are held by the customer. Our current accounting policy dictates that Research revenue is recognized as the related services are performed. Our revenue is allocated to each element (both delivered and undelivered items) based on their relative selling prices as determined by our best estimate of our selling prices.
|
|
|
•
|
Technology Revenue
- We determined that contracts within our Technology segment meet the definition of a contract under the Standard and that contracts are predominantly short-term in nature (i.e., approximately 30 days from receipt of purchase order to shipment). We determined that the promised goods and services within our Technology segment revenue streams are broadly grouped into three categories: (1) the sale of goods produced by the Company (2) constructing, manufacturing, or developing an asset on behalf of a customer and (3) performing an agreed-upon service for a customer. We have determined the following: (1) That all of the transaction price with respect to our customer contracts consists of fixed consideration, (2) that our individual contracts consist of one performance obligation and thus, the allocation of contract consideration to separate performance obligations is not applicable and (3) that we will continue recognizing revenue at a point in time in the Technology segment when control transfers as dictated by the transfer of title on the underlying good sold or as services are rendered.
|
|
|
•
|
Transition Method - We will be adopting ASU 2014-09 using the modified retrospective approach.
|
In addition, the remaining significant implementation matters to be addressed prior to fully adopting ASU 2014-09 include finalizing the transition adjustment analysis on our consolidated financial statements, and finalizing updates to our business processes, systems and controls to comply with ASU 2014-09.
We expect to complete our assessment of the full financial impact of ASU 2014-09 before filing our 10-Q for the three months ended March 31, 2018 which will include the required financial reporting disclosures under ASU 2014-09.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Acquisitions
LifeWatch AG
On July 12, 2017, the Company, through its wholly owned subsidiary Cardiac Monitoring Holding Company, LLC, acquired approximately
97.0%
of the outstanding shares of LifeWatch AG for aggregate consideration of
3,615,840
shares of BioTelemetry common stock with a fair value of
$116.8 million
and cash in the amount of
$165.8 million
. On that date, we acquired control of LifeWatch and began consolidating its financial statements.
Through
December 31, 2017
, we purchased
343,525
additional shares of LifeWatch for cash consideration of
$4.8 million
and the issuance of
19,806
shares with a fair value of
$0.6 million
. We acquired the remaining untendered LifeWatch shares pursuant to a squeeze-out procedure in accordance with Swiss law and takeover regulation related to the offering occurring in early January 2018, with the settlement of
$2.9 million
cash, which was recorded as a component of accrued liabilities in our consolidated balance sheets, and
58,786
shares with a fair market value of
$2.0 million
, which was recorded as a component of paid-in capital in our consolidated balance sheets, both as of
December 31, 2017
. As of
December 31, 2017
, we owned
100%
of LifeWatch.
Also on July 12, 2017, in connection with the closing of the acquisition of LifeWatch, and refinancing of its existing debt, we entered into a Credit Agreement pursuant to which the Company obtained loans as follows; (i) a term loan (funded on July 12, 2017) in an aggregate principal amount equal to
$205.0 million
, the proceeds of which were used to (a) pay our existing General Electric Credit Agreement of
$24.9 million
and acquired LifeWatch debt of
$3.0 million
, (b) pay a portion of the cash consideration for the acquisition of LifeWatch, and (c) pay related transaction fees and expenses of the acquisition of LifeWatch; and (ii) a
$50.0 million
revolving credit facility for ongoing working capital purposes, which remains undrawn. The term loan will be repaid in quarterly installments beginning January 1, 2018, with the remaining principal balance repaid on or before July 12, 2022.
The acquisition of LifeWatch strengthens our position as the leader in wireless medicine, creating the foremost connected health platform, significantly enhancing our ability to improve quality of life and reduce cost of care. 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 recognized
$183.5 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 below represent our preliminary fair value estimates as of
December 31, 2017
and are subject to subsequent adjustment as additional information is obtained during the applicable measurement period. Measurement period adjustments recorded during the fourth quarter of 2017 consisted primarily of increasing customer relationships by
$17.5 million
, increasing acquired technology by
$0.9 million
, increasing other long-term liabilities by
$21.7 million
, decreasing deferred tax liabilities by
$7.5 million
and decreasing fixed assets by
$2.0 million
. The primary areas of these preliminary estimates that are not yet finalized related to certain tangible assets acquired and liabilities assumed, including deferred taxes, unrecorded tax provisions and identifiable intangible assets. We expect to finalize all accounting for the acquisition of LifeWatch within one year of the acquisition date.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
(in thousands, except lives)
|
Amount
|
|
Weighted
Average Life
(Years)
|
Fair value of assets acquired:
|
|
|
|
Cash and cash equivalents
|
$
|
4,303
|
|
|
|
Healthcare accounts receivable
|
9,467
|
|
|
|
Inventory
|
1,136
|
|
|
|
Prepaid expenses and other current assets
|
4,392
|
|
|
|
Property and equipment
|
28,241
|
|
|
|
Other assets
|
713
|
|
|
|
Identifiable intangible assets:
|
|
|
|
Customer relationships
|
126,900
|
|
|
10
|
Technology
|
3,005
|
|
|
3
|
Total identifiable intangible assets
|
129,905
|
|
|
|
Total assets acquired
|
178,157
|
|
|
|
Fair value of liabilities assumed:
|
|
|
|
Accounts payable
|
10,424
|
|
|
|
Accrued liabilities
|
9,747
|
|
|
|
Current portion of capital lease obligations
|
4,664
|
|
|
|
Current portion of long-term debt
|
3,027
|
|
|
|
Long-term capital lease obligations
|
3,420
|
|
|
|
Deferred tax liabilities
|
14,454
|
|
|
|
Other long-term liabilities
|
23,435
|
|
|
|
Total liabilities assumed
|
69,171
|
|
|
|
|
|
|
|
Total identifiable net assets
|
108,986
|
|
|
|
Fair value of noncontrolling interest
|
(9,961
|
)
|
|
|
Goodwill
|
183,549
|
|
|
|
Net assets acquired
|
$
|
282,574
|
|
|
|
We have integrated the operations of LifeWatch which are included as components of our Healthcare segment. As a result of this integration, it is impracticable to disclose the amount of revenue and earnings/(loss) attributable to LifeWatch for the period from July 12, 2017 to
December 31, 2017
.
We incurred
$31.0 million
of acquisition related costs related to LifeWatch for the year ended
December 31, 2017
. These costs were included in other charges in our consolidated statements of operations and comprehensive income/(loss).
The following unaudited pro forma financial information has been prepared using historical financial results of BioTelemetry and LifeWatch as if the acquisition had occurred as of January 1, 2016. Certain adjustments related to the elimination of transaction costs, as well as the addition of depreciation and amortization related to fair value adjustments on the tangible and identifiable intangible assets acquired, have been reflected for the purposes of the unaudited pro forma financial information presented below. We
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
believe the assumptions used in preparing the unaudited pro forma financial information are reasonable, but not necessarily indicative of actual results should the acquisition have occurred on January 1, 2016.
Pro forma financial information for the periods presented is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(pro forma, unaudited, in thousands, except share and per share amounts)
|
2017
|
|
2016
|
Revenue
|
$
|
349,900
|
|
|
$
|
322,200
|
|
Net income/(loss)
|
(1,800
|
)
|
|
23,400
|
|
Net income/(loss) per common share:
|
|
|
|
Basic
|
$
|
(0.05
|
)
|
|
$
|
0.74
|
|
Diluted
|
$
|
(0.05
|
)
|
|
$
|
0.69
|
|
Weighted average number of common shares outstanding:
|
|
|
|
Basic
|
34,022
|
|
|
31,556
|
|
Diluted
|
34,022
|
|
|
34,125
|
|
Telcare, Inc.
On December 1, 2016, the Company, through its wholly owned subsidiary BioTelemetry Care Management, LLC, entered into the Agreement with Telcare pursuant to which the Company acquired the stock of Telcare Medical Supply, Inc. and certain assets of Telcare Inc. The total consideration paid at closing amounted to
$7.0 million
in cash, with the potential for a performance-based earn out up to
$5.0 million
upon reaching certain revenue milestones. The fair value of the total consideration transferred in the acquisition, including the fair value of the contingent consideration, was
$9.7 million
at the acquisition date.
The acquisition of Telcare provides us the opportunity to apply our expertise in remote monitoring to the diabetes market and increases our presence in the digital population health management market. We accounted for the transaction as a business combination, and as such, all assets acquired and liabilities assumed were recorded at their estimated fair values. The excess of the fair value of the purchase price over the fair value of the net assets acquired has been recognized as goodwill, which represents the expected future benefits arising from the assembled workforce and other synergies attributable to cost savings opportunities. We recognized
$2.2 million
of goodwill as a result of the acquisition, all of which has been assigned to the Technology segment. We expect
$0.3 million
of this goodwill will be deductible for tax purposes.
The amounts below represent our final fair value estimates, which were completed in the fourth quarter ending
December 31, 2017
. Measurement period adjustments reducing the valuation of inventory of
$0.3 million
and
$0.1 million
were recorded in the second and third quarters of 2017, respectively, and a
$1.5 million
adjustment, increasing deferred tax assets and reducing deferred revenue, prior to completing our valuation during the fourth quarter of 2017.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The total consideration and related allocation for Telcare is summarized as follows:
|
|
|
|
|
|
|
(in thousands, except lives)
|
Amount
|
|
Weighted
Average Life
(Years)
|
Fair value of assets acquired:
|
|
|
|
Other accounts receivable
|
$
|
235
|
|
|
|
Inventory
|
1,417
|
|
|
|
Prepaid expenses and other current assets
|
1,261
|
|
|
|
Property and equipment
|
55
|
|
|
|
Other assets
|
933
|
|
|
|
Deferred tax assets
|
1,463
|
|
|
|
Identifiable intangible assets:
|
|
|
|
Customer relationships
|
400
|
|
|
5
|
Technology
|
2,000
|
|
|
5
|
Tradename
|
400
|
|
|
Indefinite
|
Total identifiable intangible assets
|
2,800
|
|
|
|
Total assets acquired
|
8,164
|
|
|
|
Fair value of liabilities assumed:
|
|
|
|
Accounts payable
|
459
|
|
|
|
Accrued liabilities
|
206
|
|
|
|
Total liabilities assumed
|
665
|
|
|
|
Total identifiable net assets
|
7,499
|
|
|
|
Goodwill
|
2,201
|
|
|
|
Net assets acquired
|
$
|
9,700
|
|
|
|
The acquisition has been included within the consolidated results of operations and financial condition from the date of the acquisition.
The following unaudited pro forma financial information has been prepared using historical financial results of BioTelemetry and Telcare as if the acquisition had occurred as of January 1, 2015. Certain adjustments related to the elimination of transaction costs, as well as the addition of depreciation and amortization related to fair value adjustments on the tangible and identifiable intangible assets acquired, have been reflected for the purposes of the unaudited pro forma financial information presented below. We believe the assumptions used in preparing the unaudited pro forma financial information are reasonable, but not necessarily indicative of actual results should the acquisition have occurred on January 1, 2015.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Pro forma financial information for the periods presented is summarized as follows:
|
|
|
|
|
|
|
|
|
|
(pro forma, unaudited, in thousands, except per share amounts)
|
Year Ended December 31,
2016
|
|
Year Ended December 31,
2015
|
Revenue
|
$
|
212,538
|
|
|
$
|
182,755
|
|
Net income
|
50,693
|
|
|
948
|
|
Net income per common share:
|
|
|
|
Basic
|
$
|
1.82
|
|
|
$
|
0.03
|
|
Diluted
|
$
|
1.66
|
|
|
$
|
0.03
|
|
The Agreement includes the potential for a performance-based earn out up to
$5.0 million
upon reaching certain milestones. The fair value of the contingent consideration associated with the Telcare acquisition was
$2.7 million
as of the acquisition date and was included as a component of other liabilities in the accompanying consolidated balance sheets. For further details regarding contingent consideration, refer to “
Note 5. Fair Value Measurements”
below.
VirtualScopics, Inc
.
On March 25, 2016, the Company, through its wholly owned subsidiary BioTelemetry Research Acquisition Corporation, entered into a definitive Agreement and Plan of Merger (“Merger Agreement”) with VirtualScopics, Inc. (“VirtualScopics”), a leading provider of clinical trial imaging solutions. Under the terms of the Merger Agreement, we purchased: (i) any and all outstanding shares of VirtualScopics’
$0.001
par value common stock for
$4.05
per share; (ii) any and all outstanding shares of VirtualScopics’
$0.001
par value Series A and Series B Convertible Preferred Stock for
$336.30
per share; and (iii) any and all outstanding shares of VirtualScopics’
$0.001
par value Series C-1 Convertible Preferred Stock for
$920.00
per share. The all cash acquisition of VirtualScopics was completed on May 11, 2016. The total consideration paid at closing amounted to
$15.0 million
, net of cash acquired of
$0.8 million
.
The acquisition of VirtualScopics expands our existing clinical research offerings and gives us further access to established customer relationships. We accounted for the transaction as a business combination, and as such, all assets acquired and liabilities assumed were recorded at their estimated fair values. The excess of the consideration paid over the fair value of the net assets acquired has been recognized as goodwill, which represents the expected future benefits arising from the assembled workforce and other synergies attributable to cost savings opportunities. We recognized
$4.3 million
of goodwill as a result of the acquisition, all of which has been assigned to the Research segment.
None
of this goodwill will be deductible for tax purposes.
The amounts below represent our final fair value estimates, which were completed in the second quarter of 2017. Measurement period adjustments were recorded in the fourth quarter of 2016 related to the recognition of a
$0.3 million
deferred tax liability, and in the second quarter of 2017 primarily to recognize
$0.3 million
of deferred tax assets resulting from state net operating losses.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The total consideration and related allocation for VirtualScopics is summarized as follows:
|
|
|
|
|
|
|
(in thousands, except lives)
|
Amount
|
|
Weighted
Average Life
(Years)
|
Fair value of assets acquired:
|
|
|
|
Cash and cash equivalents
|
$
|
849
|
|
|
|
Other accounts receivable
|
3,679
|
|
|
|
Inventory
|
111
|
|
|
|
Prepaid expenses and other current assets
|
396
|
|
|
|
Property and equipment
|
500
|
|
|
|
Deferred taxes
|
20
|
|
|
|
Identifiable intangible assets:
|
|
|
|
Customer relationships
|
5,200
|
|
|
12
|
Technology
|
2,000
|
|
|
10
|
Backlog
|
3,100
|
|
|
4
|
Total identifiable intangible assets
|
10,300
|
|
|
|
Total assets acquired
|
15,855
|
|
|
|
Fair value of liabilities assumed:
|
|
|
|
Accounts payable
|
325
|
|
|
|
Accrued liabilities
|
2,945
|
|
|
|
Current portion of capital lease obligations
|
59
|
|
|
|
Current portion of long-term debt
|
91
|
|
|
|
Deferred revenue
|
700
|
|
|
|
Long-term capital lease obligations
|
162
|
|
|
|
Long-term debt
|
97
|
|
|
|
Total liabilities assumed
|
4,379
|
|
|
|
Total identifiable net assets
|
11,476
|
|
|
|
Goodwill
|
4,343
|
|
|
|
Net assets acquired
|
$
|
15,819
|
|
|
|
The acquisition has been included within the consolidated results of operations and financial condition from the date of the acquisition. For the period from May 11, 2016 to December 31, 2016, VirtualScopics contributed revenue of approximately
$12.3 million
and net income of approximately
$1.4 million
to our consolidated results of operations.
The following unaudited pro forma financial information has been prepared using historical financial results of BioTelemetry and VirtualScopics as if the acquisition had occurred as of January 1, 2015. Certain adjustments related to the elimination of transaction costs and acquisition-related indebtedness, as well as the addition of depreciation and amortization related to fair value adjustments on the tangible and identifiable intangible assets acquired, have been reflected for the purposes of the unaudited pro forma financial information presented below. No adjustments for synergies or certain other expected benefits of the acquisition have been included. We believe the assumptions used in preparing the unaudited pro forma
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
financial information are reasonable, but not necessarily indicative of actual results should the acquisition have occurred on January 1, 2015.
Pro forma financial information for the periods presented is summarized as follows:
|
|
|
|
|
|
|
|
|
(pro forma, unaudited, in thousands, except per share amounts)
|
Year Ended December 31,
2016
|
|
Year Ended December 31,
2015
|
Revenue
|
$
|
214,271
|
|
|
$
|
191,230
|
|
Net income
|
55,413
|
|
|
7,232
|
|
Net income per common share:
|
|
|
|
Basic
|
$
|
1.98
|
|
|
$
|
0.27
|
|
Diluted
|
$
|
1.82
|
|
|
$
|
0.25
|
|
ePatch Division of DELTA Danish Electronics, Light, and Acoustics
On April 1, 2016, we, through our wholly owned subsidiary BioTelemetry Technology ApS, entered into an Asset Purchase Agreement (“APA”) with DELTA, pursuant to which we acquired substantially all of the assets of the ePatch division of DELTA, inclusive of all products and indications currently under development. The total consideration paid at closing amounted to
$3.0 million
in cash and
244,519
shares of our common stock valued at
$2.9 million
. In addition, there is the potential for a performance-based earn out up to
$3.0 million
upon reaching certain regulatory and revenue milestones, as defined in the APA. The fair value of the total consideration transferred in the ePatch acquisition, including the fair value of the contingent consideration, was
$6.5 million
at the acquisition date.
The ePatch acquisition is expected to generate future cost savings for us and will provide control over proprietary components for our next generation MCT device. We accounted for the transaction as a business combination, and as such, all assets acquired and liabilities assumed were recorded at their estimated fair values. The excess of the 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 recognized
$3.2 million
of goodwill as a result of the acquisition, all of which has been assigned to the Technology segment, and we expect all of this goodwill to be deductible for tax purposes.
The amounts below represent our final fair value estimates, which we completed in the first quarter of 2017. During the fourth quarter of 2016, we reduced the allocation to the technology intangible asset by
$0.2 million
as a result of additional information obtained during the measurement period.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The total consideration and related allocation for the ePatch acquisition is summarized as follows:
|
|
|
|
|
|
|
(in thousands, except lives)
|
Amount
|
|
Weighted
Average Life
(Years)
|
Fair value of assets acquired:
|
|
|
|
Inventory
|
$
|
100
|
|
|
|
Property and equipment
|
175
|
|
|
|
Identifiable intangible assets:
|
|
|
|
Customer relationships
|
400
|
|
|
10
|
Technology
|
2,800
|
|
|
10
|
Trade names
|
100
|
|
|
Indefinite
|
Total identifiable intangible assets
|
3,300
|
|
|
|
Total assets acquired
|
3,575
|
|
|
|
Fair value of liabilities assumed:
|
|
|
|
Accrued liabilities
|
266
|
|
|
|
Total liabilities assumed
|
266
|
|
|
|
Total identifiable net assets
|
3,309
|
|
|
|
Goodwill
|
3,181
|
|
|
|
Net assets acquired
|
$
|
6,490
|
|
|
|
While the ePatch acquisition provides control over proprietary components of our next generation cardiac monitoring device, the acquisition did not have a material effect on our consolidated results of operations.
The APA includes the potential for a performance-based earn out up to
$3.0 million
upon reaching certain regulatory and revenue milestones. The fair value of the contingent consideration associated with the ePatch acquisition was
$0.6 million
as of the acquisition date and was included as a component of other liabilities in the accompanying consolidated balance sheets. For further details regarding contingent consideration, refer to
“Note 5. Fair Value Measurements”
below.
4. Inventory
Inventory consists of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In thousands)
|
2017
|
|
2016
|
Raw materials and supplies
|
$
|
3,128
|
|
|
$
|
2,866
|
|
Finished goods
|
2,204
|
|
|
2,310
|
|
Total inventory
|
$
|
5,332
|
|
|
$
|
5,176
|
|
Inventory, which includes purchased parts, materials, direct labor and applied manufacturing overhead, is stated at the lower of cost or net realizable value, with cost determined by use of the first-in, first-out method.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Fair Value Measurements
The fair value of our liabilities measured at fair value on a recurring basis is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Balance at December 31,
2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Liabilities
|
|
|
|
|
|
|
|
Contingent consideration
|
$
|
700
|
|
|
—
|
|
|
—
|
|
|
$
|
700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Balance at December 31,
2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Liabilities
|
|
|
|
|
|
|
|
Contingent consideration
|
$
|
3,305
|
|
|
—
|
|
|
—
|
|
|
$
|
3,305
|
|
We have determined that our long term debt, classified as Level 2, has a fair value consistent with its carry value, exclusive of debt discount and deferred charges, of
$199.4 million
and
$25.2 million
as of
December 31, 2017
and
2016
, respectively.
Contingent consideration represents our contingent milestone payment obligations related to our acquisitions and is measured at fair value, based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The valuation of 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 balances of the fair value of contingent consideration are recognized within other long-term liabilities on our consolidated balance sheets. Adjustments to contingent consideration are recorded in other charges in the consolidated statements of operations and comprehensive income/(loss).
The following table provides a reconciliation of the beginning and ending balances of contingent payments associated with acquisitions during the years ended
December 31, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
Year ended
|
(in thousands)
|
December 31,
2017
|
|
December 31,
2016
|
Beginning balance
|
$
|
3,305
|
|
|
$
|
—
|
|
Purchase price contingent consideration
|
—
|
|
|
3,305
|
|
Changes in fair value of contingent consideration
|
(2,605
|
)
|
|
—
|
|
Ending balance
|
$
|
700
|
|
|
$
|
3,305
|
|
During the year ended
December 31, 2017
, the fair value of the contingent consideration related to the ePatch acquisition decreased
$0.6 million
as it is no longer probable that any of the contingencies will be met. Additionally during the year, the fair value of the contingent consideration related to the Telcare acquisition was reduced by
$2.0 million
as a result of reducing the probability of attaining all the revenue contingencies.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Property and Equipment
Property and equipment consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
Useful Life
(Years)
|
|
December 31,
|
(In thousands, except years)
|
|
2017
|
|
2016
|
Cardiac monitoring devices, device parts and components
|
3 - 5
|
|
$
|
76,039
|
|
|
$
|
55,825
|
|
Computers and purchased software
|
3 - 5
|
|
22,357
|
|
|
18,027
|
|
Equipment, tools and molds
|
3 - 5
|
|
7,857
|
|
|
6,666
|
|
Furniture, fixtures and other
|
5 - 7
|
|
2,104
|
|
|
1,467
|
|
Leasehold improvements
|
*
|
|
5,434
|
|
|
3,171
|
|
Capital leases
|
3 - 7
|
|
7,305
|
|
|
737
|
|
Total property and equipment, at cost
|
|
|
121,096
|
|
|
85,893
|
|
Less accumulated depreciation
|
|
|
(71,902
|
)
|
|
(60,070
|
)
|
Total property and equipment, net
|
|
|
$
|
49,194
|
|
|
$
|
25,823
|
|
* shorter of useful life or term of lease
|
|
|
|
|
|
Depreciation expense associated with property and equipment, inclusive of amortization of assets recorded under capital leases, was
$18.3 million
,
$10.5 million
and
$9.0 million
, for the years ended
December 31, 2017
,
2016
and
2015
, respectively.
During the year ended
December 31, 2017
, considering the LifeWatch integration and forward-looking integration plans, we determined that certain software ceased being used and was no longer going to be used and was therefore impaired, resulting in
$1.1 million
of impairment charges included within the Corporate and Other segment as a component of other costs within the other charges line in our consolidated statements of operations and comprehensive income/(loss). There were
no
fixed asset impairments for the year ended
December 31, 2016
.
7. 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 years ended
December 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reporting Segment
|
(in thousands)
|
Healthcare
|
|
Research
|
|
Technology
|
|
Total
|
Balance at December 31, 2015
|
$
|
14,724
|
|
|
$
|
11,950
|
|
|
$
|
3,157
|
|
|
$
|
29,831
|
|
Initial goodwill acquired
|
—
|
|
|
4,633
|
|
|
6,171
|
|
|
10,804
|
|
Measurement period adjustments
|
—
|
|
|
60
|
|
|
373
|
|
|
433
|
|
Balance at December 31, 2016
|
14,724
|
|
|
16,643
|
|
|
9,701
|
|
|
41,068
|
|
Initial goodwill acquired
|
186,456
|
|
|
—
|
|
|
—
|
|
|
186,456
|
|
Measurement period adjustments
|
(2,907
|
)
|
|
(350
|
)
|
|
(1,162
|
)
|
|
(4,419
|
)
|
Balance at December 31, 2017
|
$
|
198,273
|
|
|
$
|
16,293
|
|
|
$
|
8,539
|
|
|
$
|
223,105
|
|
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The goodwill acquired in the Healthcare segment is due to the LifeWatch acquisition; Research relates to the VirtualScopics acquisition; Technology represents our ePatch and Telcare acquisitions. Refer to
“Note 3. Acquisitions”
above for details related to the measurement period adjustments.
At
December 31, 2017
,
2016
and
2015
, we performed our required annual impairment test of goodwill. Based on these impairment tests, we determined that there was
no
goodwill impairment. The carrying amount of our goodwill as of
December 31, 2017
and
2016
was
$223.1 million
and
$41.1 million
, respectively.
The gross carrying amounts and accumulated amortization of our intangible assets as of
December 31, 2017
and
2016
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
Useful Life
(Years)
|
|
December 31,
|
(In thousands, except years)
|
|
2017
|
|
2016
|
Customer relationships
|
5 - 15
|
|
$
|
143,174
|
|
|
$
|
16,700
|
|
Technology including internally developed software
|
3 - 10
|
|
15,953
|
|
|
21,135
|
|
Backlog
|
1 - 4
|
|
6,860
|
|
|
6,860
|
|
Covenants not to compete
|
5 - 7
|
|
1,040
|
|
|
1,040
|
|
Total intangible assets, gross
|
|
|
167,027
|
|
|
45,735
|
|
Customer relationships
|
|
|
(10,868
|
)
|
|
(3,809
|
)
|
Technology including internally developed software
|
|
|
(8,573
|
)
|
|
(6,588
|
)
|
Backlog
|
|
|
(5,052
|
)
|
|
(4,176
|
)
|
Covenants not to compete
|
|
|
(827
|
)
|
|
(690
|
)
|
Total accumulated amortization
|
|
|
(25,320
|
)
|
|
(15,263
|
)
|
Indefinite-lived trade names
|
|
|
—
|
|
|
3,000
|
|
Total intangible assets, net
|
|
|
$
|
141,707
|
|
|
$
|
33,472
|
|
During our intangible asset impairment testing for the year ended
December 31, 2017
, considering the LifeWatch integration and forward-looking integration plans, we determined that certain trade names and internally developed software costs ceased being used and were no longer going to be used and were therefore impaired, resulting in
$11.0 million
of intangible asset impairment charges included within the Corporate and Other segment as a component of other costs within the other charges line in our consolidated statements of operations and comprehensive income/(loss). There were
no
other intangible asset impairments for the year ended
December 31, 2017
.
At
December 31, 2016
and
2015
, we performed our required annual impairment test of indefinite-lived intangible assets. Based on these impairment tests, we determined that there was
no
impairment.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The estimated amortization expense for finite-lived intangible assets for the next five years and thereafter is summarized as follows at
December 31, 2017
:
|
|
|
|
|
|
(in thousands)
|
|
Fiscal Year
|
|
2018
|
$
|
16,718
|
|
2019
|
16,231
|
|
2020
|
15,420
|
|
2021
|
14,687
|
|
2022
|
14,238
|
|
Thereafter
|
64,413
|
|
Total estimated amortization
|
$
|
141,707
|
|
Amortization expense for the years ended
December 31, 2017
,
2016
and
2015
was
$10.2 million
,
$3.7 million
and
$3.5 million
, respectively. The 2017 amortization expense excludes impairment charges of
$3.0 million
related to indefinite-lived trade names and
$8.0 million
related to developed technology and customer relationships. See
“Note. 12 Other Charges”
below.
8. Equity Method Investment
In December 2015, we acquired an ownership interest in Well Bridge Health, Inc. (“WellBridge”) through the conversion of an outstanding note receivable and the related accrued interest. The investment is accounted for under the equity method. In December 2015, the equity method basis difference of
$0.9 million
was allocated to equity method goodwill. Our Chief Executive Officer sits on Wellbridge’s Board of Directors, and therefore WellBridge is considered a related party. Except for our continued investment in WellBridge through capital contributions, there were no related party transactions.
As of
December 31, 2017
, our investment in WellBridge represented
32.1%
of its outstanding stock. A summary of our investment in Wellbridge is as follows:
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(in thousands)
|
2017
|
|
2016
|
Beginning balance
|
$
|
1,125
|
|
|
$
|
1,100
|
|
Capital contributions
|
690
|
|
|
312
|
|
Loss in equity method investment
|
(384
|
)
|
|
(287
|
)
|
Ending balance
|
$
|
1,431
|
|
|
$
|
1,125
|
|
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Accrued Liabilities
Accrued liabilities consists of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
2017
|
|
2016
|
Accrued compensation
|
$
|
13,086
|
|
|
$
|
7,831
|
|
Accrued professional fees
|
1,587
|
|
|
2,841
|
|
Accrued squeeze-out
|
2,885
|
|
|
—
|
|
Accrued restructuring
|
1,605
|
|
|
—
|
|
Accrued non-income taxes
|
588
|
|
|
250
|
|
Accrued interest
|
306
|
|
|
330
|
|
Other
|
7,300
|
|
|
2,446
|
|
Total
|
$
|
27,357
|
|
|
$
|
13,698
|
|
10. Credit Agreement
Credit Agreements
Concurrent with the acquisition of LifeWatch, as discussed in
“Note 3. Acquisitions”
above, we entered into a credit agreement with SunTrust Bank, as a lender and an agent for the lenders (the “Lenders”) (together, the “SunTrust Credit Agreement”). Pursuant to the credit agreement, the Lenders agreed to make loans to the Company as follows; (i) a term loan in an aggregate principal amount equal to
$205.0 million
; and (ii) a
$50.0 million
revolving credit facility for ongoing working capital purposes. The proceeds of the loans were used to pay our existing GE Credit Agreement of
$24.9 million
and acquired LifeWatch debt of
$3.0 million
, pay a portion of the consideration for the acquisition of LifeWatch and pay related transaction fees and expenses of the acquisition of LifeWatch.
The loans bear interest at an annual rate, at the election of the Company, of (i) with respect to LIBOR rate loans,
LIBOR
plus the applicable margin and (ii) with respect to base rate loans, the Base Rate (the “
prime
rate” as published in the Wall Street Journal plus the applicable margin). The applicable margin for both LIBOR and Base Rate loans is determined by reference to the Company’s Consolidated Total Net Leverage Ratio, as defined in the credit agreement. As of
December 31, 2017
, the applicable margin is
2.00%
for LIBOR loans and
1.00%
for base rate loans.
The outstanding principal of the loan will be paid as follows:
|
|
•
|
Beginning January 1, 2018, the principal amount of the term loan will be repaid, on a quarterly basis, in installments of approximately
$0.5 million
, plus accrued interest;
|
|
|
•
|
Beginning January 1, 2019, the principal amount of the term loan will be repaid, on a quarterly basis, in installments of approximately
$1.3 million
, plus accrued interest;
|
|
|
•
|
B
eginning January 1, 2020, the principal amount of the term loan will be repaid, on a quarterly basis, in installments of approximately
$3.8 million
, plus accrued interest;
|
|
|
•
|
Beginning January 1, 2021, the principal amount of the term loan will be repaid, on a quarterly basis, in installments of approximately
$5.1 million
, plus accrued interest;
|
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
•
|
The remaining principal balance will be repaid on or before July 12, 2022 (or such earlier date upon an acceleration of the loans by Lenders upon an event of default or termination by the Company).
|
The loans are secured by substantially all of the assets of the Company and by a pledge of the capital stock of the Company’s U.S. based subsidiaries as well as a pledge of
65%
of the capital stock of its first tier material foreign subsidiaries, including
65%
of the capital stock the Company owns of LifeWatch.
The carrying amount of the term loan was
$199.4 million
as of
December 31, 2017
, which is the principal amount outstanding, net of
$5.6 million
of unamortized deferred financing costs to be amortized over the remaining term of the credit facility. The revolving credit facility is subject to an unused commitment fee, which is determined by reference to the our Consolidated Total Net Leverage Ratio, as defined in the credit agreement. Our unused commitment fee as of
December 31, 2017
was
0.3%
and the revolving credit facility remains undrawn as of that date.
On December 30, 2014, we entered into a Credit Agreement with Healthcare Financial Solutions, LLC, (“HFS”), previously The General Electric Capital Corporation (“GE Capital”), as agent for the lenders (“Lenders”), and as a lender and swingline lender (the “General Electric Credit Agreement”). Pursuant to the General Electric Credit Agreement, the Lenders agreed to make loans to us as follows: (i) Term Loans in an amount of
$25.0 million
as of the closing date with an uncommitted ability to increase such Term Loans up to an amount not to exceed
$10.0 million
and (ii) Revolving Loans up to
$15.0 million
. As of
December 31, 2016
,
$3.0 million
was drawn on the Revolving Loans. The loan, inclusive of Term Loans and Revolving Loans, was recorded on our consolidated balance sheet as of
December 31, 2016
in the amount of
$25.2 million
, which is net of a debt discount and deferred charges of
$0.7 million
.
The loans bore interest at an annual rate of
LIBOR
plus
4.0%
, subject to a LIBOR floor of
1.0%
. The outstanding principal of the Term Loans was to be paid as follows:
|
|
•
|
beginning April 1, 2015, the principal amount of the Term Loans were repaid, on a quarterly basis, in installments of
$0.3 million
, plus accrued interest;
|
The loan was secured by substantially all of our assets and by a pledge of the capital stock of our U.S. based subsidiaries as well as a pledge of
65%
of the capital stock of our foreign subsidiaries. As noted above, this agreement was paid off with the proceeds of the SunTrust Credit Agreement in 2017.
Covenants
The SunTrust Credit Agreement contains affirmative and financial covenants regarding the operations of our business and certain negative covenants that, among other things, limit our ability to incur additional indebtedness, grant certain liens, make certain investments, merge or consolidate, make certain restricted payments and engage in certain asset dispositions, including a sale of all, or substantially all, of our property. As of
December 31, 2017
, we were in compliance with our covenants.
Debt Extinguishment
In connection with the SunTrust Credit Agreement, we paid the
$24.9 million
outstanding indebtedness under the Credit Agreement between the Company and Healthcare Financial Solutions, LLC, previously the General Electric Capital Corporation, as agent for the lenders, and as a lender, and we terminated the General Electric Credit Agreement. We wrote‑off the unamortized deferred financing fees
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
related to the existing debt of
$0.5 million
, which is included in loss on extinguishment of debt in our consolidated statements of operations and comprehensive income/(loss).
11. Leases
We lease our principal administrative and service facilities as well as office equipment under non-cancelable operating leases expiring at various dates through 2028. The terms of the leases are renewable at the end of the lease term. Payments made under operating leases are charged to operations on a straight-line basis over the period of the lease. Differences between straight-line expense and cash payments are recorded as deferred rent. Rent expense was
$5.8 million
,
$4.2 million
and
$3.8 million
for the years ended
December 31, 2017
,
2016
and
2015
, respectively.
We have entered into and acquired capital leases with various expiration dates through 2020 which were used to finance equipment, furniture and monitoring devices.
Future minimum lease payments under non-cancelable operating and capital leases are summarized as follows at
December 31, 2017
:
|
|
|
|
|
|
|
|
|
(in thousands)
|
Operating
Leases
|
|
Capital
Leases
|
2018
|
$
|
5,871
|
|
|
$
|
4,023
|
|
2019
|
4,240
|
|
|
1,358
|
|
2020
|
3,768
|
|
|
128
|
|
2021
|
2,535
|
|
|
—
|
|
2022
|
1,726
|
|
|
—
|
|
Thereafter
|
5,515
|
|
|
—
|
|
Total minimum lease payments
|
$
|
23,655
|
|
|
$
|
5,509
|
|
12. Other Charges
We account for expenses associated with exit or disposal activities in accordance with ASC 420,
Exit or Disposal Cost Obligations,
and record the expenses in other charges in our consolidated statements of operations and comprehensive income/(loss), and record the related accrual in the accrued expenses line of our consolidated balance sheets.
We account for expenses associated with our acquisitions and certain litigation as other charges as incurred. These expenses were primarily a result of legal fees related to patent litigation in which we are the plaintiff and activities surrounding our acquisitions. Other charges are costs that are not considered necessary to the ongoing business operations. A summary of these expenses is as follows:
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(in thousands)
|
2017
|
|
2016
|
|
2015
|
Asset impairment charges
|
$
|
12,045
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Legal fees
|
8,689
|
|
|
7,177
|
|
|
5,764
|
|
Professional fees
|
5,614
|
|
|
719
|
|
|
50
|
|
Severance and employee related costs
|
4,747
|
|
|
645
|
|
|
249
|
|
Change in fair value of contingent consideration
|
(2,605
|
)
|
|
—
|
|
|
—
|
|
Other costs
|
2,946
|
|
|
98
|
|
|
—
|
|
Total
|
$
|
31,436
|
|
|
$
|
8,639
|
|
|
$
|
6,063
|
|
During the year ended
December 31, 2017
, in conjunction with the LifeWatch integration and forward-looking integration plans, we determined that certain trade names and software costs ceased being used and were no longer going to be used and were therefore impaired. We recognized impairment charges within the Corporate and Other segment of
$1.1 million
related to purchased software,
$3.0 million
related to indefinite-lived trade names and
$8.0 million
related to certain developed technology and customer relationships. Professional fees, severance and employee related costs increased primarily due to integration activities related to the LifeWatch acquisition. The change in fair value of contingent consideration is partially the result of the contingent consideration related to the ePatch acquisition being written off as it is no longer probable that any of the contingencies will be met. Additionally during the year, the fair value of the contingent consideration related to the Telcare acquisition was reduced as a result of reducing the probability of attaining all the revenue contingencies.
13. Equity
Common Stock
As of
December 31, 2017
and
2016
, we were authorized to issue
200,000,000
shares of common stock. As of
December 31, 2017
and
2016
, we had
32,460,668
and
28,261,503
shares issued and outstanding, respectively. Subsequent to
December 31, 2017
, in accordance with the squeeze-out procedures under Swiss Law, we issued
58,786
shares to the remaining stockholders of LifeWatch. See
“Note 3. Acquisitions”
above for further details related to the LifeWatch acquisition.
Preferred Stock
As of
December 31, 2017
, we were authorized to issue
10,000,000
shares of preferred stock. As of
December 31, 2016
, we maintained an unregistered blank check preferred stock class, and
no
shares were authorized. As of
December 31, 2017
and
2016
, there were
no
shares of preferred stock issued or outstanding.
Noncontrolling Interest
As of
December 31, 2017
, the noncontrolling interest of
$1.1 million
on our consolidated balance sheet represents our partner’s share of the accumulated deficit recorded within LifeWatch Turkey. See
“Note 1. Summary of Significant Accounting Policies; l) Noncontrolling Interests”
above for further details.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
14. 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”). The OIP is the only remaining stock plan actively granting new stock options or units. The purpose of these stock plans was, and the OIP is, to grant incentive stock options to employees and non-qualified stock options, RSUs, performance stock and other stock-based incentive awards to officers, directors, employees and consultants. The Plans are administered by our Board of Directors (the “Board”) or its delegates. The number, type, exercise price, and vesting terms of awards are determined by the Board or its delegates in accordance with the terms of the Plans. The 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 over
three years
.
2017 Omnibus Incentive Plan
In May 2017, the stockholders and Board approved the OIP, which replaces the 2008 Plan. Stock options, RSUs, PSUs and PSOs are granted under the OIP. At
December 31, 2017
,
2,753,252
shares remain available for grant under the OIP.
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 options under the 2003 Plan also automatically roll into the 2008 Plan. Beginning on January 1, 2009, and each year thereafter, the number of options available to be granted under the plan increased by the lesser of
4%
of the total number of common shares outstanding or
1,500,000
shares. The 2008 Plan had
2,637,019
shares available for grant as of
December 31, 2016
; there are no shares available to grant under the 2008 Plan subsequent to the approval of the OIP.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Stock option activity is summarized for the years ended
December 31, 2017
,
2016
and
2015
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
Performance Stock Options
|
|
Number of
Shares
|
|
Weighted
Average
Exercise Price
|
|
Number of
Shares
|
|
Weighted
Average
Exercise Price
|
Outstanding as of December 31, 2014
|
3,250,852
|
|
|
$
|
6.40
|
|
|
—
|
|
|
—
|
|
Granted
|
427,786
|
|
|
10.39
|
|
|
200,000
|
|
|
$
|
19.89
|
|
Forfeited
|
(181,777
|
)
|
|
11.32
|
|
|
—
|
|
|
—
|
|
Exercised
|
(76,342
|
)
|
|
3.82
|
|
|
—
|
|
|
—
|
|
Outstanding as of December 31, 2015
|
3,420,519
|
|
|
$
|
6.69
|
|
|
200,000
|
|
|
$
|
19.89
|
|
Granted
|
519,770
|
|
|
13.44
|
|
|
—
|
|
|
—
|
|
Forfeited
|
(49,709
|
)
|
|
9.97
|
|
|
—
|
|
|
—
|
|
Exercised
|
(322,146
|
)
|
|
4.56
|
|
|
—
|
|
|
—
|
|
Outstanding as of December 31, 2016
|
3,568,434
|
|
|
$
|
7.82
|
|
|
200,000
|
|
|
$
|
19.89
|
|
Granted
|
543,881
|
|
|
31.12
|
|
|
—
|
|
|
—
|
|
Forfeited
|
(154,510
|
)
|
|
16.22
|
|
|
—
|
|
|
—
|
|
Exercised
|
(383,366
|
)
|
|
9.91
|
|
|
(50,000
|
)
|
|
18.33
|
|
Outstanding as of December 31, 2017
|
3,574,439
|
|
|
$
|
10.78
|
|
|
150,000
|
|
|
$
|
20.41
|
|
The PSOs met their performance criteria, vested, and were priced as follows:
|
|
|
|
|
|
|
|
|
Performance Achievement Date
|
|
Number of
Shares
|
|
Weighted
Average
Exercise Price
|
October 4, 2016
|
|
100,000
|
|
|
$
|
18.33
|
|
January 13, 2017
|
|
100,000
|
|
|
$
|
21.45
|
|
A summary of total outstanding stock options as of
December 31, 2017
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
Range of Exercise Prices
|
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life (in Years)
|
|
Weighted
Average
Exercise Price
|
|
Number
Exercisable
|
|
Weighted
Average
Remaining
Contractual
Life (in Years)
|
|
Weighted
Average
Exercise Price
|
$1.93 - $6.50
|
1,296,231
|
|
|
4.2
|
|
$
|
3.17
|
|
|
1,296,231
|
|
|
4.2
|
|
$
|
3.17
|
|
$6.51 - $10.00
|
1,136,472
|
|
|
4.8
|
|
7.88
|
|
|
952,756
|
|
|
4.3
|
|
7.62
|
|
$10.01 - $20.00
|
606,190
|
|
|
6.5
|
|
14.02
|
|
|
407,990
|
|
|
5.8
|
|
13.79
|
|
$20.01 - $30.00
|
375,546
|
|
|
8.2
|
|
23.57
|
|
|
174,068
|
|
|
7.0
|
|
21.93
|
|
$30.01 - $37.15
|
310,000
|
|
|
9.2
|
|
36.10
|
|
|
15,000
|
|
|
0.6
|
|
30.98
|
|
$1.93 - $37.15
|
3,724,439
|
|
|
5.6
|
|
$
|
11.17
|
|
|
2,846,045
|
|
|
4.6
|
|
$
|
7.48
|
|
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The table below summarizes certain additional information with respect to our options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands, except per share amounts)
|
|
2017
|
|
2016
|
|
2015
|
Aggregate intrinsic value of options outstanding at year-end
|
$
|
71,680
|
|
|
$
|
52,671
|
|
|
$
|
19,436
|
|
Aggregate intrinsic value of options exercisable at year-end
|
63,834
|
|
|
43,750
|
|
|
16,124
|
|
Aggregate intrinsic value of options exercised during the year
|
7,562
|
|
|
3,546
|
|
|
662
|
|
Cash received from the exercise of stock options
|
4,714
|
|
|
1,470
|
|
|
291
|
|
Weighted average grant date fair value per option
|
$
|
18.05
|
|
|
$
|
9.47
|
|
|
$
|
6.58
|
|
The total compensation cost of options granted but not yet vested at
December 31, 2017
was
$11.0 million
, which is expected to be recognized over a weighted average period of approximately
three
years.
The fair value of stock options was estimated at the date of grant using the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Expected volatility
|
59.2
|
%
|
|
64.4
|
%
|
|
66.5
|
%
|
Expected term (in years)
|
7.3
|
|
|
8.0
|
|
|
6.7
|
|
Weighted average risk-free interest rate
|
2.08
|
%
|
|
1.61
|
%
|
|
1.68
|
%
|
Expected dividends
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
RSU activity is summarized for the years ended
December 31, 2017
,
2016
and
2015
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units
|
|
Performance Stock Units
|
|
Number
of Shares
|
|
Weighted Average
Grant Date Fair
Value
|
|
Number
of Shares
|
|
Weighted Average
Grant Date Fair
Value
|
Units outstanding as of December 31, 2014
|
864,634
|
|
|
$
|
4.23
|
|
|
284,423
|
|
|
$
|
8.68
|
|
Granted
|
328,060
|
|
|
9.70
|
|
|
—
|
|
|
—
|
|
Forfeited
|
(50,642
|
)
|
|
6.90
|
|
|
(18,433
|
)
|
|
8.68
|
|
Vested
|
(451,116
|
)
|
|
3.89
|
|
|
—
|
|
|
—
|
|
Units outstanding as of December 31, 2015
|
690,936
|
|
|
6.85
|
|
|
265,990
|
|
|
8.68
|
|
Granted
|
225,198
|
|
|
11.06
|
|
|
—
|
|
|
—
|
|
Forfeited
|
(11,905
|
)
|
|
9.50
|
|
|
—
|
|
|
—
|
|
Vested
|
(311,880
|
)
|
|
4.08
|
|
|
(132,998
|
)
|
|
8.68
|
|
Units outstanding as of December 31, 2016
|
592,349
|
|
|
9.86
|
|
|
132,992
|
|
|
8.68
|
|
Granted
|
117,614
|
|
|
25.98
|
|
|
—
|
|
|
—
|
|
Forfeited
|
(48,974
|
)
|
|
13.57
|
|
|
(132,992
|
)
|
|
8.68
|
|
Vested
|
(193,860
|
)
|
|
9.31
|
|
|
—
|
|
|
—
|
|
Units outstanding as of December 31, 2017
|
467,129
|
|
|
$
|
13.76
|
|
|
—
|
|
|
$
|
—
|
|
In addition, a summary of total outstanding RSUs as of
December 31, 2017
is as follows:
|
|
|
|
|
Range of Grant Date Fair Value
|
|
RSUs
Outstanding
|
$8.93 - $9.75
|
|
154,335
|
|
$9.76 - $10.36
|
|
184,395
|
|
$10.37 - $33.05
|
|
128,399
|
|
$8.93 - $33.05
|
|
467,129
|
|
Additional information about our RSUs and PSUs is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
|
2017
|
|
2016
|
|
2015
|
Aggregate market value of RSUs vested during the year
|
$
|
4,768
|
|
|
$
|
3,826
|
|
|
$
|
4,460
|
|
Aggregate market value of PSUs vested during the year
|
—
|
|
|
2,093
|
|
|
—
|
|
The total compensation cost of RSUs granted but not yet vested at
December 31, 2017
was
$3.2 million
, which is expected to be recognized over a weighted average period of approximately
one
year.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Employee Stock Purchase Plan
In July 2008, we made available an Employee Stock Purchase Plan (“2008 ESPP”) in which substantially all of our full-time employees became eligible to participate effective March 18, 2008. Under the 2008 ESPP, employees may contribute through payroll deductions up to
15%
of their compensation toward the purchase of our common stock, or
$21,500
, whichever is lower. The price per share is equal to the lower of
85%
of the fair market price on the first day of the offering period, or
85%
of the fair market price on the day of purchase. Proceeds received from the issuance of shares are credited to stockholders’ equity in the period that the shares are issued. In May 2017, the Board of Directors and stockholders approved the BioTelemetry, Inc. 2017 Employee Stock Purchase Plan (“2017 ESPP”), with
500,000
shares reserved for issuance under the 2017 ESPP, which will replace the 2008 ESPP. The contribution limits, price discount and the offering periods remain the same under the 2017 ESPP. In
2017
, an aggregate of
95,215
shares were purchased in accordance with the Plans. Net proceeds from the issuance of shares of common stock under the Plans for the year ended
December 31, 2017
were
$1.4 million
. At
December 31, 2017
,
452,751
shares remain available for purchase under the 2017 ESPP.
Our aggregate stock-based compensation expense is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
2017
|
|
2016
|
|
2015
|
Stock options
|
$
|
3,183
|
|
|
$
|
2,030
|
|
|
$
|
1,782
|
|
Performance stock options
|
1,534
|
|
|
1,297
|
|
|
—
|
|
Restricted stock units
|
2,273
|
|
|
2,211
|
|
|
2,039
|
|
Performance stock units
|
—
|
|
|
444
|
|
|
711
|
|
Employee stock purchase plan
|
690
|
|
|
520
|
|
|
420
|
|
Total stock-based compensation expense
|
$
|
7,680
|
|
|
$
|
6,502
|
|
|
$
|
4,952
|
|
For the years ended
December 31, 2017
, and
2016
, we recognized
$1.5 million
and
$1.7 million
of tax benefit from stock options exercised during the period as a component of our income tax provision/(benefit).
15. Employee Benefit Plan
We sponsor a 401(k) Retirement Savings Plan (the “Plan”) for all eligible employees who meet certain requirements. Participants may contribute, on a pre-tax basis, up to the maximum allowable amount pursuant to Section 401(k) of the Internal Revenue Code (“IRC”). The plan also includes a Roth feature, allowing after-tax contributions, up to the maximum allowable amount pursuant to Section 401(k) of the IRC. We are not required to contribute to the Plan. In January 2014, we adopted an amendment to the Plan that allowed for an employer matching contribution of
100%
of the first
3%
of the employees’ salary, and
50%
of the next
2%
of the employees’ salary. For the years ended
December 31, 2017
,
2016
and
2015
, we contributed
$2.6 million
,
$2.1 million
and
$1.8 million
, respectively. Employer contributions vest immediately. Additionally, we sponsor an immaterial pension plan for five participants in Switzerland.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
16. Income Taxes
The components of our provision for/(benefit from) income taxes are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
(in thousands)
|
2017
|
|
2016
|
|
2015
|
Current:
|
|
|
|
|
|
Federal
|
$
|
273
|
|
|
$
|
321
|
|
|
$
|
173
|
|
State
|
424
|
|
|
153
|
|
|
50
|
|
Total provision for income taxes
|
697
|
|
|
474
|
|
|
223
|
|
Deferred:
|
|
|
|
|
|
Federal
|
6,201
|
|
|
(32,484
|
)
|
|
220
|
|
State
|
(151
|
)
|
|
(5,657
|
)
|
|
25
|
|
Total deferred provision for/(benefit from) income taxes
|
6,050
|
|
|
(38,141
|
)
|
|
245
|
|
Total provision for/(benefit from) income taxes
|
$
|
6,747
|
|
|
$
|
(37,667
|
)
|
|
$
|
468
|
|
Reconciliations between expected income taxes computed at the federal rate of
35%
for each of the years ended
December 31, 2017
,
2016
and
2015
, and the provision for/(benefit from) income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
(in thousands)
|
2017
|
|
2016
|
|
2015
|
Income tax (benefit)/provision at statutory rate
|
$
|
(3,638
|
)
|
|
$
|
5,520
|
|
|
$
|
2,763
|
|
State income tax, net of federal benefit
|
177
|
|
|
259
|
|
|
(239
|
)
|
Research and development
|
—
|
|
|
—
|
|
|
634
|
|
Permanent difference
|
(392
|
)
|
|
—
|
|
|
—
|
|
Deferred tax asset adjustments
|
485
|
|
|
4,336
|
|
|
—
|
|
Tax Reform impact
|
8,048
|
|
|
—
|
|
|
—
|
|
Unrecognized tax benefit
|
—
|
|
|
3,559
|
|
|
—
|
|
Foreign rate differential
|
1,107
|
|
|
—
|
|
|
—
|
|
Other
|
(16
|
)
|
|
289
|
|
|
549
|
|
Increase/(decrease) in valuation allowance
|
976
|
|
|
(51,630
|
)
|
|
(3,239
|
)
|
Provision for/(benefit from) income taxes
|
$
|
6,747
|
|
|
$
|
(37,667
|
)
|
|
$
|
468
|
|
At
December 31, 2017
, we had federal net operating loss carryforwards of approximately
$140.4 million
to offset future federal taxable income expiring in various years starting in
2023
through
2037
. At
December 31, 2017
, we had state net operating loss carryforwards of
$83.5 million
, which expire in various years starting in
2018
through
2037
. We also had
$121.2 million
of foreign net operating loss carryforwards, for which we have recorded a valuation allowance against most of the net operating loss balance and expire in various years starting in
2018
through
2024
.
The timing and manner in which we can utilize our net operating loss carryforwards and future income tax deductions in any year may be limited by provisions of the IRC. Section 382 of the IRC imposes limitations on a corporation’s ability to utilize net operating losses if it experiences an “ownership change.”
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Section 383 of the IRC imposes similar limitations on other tax attributes such as research and development credits. Currently, a portion of our loss carryforwards is limited under Section 382 and therefore, is not included in the total net operating losses disclosed above.
The U.S. Internal Revenue Service concluded its examination of our U.S. federal tax returns for all years through 2011. Because of net operating losses, our U.S. federal tax returns statutes for those years will remain subject to examination until the losses are utilized. Additionally, state tax return statutes generally remain open due to operating losses.
We have deferred income tax assets totaling
$57.7 million
at
December 31, 2017
, consisting primarily of federal and state net operating loss and credit carryforwards, stock-based compensation, non-deductible accruals and allowance for doubtful accounts. Our provision from income taxes for
2017
of
$6.7 million
primarily relates to the re-measurement of our deferred tax assets and liabilities at the new federal corporate rate of 21 percent.
Deferred taxes result from temporary differences between the carrying amounts of assets and liabilities used for financial reporting purposes and the amounts used for income tax purposes. As of
December 31, 2017
, our deferred income tax assets were primarily the result of federal and state net operating losses, stock-based compensation, non-deductible accruals and allowance for doubtful accounts. A valuation allowance of
$6.0 million
and
$0.1 million
was recorded against our deferred income tax asset balance as of
December 31, 2017
and
2016
, respectively.
As of each reporting date, our management considers new evidence, both positive and negative, that could impact management’s view with regard to future realization of deferred income tax assets.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The significant components of our deferred taxes are as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
2017
|
|
2016
|
Deferred tax assets:
|
|
|
|
Net operating loss carryforwards
|
$
|
38,245
|
|
|
$
|
33,404
|
|
Research and development and AMT credit carryforwards
|
1,198
|
|
|
912
|
|
Stock option grants
|
4,300
|
|
|
5,602
|
|
Property and equipment
|
690
|
|
|
—
|
|
Non-deductible accruals
|
4,471
|
|
|
—
|
|
Transaction costs
|
2,361
|
|
|
—
|
|
Allowance for doubtful accounts
|
5,324
|
|
|
4,965
|
|
Deferred revenue
|
937
|
|
|
885
|
|
Other, net
|
158
|
|
|
1,868
|
|
Total deferred tax assets
|
57,684
|
|
|
47,636
|
|
Less valuation allowance
|
(6,032
|
)
|
|
(95
|
)
|
Net deferred tax assets
|
51,652
|
|
|
47,541
|
|
Deferred tax liabilities:
|
|
|
|
Property and equipment
|
—
|
|
|
(3,604
|
)
|
Intangible assets
|
(33,854
|
)
|
|
(7,124
|
)
|
Prepaid insurance
|
(117
|
)
|
|
(177
|
)
|
Total deferred tax liabilities
|
(33,971
|
)
|
|
(10,905
|
)
|
Net deferred tax asset/(liability)
|
$
|
17,681
|
|
|
$
|
36,636
|
|
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “TCJA”). The TCJA makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized; (6) creating the base erosion anti-abuse tax (BEAT), a new minimum tax; (7) creating a new limitation on deductible interest expense; and (8) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.
The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the TCJA. SAB 118 provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the TCJA for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the TCJA is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the TCJA.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Our accounting for the following elements of the TCJA is incomplete. However, we were able to make reasonable estimates of certain effects and, therefore, recorded provisional adjustments as follows:
Reduction of US federal corporate tax rate:
The TCJA reduces the corporate tax rate to 21 percent, effective January 1, 2018. For certain of our DTAs and DTLs, we have recorded a provisional net decrease of
$8.0 million
, with a corresponding net adjustment to deferred income tax expense for the year ended December 31, 2017. While we are able to make a reasonable estimate of the impact of the reduced corporate rate, it may be affected by other analyses related to the TCJA, including, but not limited to, our calculation of deemed repatriation of deferred foreign income and the state tax effect of adjustments made to federal temporary differences.
Deemed Repatriation Transition Tax:
As part of U.S. international tax reform, the TCJA imposes a transition tax on certain accumulated foreign earnings aggregated across all non-U.S. subsidiaries, net of foreign deficits. As we are in an aggregate net foreign deficit position for U.S. tax purposes, we are not liable for the transition tax. However, we are continuing to gather additional information to more precisely compute our aggregate net foreign deficit position.
Cost recovery:
While we have not yet completed all of the computations necessary or completed an inventory of our 2017 expenditures that qualify for immediate expensing, we have recorded a provisional benefit of
$1.1 million
based on our current intent to fully expense all qualifying expenditures.
Global intangible low-taxed income:
The TJCA subjects a U.S. shareholder to current tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740 No. 5,
Accounting for Global Intangible Low-Taxed Income
, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred. We have elected to recognize the tax on GILTI as a period expense in the period the tax is incurred.
During
2017
, in connection with our acquisitions, we identified uncertain tax positions for periods prior to our ownership related to items recorded through purchase accounting. The following summarizes the changes in our unrecognized tax benefit:
|
|
|
|
|
|
|
|
|
|
Year ended
|
(in thousands)
|
December 31,
2017
|
|
December 31,
2016
|
Unrecognized tax benefit at the beginning of the year
|
$
|
3,899
|
|
|
$
|
—
|
|
Additions to uncertain tax positions related to current year
|
35,811
|
|
|
—
|
|
Additions to uncertain tax positions related to prior years
|
—
|
|
|
3,899
|
|
Unrecognized tax benefit at the end of the year
|
$
|
39,710
|
|
|
$
|
3,899
|
|
The balance of unrecognized tax benefits, if recognized, would affect the effective tax rate. As of
December 31, 2017
, we have recorded a net reserve of
$22.0 million
for uncertain tax positions as a component of other long-term liabilities within our consolidated balance sheets. The unrecognized tax benefit, or a portion of an unrecognized tax benefit, is presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
We recognize interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statements of operations and comprehensive income/(loss). As of
December 31, 2017
, we have
no
t recorded any interest and penalties on our uncertain tax positions.
It is reasonably possible that a portion of these unrecognized tax benefits could be resolved within the next twelve months that may result in a decrease in our effective tax rate.
17. Segment Information
We operate under
three
reportable segments: Healthcare, Research and Technology. The Healthcare segment is focused on the diagnosis and monitoring of cardiac arrhythmias or heart rhythm disorders. We offer cardiologists and electrophysiologists, neurologists and primary care physicians a full spectrum of solutions which provides them with a single source of cardiac monitoring services. The Research segment is engaged in central core laboratory services providing cardiac monitoring, imaging services, scientific consulting and data management services for drug and medical device trials. The Technology segment focuses on the development, manufacturing, testing and marketing of cardiovascular and blood glucose monitoring devices to medical companies, clinics and hospitals. Intercompany revenue relating to the manufacturing of devices by the Technology segment for the other segments is included on the intersegment revenue line.
Expenses that can be specifically identified with a segment have been included as deductions in determining pre-tax segment income. Any remaining expenses including integration, restructuring 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.
During the year ended
December 31, 2017
we reclassified research and development costs not utilized by our Research segment from the Corporate and Other segment to the Healthcare segment to synchronize our external reporting with the way our chief operating decision maker reviews the segment performance and makes decisions about the reportable segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Healthcare
|
|
Research
|
|
Technology
|
|
Corporate
and Other
|
|
Consolidated
|
2017
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
234,385
|
|
|
$
|
38,790
|
|
|
$
|
13,601
|
|
|
$
|
—
|
|
|
$
|
286,776
|
|
Intersegment revenue
|
—
|
|
|
—
|
|
|
14,793
|
|
|
(14,793
|
)
|
|
—
|
|
Income/(loss) before income taxes
|
52,054
|
|
|
1,214
|
|
|
3,807
|
|
|
(67,471
|
)
|
|
(10,396
|
)
|
Depreciation and amortization
|
29,255
|
|
|
4,148
|
|
|
1,045
|
|
|
(5,887
|
)
|
|
28,561
|
|
Capital expenditures
|
12,542
|
|
|
1,274
|
|
|
749
|
|
|
(868
|
)
|
|
13,697
|
|
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(reclassified, in thousands)
|
Healthcare
|
|
Research
|
|
Technology
|
|
Corporate
and Other
|
|
Consolidated
|
2016
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
165,664
|
|
|
$
|
32,565
|
|
|
$
|
10,103
|
|
|
$
|
—
|
|
|
$
|
208,332
|
|
Intersegment revenue
|
—
|
|
|
—
|
|
|
11,456
|
|
|
(11,456
|
)
|
|
—
|
|
Income/(loss) before income taxes
|
53,025
|
|
|
2,229
|
|
|
3,862
|
|
|
(43,346
|
)
|
|
15,770
|
|
Depreciation and amortization
|
10,216
|
|
|
3,837
|
|
|
517
|
|
|
(301
|
)
|
|
14,269
|
|
Capital expenditures
|
8,885
|
|
|
1,941
|
|
|
73
|
|
|
—
|
|
|
10,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(reclassified, in thousands)
|
Healthcare
|
|
Research
|
|
Technology
|
|
Corporate
and Other
|
|
Consolidated
|
2015
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
145,963
|
|
|
$
|
21,853
|
|
|
$
|
10,697
|
|
|
$
|
—
|
|
|
$
|
178,513
|
|
Intersegment revenue
|
7
|
|
|
—
|
|
|
10,224
|
|
|
(10,231
|
)
|
|
—
|
|
Income/(loss) before income taxes
|
38,322
|
|
|
540
|
|
|
4,390
|
|
|
(35,356
|
)
|
|
7,896
|
|
Depreciation and amortization
|
7,790
|
|
|
3,676
|
|
|
371
|
|
|
651
|
|
|
12,488
|
|
Capital expenditures
|
9,155
|
|
|
4,373
|
|
|
72
|
|
|
—
|
|
|
13,600
|
|
18. Legal Proceedings
The final outcome of any current or future litigation or governmental or internal investigations cannot be accurately predicted, nor can we predict any resulting penalties, fines or other sanctions that may be imposed at the discretion of federal or state regulatory authorities. We record accruals for such contingencies to the extent that we conclude it is probable that a liability has been incurred and the amount of the loss can be estimated.
Mednet Settlement
In the third quarter of 2017, a settlement was reached with the selling stockholder of Mednet Healthcare Technologies, Inc., Heartcare Corporation of America, Inc., Universal Medical, Inc., and Universal Medical Laboratory, Inc. (together, “Mednet”), whereby
79,333
shares of BioTelemetry common stock with a fair value of
$2.8 million
were returned to the Company. These shares were part of the consideration paid in the acquisition of Mednet and had been subject to certain terms and conditions set forth in the Stock Purchase Agreement (the “Agreement”). In accordance with the terms of the Agreement, we sought indemnification for alleged breaches of certain representations and warranties. Accordingly, in 2016 we recorded a
$1.4 million
indemnification asset. However, as a result of the settlement’s fair value exceeding the indemnification asset recorded, a gain of
$1.3 million
was recorded as a component of other non-operating expense, net in the consolidated statements of operations for the year ended December 31, 2017.
United States Department of Health and Human Services’ Office for Civil Rights Settlement
In 2011, we experienced the theft of
two
unencrypted laptop computers and, as a result, were required to provide notices under the HIPAA Breach Notification Rule to the United States Department of Health and Human Services’ Office for Civil Rights (“OCR”). During the first quarter of 2017, the OCR concluded its investigation into the matter and reached a settlement agreement with us. Per the agreement, we paid
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
the OCR
$2.5 million
and agreed to submit a two-year corrective action plan. We did not admit any liability or wrongdoing. As a result of the settlement, we recorded a non-operating charge of
$2.5 million
to other non-operating expense, net in the consolidated statements of operations and comprehensive income/(loss) for the year ended December 31, 2017.
ZTech, Inc., Biorita LLC, and the Cleveland Clinic Foundation Arbitration
In January 2017, ZTech, Inc., Biorita LLC, and the Cleveland Clinic Foundation (the “Claimants”) filed an arbitration demand against LifeWatch with the American Arbitration Association. Claimants alleging that LifeWatch violated the 2015 Stock Purchase Agreement for the purchase of FlexLife Health, Inc., a remote international normalized ratio monitoring business. The demand alleges LifeWatch did not make commercially reasonable efforts to achieve certain conditions precedent and did not have a reasonable basis for terminating the business line. Claimants seek liquidated damages and attorneys’ fees. We are vigorously defending against these claims and are seeking recovery of attorneys’ fees related to our defense. The arbitration hearing was held in February 2018, and we are awaiting a decision. While we believe that the risk of loss in this arbitration is improbable, we cannot determine, nor can we estimate, the range of potential loss. Accordingly, as we do not believe that a loss is probable, in accordance with authoritative guidance on the evaluation of loss contingencies, we have not recorded an accrual related to this matter.
ScottCare Litigation
In May 2012, CardioNet, Inc. (“CardioNet”) filed suit against The ScottCare Corporation and Ambucor Health Solutions, Inc. (“ScottCare”) in the U.S. District Court for the Eastern District of Pennsylvania for patent infringement. We are seeking an injunction against each defendant, as well as monetary damages. ScottCare has asserted counterclaims alleging the patents in the suit are invalid and not infringed. The trial court heard argument on motions for summary judgment and motions to limit expert testimony in June 2015, but has not yet issued rulings on these motions. ScottCare has dropped all invalidity challenges with respect to one of the patents in the suit. The parties are awaiting a trial date. We are vigorously pursuing our claims and defending against the counterclaims. The probable outcome of this matter cannot be determined, nor can we estimate a range of potential loss. Therefore, in accordance with authoritative guidance on the evaluation of loss contingencies, we have not recorded an accrual related to this matter.
InfoBionic Litigation
CardioNet, LLC and Braemar Manufacturing, LLC filed a patent infringement lawsuit against InfoBionic, Inc. (“InfoBionic”) in May 2015, in the U.S. District Court for the District of Massachusetts, and filed an amended complaint in March 2016. We are seeking an injunction and enhanced damages for willful infringement because InfoBionic had prior knowledge of some or all of the asserted patents. We are also asserting claims for unfair competition and misappropriation of trade secrets due to its discovery that InfoBionic is in unauthorized possession of confidential and proprietary materials of ours, including source code. A trial date has not been set.
In March 2017, we filed a second infringement action in the same District Court asserting infringement of one additional patent seeking an injunction and enhanced damages for willful infringement. InfoBionic moved to dismiss the complaint in this action in June 2017, and the parties are awaiting a ruling from the Court.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
We also initiated an arbitration proceeding against InfoBionic with the American Arbitration Association in July 2017 asserting claims of misappropriation of trade secrets, unfair competition, and unjust enrichment as a result of our discovery that InfoBionic is in unauthorized possession of our confidential and proprietary materials, including source code. We are seeking monetary and injunctive relief.
In response to our infringement assertion, InfoBionic filed several petitions at the United States Patent and Trademark Office (“USPTO”) for Inter Partes review (“IPR”) of certain of our patents. The USPTO denied institution of IPR regarding certain patents and found certain of our claims in our patents to be unpatentable. In July 2017 we filed an appeal with the Federal Circuit challenging the unpatentability findings.
BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
19. Quarterly Financial Data (Unaudited)
The following tables summarize the unaudited quarterly financial data for the last two fiscal years. Net Income, basic net income per share and diluted net income per share for the first three quarters of 2016 have been recast in accordance with the adoption of ASU 2016-09.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share amounts)
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
2017
|
|
|
|
|
|
|
|
Total revenue
|
$
|
55,881
|
|
|
$
|
58,129
|
|
|
$
|
81,023
|
|
|
$
|
91,743
|
|
Gross profit
|
32,909
|
|
|
35,967
|
|
|
49,069
|
|
|
54,425
|
|
Net income/(loss)
|
196
|
|
|
1,726
|
|
|
(2,564
|
)
|
|
(16,501
|
)
|
Net income/(loss) attributable to BioTelementry, Inc.
|
196
|
|
|
1,726
|
|
|
(2,285
|
)
|
|
(15,593
|
)
|
Basic net income/(loss) per share attributable to BioTelemetry, Inc.
|
$
|
0.01
|
|
|
$
|
0.06
|
|
|
$
|
(0.07
|
)
|
|
$
|
(0.48
|
)
|
Diluted net income/(loss) per share attributable to BioTelemetry, Inc.
|
$
|
0.01
|
|
|
$
|
0.05
|
|
|
$
|
(0.07
|
)
|
|
$
|
(0.48
|
)
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
Total revenue
|
$
|
48,640
|
|
|
$
|
52,680
|
|
|
$
|
53,055
|
|
|
$
|
53,957
|
|
Gross profit
|
30,627
|
|
|
32,921
|
|
|
32,866
|
|
|
33,036
|
|
Net income
|
4,097
|
|
|
4,697
|
|
|
4,195
|
|
|
40,448
|
|
Net income attributable to BioTelementry, Inc.
|
4,097
|
|
|
4,697
|
|
|
4,195
|
|
|
40,448
|
|
Basic net income per share attributable to BioTelemetry, Inc.
|
$
|
0.15
|
|
|
$
|
0.17
|
|
|
$
|
0.15
|
|
|
$
|
1.43
|
|
Diluted net income per share attributable to BioTelemetry, Inc.
|
$
|
0.14
|
|
|
$
|
0.15
|
|
|
$
|
0.14
|
|
|
$
|
1.30
|
|