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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________
FORM 10-Q
________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number: 000-55039
https://cdn.kscope.io/877c7b865dcd1102232751f3a45a7f29-logo1a13.jpg
BioTelemetry, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware
 
46-2568498
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
1000 Cedar Hollow Road
 
 
Malvern,
Pennsylvania
 
19355
(Address of principal executive offices)
 
(Zip Code)
(610) 729-7000
(Registrant’s Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.001 per share
BEAT
NASDAQ Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes    No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes    No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Emerging growth company
Non-accelerated filer
Smaller reporting company
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    No  
As of April 30, 2020, 34,144,802 shares of the registrant’s common stock were outstanding.
 




BioTelemetry, Inc.
Quarterly Report on Form 10-Q
For the Period Ended March 31, 2020

TABLE OF CONTENTS
 
 
Page
PART I
 
Financial Statements (unaudited)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
PART II
 
 
 
 
Unless the context otherwise indicates or requires, the terms “we,” “our,” “us,” “BioTelemetry” and the “Company,” as used in this Quarterly Report on Form 10-Q, refer to BioTelemetry, Inc. and its directly and indirectly owned subsidiaries as a combined entity, except where otherwise stated or where it is clear that the terms mean only BioTelemetry, Inc. exclusive of its subsidiaries. We do not use the ® or ™ symbol in each instance in which one of our registered or common law trademarks appears in this Quarterly Report on Form 10-Q, but this should not be construed as any indication that we will not assert our rights thereto to the fullest extent permissible under applicable law.

2



CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document includes certain forward-looking statements within the meaning of the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995 regarding, among other things, our growth prospects, the prospects for our products and our confidence in our future. These statements may be identified by words such as “expect,” “anticipate,” “estimate,” “intend,” “plan,” “believe,” “promises” and other words and terms of similar meaning. Examples of forward-looking statements include statements we make regarding our ability to increase demand for our products and services, to leverage our Mobile Cardiac Outpatient Telemetry platform, to expand into new markets, to grow our market share, our expectations regarding revenue trends in our segments and the achievement of cost efficiencies through process improvement. Such forward-looking statements are based on current expectations and involve inherent risks and uncertainties, including important factors that could delay, divert or change any of these expectations, and could cause actual outcomes and results to differ materially from current expectations. These factors include, among other things:
our ability to identify acquisition candidates, acquire them on attractive terms and integrate their operations into our business;
our ability to educate physicians and continue to obtain prescriptions for our products and services;
changes to insurance coverage and reimbursement levels by Medicare and commercial payors for our products and services;
our ability to attract and retain talented executive management and sales personnel;
the commercialization of new competitive products;
acceptance of our new products and services, such as our mobile cardiac telemetry (“MCT”) patch;
the impact of the COVID-19 pandemic;
the impact of the October 2019 information technology incident;
our ability to obtain and maintain required regulatory approvals for our products, services and manufacturing facilities;
changes in governmental regulations and legislation;
adverse regulatory action;
our ability to obtain and maintain adequate protection of our intellectual property;
interruptions or delays in the telecommunications systems and/or information technology systems that we use;
our ability to successfully resolve outstanding legal proceedings; and
the other factors that are described in “Part I; Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019, as well as the factors that are described in “Part II; Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q.
We undertake no obligation to publicly update any forward-looking statement, whether as a result

3



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


4

PART I — FINANCIAL INFORMATION


Item 1.  Financial Statements
BIOTELEMETRY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and par value data)
(Unaudited)
March 31,
2020
 
December 31,
2019
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
106,845

 
$
68,614

Healthcare accounts receivable, net of allowance for credit losses of $37,980 and $31,780, at March 31, 2020 and December 31, 2019, respectively
74,864

 
71,851

Other accounts receivable, net of allowance for credit losses of $548 and $201, at March 31, 2020 and December 31, 2019, respectively
18,727

 
15,625

Inventory
7,612

 
5,738

Prepaid expenses and other current assets
5,026

 
6,505

Total current assets
213,074

 
168,333

Property and equipment, net of accumulated depreciation of $75,103 and $76,095, at March 31, 2020 and December 31, 2019, respectively
58,330

 
56,380

Intangible assets, net
125,816

 
129,596

Goodwill
301,150

 
301,321

Deferred tax assets
8,547

 
12,626

Other assets
33,509

 
17,464

Total assets
$
740,426

 
$
685,720

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
25,339

 
$
24,198

Accrued liabilities
23,379

 
27,318

Current portion of finance lease obligations
373

 
394

Current portion of long-term debt

 
3,844

Total current liabilities
49,091

 
55,754

Long-term portion of finance lease obligations
272

 
289

Long-term debt
227,425

 
190,823

Other long-term liabilities
86,640

 
71,937

Total liabilities
363,428

 
318,803

Stockholders’ equity:
 
 
 
Common stock—$0.001 par value as of March 31, 2020 and December 31, 2019; 200,000,000 shares authorized as of March 31, 2020 and December 31, 2019; 34,138,516 and 34,023,053 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively
34

 
34

Paid-in capital
457,000

 
453,366

Accumulated other comprehensive loss
(784
)
 
(469
)
Accumulated deficit
(79,252
)
 
(86,014
)
Total equity
376,998

 
366,917

Total liabilities and equity
$
740,426

 
$
685,720

See accompanying Notes to Consolidated Financial Statements.

5

BIOTELEMETRY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

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


$
103,979

Cost of revenue
42,523

 
39,201

Gross profit
70,508

 
64,778

Operating expenses:
 
 
 
General and administrative
31,881

 
27,607

Sales and marketing
13,446

 
12,440

Credit loss expense
6,020

 
5,148

Research and development
3,568

 
3,333

Other charges
2,084

 
3,070

Total operating expenses
56,999

 
51,598

Income from operations
13,509

 
13,180

Other expense:
 
 
 
Interest expense
(2,107
)
 
(2,482
)
Loss on equity method investments

 
(32
)
Other non-operating income/(expense), net
931

 
(1,054
)
Total other expense, net
(1,176
)
 
(3,568
)
Income before income taxes
12,333

 
9,612

(Provision for)/benefit from income taxes
(5,224
)
 
2,073

Net income
$
7,109

 
$
11,685

 
 
 
 
Net income per common share:
 
 
 
Basic
$
0.21

 
$
0.35

Diluted
$
0.19

 
$
0.32

Weighted average number of common shares outstanding:
 
 
 
Basic
34,186

 
33,654

Dilutive common stock equivalents
2,403

 
2,752

Diluted
36,589

 
36,406

See accompanying Notes to Consolidated Financial Statements.

6

BIOTELEMETRY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

 
Three Months Ended
 
March 31,
(in thousands)
2020
 
2019
Net income
$
7,109

 
$
11,685

Other comprehensive loss:
 
 
 
Foreign currency translation loss
(315
)
 
(2
)
Comprehensive income
$
6,794

 
$
11,683

See accompanying Notes to Consolidated Financial Statements.


7

BIOTELEMETRY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


 
Three Months Ended
 
March 31,
(in thousands)
2020
 
2019
OPERATING ACTIVITIES
 
 
 
Net income
$
7,109

 
$
11,685

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Credit loss expense
6,020

 
5,148

Depreciation and amortization
10,485

 
10,021

Stock-based compensation
3,382

 
2,549

Accretion of debt discount
261

 
311

Deferred income taxes
4,079

 
(1,416
)
Change in fair value of acquisition-related contingent consideration
(290
)
 

Other non-cash items
1,201

 
32

Changes in operating assets and liabilities:
 
 
 
Healthcare and other accounts receivable
(12,135
)
 
(11,397
)
Inventory
(1,874
)
 
(1,633
)
Prepaid expenses and other assets
3,007

 
(588
)
Accounts payable
1,141

 
8,026

Accrued and other liabilities
(9,683
)
 
(5,194
)
Net cash provided by operating activities
12,703

 
17,544

INVESTING ACTIVITIES
 
 
 
Acquisition of business, net of cash acquired

 
(44,566
)
Purchases of property and equipment and investment in internally developed software
(6,984
)
 
(5,334
)
Net cash used in investing activities
(6,984
)
 
(49,900
)
FINANCING ACTIVITIES
 
 
 
Proceeds related to the exercising of stock options and employee stock purchase plan
1,719

 
4,311

Payments of tax withholdings related to vesting of share-based awards
(1,467
)
 
(4,911
)
Principal payments on long-term debt
(197,825
)
 
(1,281
)
Proceeds from borrowings on revolving credit facility
232,000

 

Payment of debt issuance costs
(1,678
)
 

Principal payments on finance lease obligations
(179
)
 
(1,163
)
Net cash provided by/(used in) financing activities
32,570

 
(3,044
)
Effect of exchange rate changes on cash
(58
)
 
(2
)
Net increase/(decrease) in cash and cash equivalents
38,231

 
(35,402
)
Cash and cash equivalents - beginning of period
68,614

 
80,889

Cash and cash equivalents - end of period
$
106,845

 
$
45,487

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
 
 
 
Non-cash purchases of property and equipment
$
5,045

 
$
2,584

Cash paid for interest
1,960

 
2,106

Cash paid for taxes
$
50

 
$

See accompanying Notes to Consolidated Financial Statements.

8

BIOTELEMETRY, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)




 
BioTelemetry, Inc. Equity
 
Common Stock
 
Paid-in Capital
 
Accumulated
Other
Comprehensive
Loss
 
Accumulated Deficit
 
Total Equity
(in thousands, except shares)
Shares
 
Amount
 
 
 
 
Balance at December 31, 2019
34,023,053

 
$
34

 
$
453,366

 
$
(469
)
 
$
(86,014
)
 
$
366,917

Cumulative effect of change in accounting principle

 

 

 

 
(347
)
 
(347
)
Share issuances related to stock compensation plans
143,180

 

 
1,719

 

 

 
1,719

Stock-based compensation

 

 
3,382

 

 

 
3,382

Shares withheld to cover taxes on vesting of share-based awards
(27,717
)
 

 
(1,467
)
 

 

 
(1,467
)
Currency translation adjustment

 

 

 
(315
)
 

 
(315
)
Net income

 

 

 

 
7,109

 
7,109

Balance at March 31, 2020
34,138,516

 
$
34

 
$
457,000

 
$
(784
)
 
$
(79,252
)
 
$
376,998



 
BioTelemetry, Inc. Equity
 
Common Stock
 
Paid-in Capital
 
Accumulated
Other
Comprehensive
Income
 
Accumulated Deficit
 
Total Equity
(in thousands, except shares)
Shares
 
Amount
 
 
 
 
Balance at December 31, 2018
33,406,364

 
$
33

 
$
426,054

 
$
256

 
$
(115,858
)
 
$
310,485

Share issuances related to stock compensation plans
460,952

 
1

 
4,310

 

 

 
4,311

Stock-based compensation

 

 
2,549

 

 

 
2,549

Shares withheld to cover taxes on vesting of share-based awards
(63,580
)
 

 
(4,911
)
 

 

 
(4,911
)
Deferred purchase price consideration - equity portion

 

 
8,890

 

 

 
8,890

Currency translation adjustment

 

 

 
(2
)
 

 
(2
)
Net income

 

 

 

 
11,685

 
11,685

Balance at March 31, 2019
33,803,736

 
$
34

 
$
436,892

 
$
254

 
$
(104,173
)
 
$
333,007




See accompanying Notes to Consolidated Financial Statements.


9

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



1. Summary of Significant Accounting Policies
a) Principles of Consolidation & Reclassifications
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information, the instructions to Form 10-Q, and Rule 10-01 of Regulation S-X and include the accounts of BioTelemetry, Inc. and its wholly owned subsidiaries (“BioTelemetry,” the “Company,” “we,” “our” or “us”). In the opinion of management, all adjustments (which are of a normal and recurring nature) considered necessary to present fairly the financial position as of March 31, 2020 and December 31, 2019 and the results of operations, statements of comprehensive income, cash flows, and equity for the interim periods ended March 31, 2020 and 2019 have been included. All intercompany transactions and balances have been eliminated in consolidation. The results of operations for any interim period are not indicative of the results of the full year. Certain information and footnote disclosures normally included in consolidated financial statements presented in accordance with U.S. GAAP, but which are not required for interim reporting purposes, have been omitted. The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
Certain reclassifications have been made to prior period statements to conform to the current period presentation. These consist of combining our non-cash depreciation and amortization expenses into one line on our consolidated statements of cash flows and separating the non-cash operating item of change in fair value of acquisition-related contingent consideration from other non-cash items on our consolidated statements of cash flows. These reclassifications had no impact on previously reported working capital, consolidated results of operations, cash flows or accumulated deficit.
b) Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates.
c) Fair Value of Financial Instruments
Fair value is defined as the exit price, the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as defined below. Observable inputs are inputs a market participant would use in valuing an asset or liability based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our own assumptions about the factors a market participant would use in valuing an asset or liability developed using the best information available in the circumstances. The classification of an asset’s or liability’s level within the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
Level 1 -
Quoted prices in active markets for an identical asset or liability.
Level 2 -
Inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the asset or liability.

10

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


Level 3 -
Inputs that are unobservable for the asset or liability, based on our own assumptions about the assumptions a market participant would use in pricing the asset or liability.
Our financial instruments consist primarily of cash and cash equivalents, Healthcare accounts receivable, other accounts receivable, accounts payable, acquisition-related contingent consideration, current portion of long-term debt and long-term debt. With the exception of acquisition-related contingent consideration and long-term debt, the carrying value of these financial instruments approximates their fair value because of their short-term nature (classified as Level 1).
Our long-term debt (classified as Level 2) is measured using market prices for similar instruments, inputs such as the borrowing rates currently available, benchmark yields, actual trade data, broker/dealer quotes and other similar data obtained from quoted market prices or independent pricing vendors.
The fair value of acquisition-related contingent consideration (classified as Level 3) is measured on a recurring basis using a Monte Carlo simulation. This model uses assumptions, including estimated projected revenues, estimated stock price volatility in future periods, estimated discount rates and discounts for the lack of marketability of common stock. 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 future operating performance, cash flows and revenue growth rates, royalty rates and other such variables, which are discounted to present value using a discount rate that reflects the risk factors associated with future cash flow, the characteristics of the assets acquired and liabilities assumed and the experience of the acquired business. Non-financial assets such as goodwill, intangible assets, property and equipment and right-of-use (“ROU”) assets are subsequently measured at fair value when there is an indicator of impairment and recorded at fair value only when an impairment is recognized. We assess the impairment of goodwill, intangible assets, property and equipment and ROU assets annually or whenever events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable.
d) Accounts Receivable and Allowance for Credit Losses
Healthcare accounts receivable, including contract assets, are recorded at the time Healthcare segment revenue is recognized and is presented on the consolidated balance sheet net of an allowance for credit losses. For our contracted payors, we determine revenue based on negotiated prices for the services provided. Based on our history, we have experience collecting substantially all of the negotiated contracted rates and are therefore not providing an implicit price concession. Because of continuing changes in the health care industry and third-party reimbursement, it is possible that our estimates of collectability could change, which could have a material impact on our operations and cash flows.
Other accounts receivable are related to the Research segment and Corporate and Other category and are recorded at the time revenue is recognized, when products are shipped or services are performed.
When calculating an allowance for credit losses, we calculate the expected credit loss based on past events, current conditions, and reasonable and supportable forecasts that affect the collectability of our receivables, even if we believe that no loss has been incurred as of the measurement date. This includes, but is not limited to, historical collection trends, the current state of the healthcare market, and current and projected future industry trends.

11

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


We write off receivables when the likelihood for collection is remote, we believe collection efforts have been fully exhausted and we do not intend to devote additional resources in attempting to collect. We assess write-offs on a monthly basis.
e) Acquisition-Related Contingent Consideration
Acquisition-related contingent consideration is our obligation, arising from a business combination, to transfer additional assets and/or equity interests to the seller if certain future events occur or conditions are met. The fair value of the contingency is estimated as of the acquisition date using certain unobservable inputs (and therefore classified as Level 3 in the fair value hierarchy) and is recorded as a liability. We re-measure the estimated fair value of acquisition-related contingent consideration at each reporting date. Adjustments subsequent to the acquisition measurement period are recorded in other charges in the consolidated statements of operations. Changes to the inputs used in the measurement of acquisition-related contingent consideration include estimated projected revenues, estimated stock price volatility in future periods, estimated discount rates and discounts for the lack of marketability of common stock. Acquisition-related contingent consideration may change significantly as our inputs and assumptions noted above evolve and additional data is obtained. The inputs and assumptions used in estimating fair value require significant judgment. The use of different assumptions and judgments could result in different fair value estimates that may have a material impact on our results from operations and financial position.
f) Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, Healthcare accounts receivable, including contract assets related to our cardiac monitoring services and other accounts receivable. We maintain our cash and cash equivalents with high quality financial institutions to mitigate this risk. We perform ongoing credit evaluations of our customers and generally do not require collateral. We record an allowance for credit losses in accordance with the procedures described above. Past-due amounts are written off against the allowance for credit losses when collections are believed to be unlikely and all collection efforts have ceased.
At March 31, 2020 and December 31, 2019, one payor, Medicare, accounted for 21% and 22%, respectively, of our gross Healthcare accounts receivable.
g) Leases
We lease our administrative and service facilities, as well as certain office equipment, monitoring devices and information technology equipment under arrangements classified as leases under Accounting Standards Codification (“ASC”) 842 - Leases (“ASC 842”).
We recognize ROU assets at the inception of the arrangement as the present value of the lease payments plus our initial direct costs (if any), less any lease incentives. The corresponding liability is computed as the present value of the lease payments at inception. Assets are classified as either operating or finance ROU assets according to the classification criteria in ASC 842. Upon the adoption of ASC 842, we elected the transition practical expedients to not separate lease and non-lease components where we are the lessor when the requisite criteria is met to be treated as such. The present value of the lease payments is computed using the rate implicit in the lease (if known) or our incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis of a similar term at an amount equal to the lease payments.
Operating lease costs are charged to operations on a straight-line basis over the lease term. Interest

12

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


charged on the finance lease liabilities is charged to interest expense, while the amortization of the finance lease ROU assets is also charged to operations on a straight-line basis.
Under our policy, we do not record an ROU asset or corresponding liability for arrangements where the initial lease term is one year or less. Those leases are expensed on a straight-line basis over the term of the lease.
For our operating leases, we record the ROU assets as a component of other assets, the current lease liability as a component of accrued liabilities, and the long-term lease liability as a component of other long-term liabilities on our consolidated balance sheet. For our finance leases, we record the ROU asset and the accumulated amortization for the finance ROU asset as a component of property and equipment, net, with the current and long-term portions of the finance lease obligations as separate lines within our consolidated balance sheet. We amortize the finance ROU assets over the shorter of the remaining lease term or the estimated life of the asset.
h) Stock-Based Compensation
ASC 718 - Compensation - Stock Compensation (“ASC 718”), addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for: (i) equity instruments of the enterprise or (ii) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. ASC 718 requires that an entity measure the cost of equity-based service awards issued to employees, such as stock options and restricted stock units (“RSUs”), based on the grant-date fair value of the award and recognize the cost of such awards over the requisite service period (generally, the vesting period of the award). The compensation expense associated with performance stock units (“PSUs”) is recognized ratably over the period between when the performance conditions are deemed probable of achievement and when the awards are vested. Performance stock options (“PSOs”) are valued and stock-based compensation expense is recorded once the performance conditions of the outstanding PSOs have achieved probability.
We have historically recorded stock-based compensation expense based on the number of stock options or stock units we expect to vest using our historical forfeiture experience and we periodically update those forfeiture rates. We estimate forfeitures under the true-up provision of ASC 718. We record additional expense if the actual forfeiture rate is lower than estimated and record a recovery of prior expense if the actual forfeiture rate is higher than estimated.
We estimate the fair value of our stock options using the Black‑Scholes option valuation model. The Black‑Scholes option valuation model requires the use of certain subjective assumptions. The most significant of these assumptions are the estimates of the expected volatility of the market price of our stock and the expected term of the award. We base our estimates of expected volatility on the historical average of our stock price. The expected term represents the period of time that share‑based awards granted are expected to be outstanding. Other assumptions used in the Black‑Scholes option valuation model include the risk‑free interest rate and expected dividend yield. The risk‑free interest rate for periods pertaining to the expected term of each option is based on the U.S. Treasury yield of a similar duration in effect at the time of grant. We have never paid, and do not expect to pay, dividends in the foreseeable future.
We estimate the fair value of our PSUs using a Monte Carlo simulation. This model uses assumptions, including the risk free interest rate, expected volatility of our stock price and those of the performance group, dividends of the performance group members and expected life of the awards. As noted above, we continue to estimate forfeitures under the true-up provision of ASC 718. If it is deemed

13

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


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

14

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


monitor the functionality of implantable cardiac devices. We offer cardiologists, electrophysiologists, neurologists and primary care physicians a full spectrum of solutions, which provides them with a single source of cardiac monitoring services. The Research segment is engaged in centralized core laboratory services providing cardiac monitoring, imaging services, scientific consulting and data management services for drug and medical device trials. Included in the Corporate and Other category is the manufacturing, testing and marketing of cardiac and blood glucose monitoring devices to medical companies, clinics and hospitals and corporate overhead and other items not allocated to any of our reportable segments.
l) Recent Accounting Pronouncements
Accounting Pronouncements Recently Adopted
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-03, Codification Improvements to Financial Instruments (“ASU 2020-03”). ASU 2020-03 clarifies a number of issues, including certain issues related to leases and revolving credit arrangements. Our adoption of this update upon its release did not have a material impact to our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). This update eliminates certain disclosures related to transfers and valuation processes, clarifies the requirement for measurement uncertainty disclosures, and requires additional disclosures for Level 3 fair value measurements, including the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Our adoption of this update on January 1, 2020 did not have a material impact to our consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. This update, along with subsequent updates and amendments, introduces the current expected credit loss model, which requires an entity to measure credit losses for certain financial instruments and financial assets, including trade receivables. Under this update, upon initial recognition and at each reporting period, an entity is required to recognize an allowance that reflects the entity’s current estimate of credit losses expected to be incurred over the life of the financial instrument. Our adoption of this update on January 1, 2020 resulted in an immaterial adjustment to accumulated deficit, and we have modified our disclosures in accordance with the new guidance.
Accounting Pronouncements Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) the transition from LIBOR and other interbank offered rates to alternative reference interest rates. This ASU can be applied immediately; however, the guidance will only be available until December 31, 2022. We are in the process of evaluating the impact of this update on our consolidated financial statements and related disclosures.



15

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


2. Revenue Recognition
We recognize revenue in accordance with ASC 606 - Revenue from Contracts with Customers (“ASC 606”), which requires revenue recognized to represent the transfer of promised goods or services to customers at an amount that reflects the consideration that a company expects to receive in exchange for those goods or services.
Disaggregation of Revenue
We disaggregate revenue from contracts with customers by payor type and major service line. We determined that disaggregating revenue into these categories achieves the disclosure objective of illustrating the differences in the nature, amount, timing and uncertainty of our revenue streams. Disaggregated revenue by payor type and major service line was as follows:
 
Three Months Ended March 31, 2020
 
Reporting Segment
 
 
 
Total Consolidated
(in thousands)
Healthcare
 
Research
 
Other
 
Payor/Service Line
 
 
 
 
 
 
 
Remote cardiac monitoring services - Medicare
$
40,128

 
$

 
$

 
$
40,128

Remote cardiac monitoring services - commercial payors
55,579

 

 

 
55,579

Clinical trial support and related services

 
13,820

 

 
13,820

Technology devices, consumables and related services

 

 
3,504

 
3,504

Total
$
95,707

 
$
13,820

 
$
3,504

 
$
113,031


 
Three Months Ended March 31, 2019
 
Reporting Segment
 
 
 
Total Consolidated
(in thousands)
Healthcare
 
Research
 
Other
 
Payor/Service Line
 
 
 
 
 
 
 
Remote cardiac monitoring services - Medicare
$
33,935

 
$

 
$

 
$
33,935

Remote cardiac monitoring services - commercial payors
54,074

 

 

 
54,074

Clinical trial support and related services

 
12,964

 

 
12,964

Technology devices, consumables and related services

 

 
3,006

 
3,006

Total
$
88,009

 
$
12,964

 
$
3,006

 
$
103,979


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

16

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


A summary of the payment arrangements with payors is as follows:
Contracted payors (including Medicare): We determine the transaction price based on negotiated prices for services provided, on a case rate basis, as provided for under the relevant Current Procedural Terminology (“CPT”) codes.
Non-contracted payors: Non-contracted commercial and government insurance carriers often reimburse out-of-network rates provided for under the relevant CPT codes on a case rate basis. Our transaction price includes implicit price concessions based on our historical collection experience for our non-contracted patients.
We are utilizing the portfolio approach practical expedient in ASC 606 for our patient contracts in the Healthcare segment. We account for the contracts within each portfolio as a collective group, rather than individual contracts. Based on our history with these portfolios and the similar nature and characteristics of the patients within each portfolio, we have concluded that the financial statement effects are not materially different than if accounting for revenue on a contract-by-contract basis.
For the contracted portfolio, we have historical experience of collecting substantially all of the negotiated contractual rates and determined at contract inception that these customers have the intention and ability to pay the promised consideration. We have also concluded that historical information is largely representative of forward-looking information. As such, we are not providing an implicit price concession but, rather, have chosen to accept the risk of default, and adjustments to the transaction price are recorded as credit loss expense.
For our non-contracted portfolio, we are providing an implicit price concession because we do not have a contract with the underlying payor, the result of which requires us to estimate our transaction price based on historical cash collections utilizing the expected value method. Subsequent adjustments to the transaction price are recorded as an adjustment to Healthcare segment revenue and not as credit loss expense.
We have not made any significant changes to judgments in applying ASC 606 to the Healthcare segment during the three months ended March 31, 2020 and 2019.
Clinical Trial Support and Related Services Revenue (Research segment)
Research segment revenue is generated by providing centralized core laboratory services, including cardiac monitoring, imaging services, scientific consulting and data management services for drug and medical device trials. These amounts are due from pharmaceutical companies and contract research organizations. We bill our customers on a fee-for-service basis. Under a typical contract, some customers pay us a portion of our fee upon contract execution as an upfront refundable deposit. Upfront deposits are deferred and then recognized as the services are performed. If a contract is canceled prior to service being provided, the upfront deposit is refunded.
Performance obligations are determined based on the nature of the services provided. Our core laboratory services are provided over time as the customer receives benefits resulting in revenue recognition over the term of the contract. Our research customer contracts have legally enforceable terms that are predominately thirty days due to termination for convenience clauses, which are held by the customer with no significant penalty. Given the short-term nature of these contracts and the structure of our billing practices, our billing practices approximate our performance if measured by an output method, where each output is an individual occurrence of each performance obligation. Accordingly, we utilize the invoice

17

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


practical expedient as defined in ASC 606, resulting in recognition of revenue in the amount that we have the right to invoice.
We have historical experience of collecting substantially all of the fees for services incurred and thus believe that no material loss has been incurred as of the measurement date. As such, we are not providing an implicit price concession but, rather, have chosen to accept the risk of default, and adjustments to the transaction price are recorded as credit loss expense.
We have not made any significant changes to judgments in applying ASC 606 to the Research segment during the three months ended March 31, 2020 and 2019.
Other Revenue (Other category)
Our Other category revenue is primarily derived from the sale of non-invasive cardiac monitors to healthcare companies, wireless blood glucose meters and test strips to wholesale distributors of diabetes supplies and diabetic patients, as well as product repairs. Performance obligations are primarily the sale of devices, related goods and repairs provided by us. These contracts transfer control to a customer at a point in time based on the transfer of title for the underlying good or service. We provide standard warranty provisions.
We determine the transaction price based on fixed consideration in our contractual agreements with our customers and allocate the transaction price to each performance obligation based on the relative stand-alone selling price. We determine the relative stand-alone selling price utilizing our observable prices for the sale of the underlying goods. We have historical experience of collecting substantially all and thus believe that no material loss has been incurred as of the measurement date. As such, we are not providing an implicit price concession but, rather, have chosen to accept the risk of default, and adjustments to the transaction price are recorded as credit loss expense.
We have not made any significant changes to judgments in applying ASC 606 to the Other category during the three months ended March 31, 2020 and 2019.
Contract Assets and Contract Liabilities
ASC 606 requires an entity to present a revenue contract as a contract asset when the entity performs its obligations under the contract by transferring goods or services to a customer before the customer pays consideration or before payment is due. ASC 606 also requires an entity to present a revenue contract as a contract liability in instances when a customer pays consideration, or an entity has a right to an amount of consideration that is unconditional (e.g., receivable), before the entity transfers a good or service to the customer.
As of March 31, 2020 and December 31, 2019, we had contract assets of $18.4 million and $15.1 million, respectively, related to cardiac monitoring services, which are included as a component of Healthcare accounts receivable on our consolidated balance sheets. We also had contract assets of $1.9 million and $1.7 million, respectively, related to our Other category revenue contracts, which are included as a component of other accounts receivable on our consolidated balance sheets.
As of March 31, 2020 and December 31, 2019, we had contract liabilities of $1.5 million and $1.6 million, respectively, primarily related to the Research segment where customers paid upfront deposits upon contract execution for future services to be performed by us. If the contract is canceled, these upfront

18

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


deposits are refundable if service was not yet provided. Our contract liabilities are included as a component of accrued liabilities on our consolidated balance sheets.
For the three months ended March 31, 2020, the amount recognized as revenue from the contract liabilities balance as of December 31, 2019 was $0.5 million. Similarly, for the three months ended March 31, 2019, the amount recognized as revenue from the contract liabilities balance as of December 31, 2018 was $3.1 million. There were no significant changes or impairment losses incurred related to contract balances during the three months ended March 31, 2020.
Allowance For Credit Losses
We record an allowance for credit losses based on historical collection trends, the current state of the healthcare market and current and projected future industry trends. Disaggregated allowance by portfolio was as follows:
 
Three Months Ended March 31, 2020
 
Portfolio
 
Total Consolidated
(in thousands)
Healthcare
 
Other
 
Beginning balance
$
31,780

 
$
201

 
$
31,981

Cumulative effect of change in accounting principle

 
347

 
347

Current period credit loss expense*
6,020

 

 
6,020

Write-offs

 

 

Recoveries collected
180

 

 
180

Ending Balance
$
37,980

 
$
548

 
$
38,528


* formerly bad debt expense


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

19

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


for our initial investment in ADEA in 2018. We then allocated this purchase price to the assets acquired and liabilities assumed. The acquired net assets consisted primarily of customer relationships and non-compete agreements. The excess of the fair value of the purchase price over the fair value of the net assets acquired has been recognized as goodwill, which represents the expected future benefits arising from the assembled workforce and other synergies attributable to cost savings opportunities. We have recognized $2.6 million of goodwill as a result of the acquisition, all of which has been assigned to the Healthcare segment. None of this goodwill will be deductible for tax purposes.
We finalized our fair value estimates related to the ADEA acquisition during the three months ended September 30, 2019. There were no changes to the total purchase price, and the measurement period adjustment related to deferred income taxes during the three months ended September 30, 2019 was not material.
We do not consider this acquisition to be significant to our results of operations. The transaction costs related to this acquisition and revenues and results of operations of ADEA prior to our acquisition were all immaterial.
Geneva Healthcare, Inc.
On March 1, 2019, we acquired Geneva Healthcare, Inc., now known as Geneva Healthcare, LLC (“Geneva”), for cash consideration of $45.9 million. In addition, pursuant to the terms of the Agreement and Plan of Merger, dated January 25, 2019, by and among Geneva, BioTelemetry, Inc., Tyersall Merger Sub, Inc., and the Securityholders’ Representative (the “Geneva Agreement”), on the third anniversary date of the closing date, the Securityholders (as defined in the Geneva Agreement) are eligible to receive additional consideration in the form of cash payments, as well as shares of BioTelemetry common stock, with a total estimated present value of $32.0 million as of the March 1, 2019 acquisition date, for a total aggregate purchase price of $77.9 million. Concurrent with the closing of the acquisition, the Securityholders made elections as to the percentage mix of their total additional consideration to be settled in cash or common stock.
The estimated additional consideration of $32.0 million, as of the March 1, 2019 acquisition date, consists of the following:
The Securityholders will, subject to potential deductions pursuant to the Geneva Agreement, receive additional consideration of $20.0 million, a total of $11.1 million of which will be paid in cash, and the remaining value will be settled in shares. We will issue a total of 131,594 shares of our common stock to settle the share-related portion of the obligation, based on the elections made by the Securityholders and the formulas within the Geneva Agreement.
The estimated present value of the future cash payment of $11.1 million, which totals $9.7 million as of the acquisition date, as well as the estimated fair value of our common stock of $9.1 million, has been included within the purchase price for Geneva. The estimated present value of the future cash payment is recorded as a component of other long-term liabilities and will be accreted to its redemption value through interest expense through the payment date. The estimated fair value of the 131,594 shares our common stock has been recorded within paid-in-capital.
The Securityholders will also be eligible to receive additional consideration, in the form of both cash and shares, based on a predetermined formula that is driven by the future revenues of

20

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


Geneva and does not have a predetermined limit. The total estimated acquisition-related contingent consideration as of the March 1, 2019 acquisition date was $13.2 million, which is also included in the purchase price of Geneva. The $13.2 million is recorded within other long-term liabilities and will be marked to market through earnings on a quarterly basis throughout the earn-out period. The equity portion of the acquisition-related contingent consideration requires liability classification and mark-to-market accounting pursuant to the provisions of ASC 815 - Derivatives and Hedging.
We acquired Geneva as part of our business strategy to go deeper and wider into the cardiac monitoring market. Geneva has developed an innovative proprietary cloud-based platform that aggregates data from the leading cardiac device manufacturers, enabling the Company to remotely monitor a physician’s patients with implantable cardiac devices such as pacemakers, defibrillators and loop recorders. Geneva’s platform provides physicians a single portal to order patient monitoring, review monitoring results and request routine device checks, helping drive significant in-office efficiencies and patient compliance. We have continued to merge this functionality with that of the Healthcare segment user interface, which we believe will drive greater workflow and data management efficiencies to the clients we serve.
We accounted for the transaction as a business combination, and as such, all assets acquired and liabilities assumed were recorded at their estimated fair values. The excess of the fair value of the purchase price over the fair value of the net assets acquired has been recognized as goodwill, which represents the expected future benefits arising from the assembled workforce and other synergies attributable to cost savings opportunities. We have recognized $59.9 million of goodwill as a result of the acquisition, all of which has been assigned to the Healthcare segment. None of this goodwill will be deductible for tax purposes.
The amounts in the table below represent our final fair value estimates related to the Geneva acquisition as of March 1, 2019. Measurement period adjustments recorded during 2019 consisted primarily of decreasing additional consideration by $2.2 million and increasing net deferred tax assets by $2.9 million. We finalized our fair value estimates related to the Geneva acquisition during the three months ended December 31, 2019.

21

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


(in thousands, except years)
Amount
 
Weighted
Average Life
(Years)
Fair value of assets acquired:
 
 
 
Cash and cash equivalents
$
1,376

 
 
Healthcare accounts receivable
1,500

 
 
Prepaid expenses and other current assets
234

 
 
Identifiable intangible assets:
 
 
 
Customer relationships
3,500

 
12
Technology
8,900

 
7
Trade names
2,500

 
15
Total identifiable intangible assets
14,900

 
 
Deferred tax assets
1,013

 
 
Total assets acquired
19,023

 
 
Fair value of liabilities assumed:
 
 
 
Accounts payable
215

 
 
Accrued liabilities
872

 
 
Total liabilities assumed
1,087

 
 
 
 
 
 
Total identifiable net assets
17,936

 
 
Goodwill
59,944

 
 
Net assets acquired
$
77,880

 
 

We incurred $1.4 million of acquisition related costs associated with Geneva for the year ended December 31, 2019. The costs were included in other charges in our consolidated statements of income. The revenues and income of Geneva for periods prior to our acquisition were immaterial to our consolidated operating results.


4. Inventory
Inventory consists of the following:
(in thousands)
March 31,
2020
 
December 31,
2019
Raw materials and supplies
$
5,125

 
$
4,429

Finished goods
2,487

 
1,309

Total inventory
$
7,612

 
$
5,738




5. Fair Value Measurements
We have determined that our long-term debt, classified as Level 2, has a fair value consistent with its carrying value, net of debt discount and deferred charges, of $227.4 million and $194.7 million as of March 31, 2020 and December 31, 2019, respectively.
Acquisition-related contingent consideration represents our contingent payment obligations related to our acquisitions and is measured at fair value, based on significant inputs not observable in the market,

22

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


which represents a Level 3 measurement within the fair value hierarchy. The valuation of acquisition-related contingent consideration uses assumptions we believe would be made by a market participant. We assess these estimates on an ongoing basis as additional data impacting the assumptions is obtained. The balance of the fair value of acquisition-related contingent consideration is recognized within other long-term liabilities on our consolidated balance sheet. Changes in the fair value of the acquisition-related contingent consideration, after the final determination as of the acquisition date, resulting from changes in the variables used to compute the fair value, are recorded in other charges in the consolidated statements of operations.
The following table provides a reconciliation of the beginning and ending balances of acquisition-related contingent consideration:
 
Three Months Ended
 
March 31,
(in thousands)
2020
 
2019
Beginning balance
$
12,940

 
$

Acquisition-related contingent consideration

 
15,990

Change in fair value of acquisition-related contingent consideration
(290
)
 

Ending balance
$
12,650

 
$
15,990


In conjunction with the Geneva acquisition, and after a measurement period adjustment recorded in the second quarter of 2019, we recognized $13.2 million of acquisition-related contingent consideration on March 1, 2019 as a component of other long-term liabilities as the contingency will be finalized after the third anniversary of the closing date.
The estimated fair value of the acquisition-related contingent consideration related to the Geneva acquisition was determined using a Monte Carlo simulation, that considered numerous variables, including estimated projected revenues, future stock price, discount rates and discounts for lack of marketability of common stock. These estimates are subject to a significant level of judgment.
During the three months ended March 31, 2020, the acquisition-related contingent consideration related to the Geneva acquisition declined $0.3 million primarily due to changes in estimates associated with our future stock price, with the impact being recognized as a component of other charges.


6. Goodwill and Intangible Assets
Goodwill was recognized at the time of our acquisitions. The following table presents the carrying amount of goodwill allocated to our reportable segments, as well as the changes to goodwill during the three months ended March 31, 2020:
 
Reporting Segment
 
Corporate and Other
 
 
(in thousands)
Healthcare
 
Research
 
 
Total
Balance at December 31, 2019
$
276,014

 
$
16,293

 
$
9,014

 
$
301,321

Currency translation
(171
)
 

 

 
(171
)
Balance at March 31, 2020
$
275,843

 
$
16,293

 
$
9,014

 
$
301,150



23

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


The gross carrying amounts and accumulated amortization of our intangible assets are as follows:
(in thousands, except years)
Weighted
Average Life
(Years)
 
March 31,
2020
 
December 31,
2019
Gross Carrying Value:
 
 
 
 
 
Customer relationships
10.3
 
$
149,365

 
$
149,420

Technology, including internally developed software
6.7
 
22,852

 
21,892

Backlog
4.0
 
3,100

 
3,100

Trade names
15.0
 
2,500

 
2,500

Covenants not to compete
4.7
 
413

 
424

Total intangible assets, gross
 
 
178,230

 
177,336

Accumulated Amortization:
 
 
 
 
 
Customer relationships
 
 
(41,907
)
 
(38,270
)
Technology, including internally developed software
 
 
(6,916
)
 
(6,153
)
Backlog
 
 
(3,035
)
 
(2,842
)
Trade names
 
 
(180
)
 
(138
)
Covenants not to compete
 
 
(376
)
 
(337
)
Total accumulated amortization
 
 
(52,414
)
 
(47,740
)
Total intangible assets, net
 
 
$
125,816

 
$
129,596


The estimated amortization for our finite-lived intangible assets for the remainder of 2020, the next four fiscal years, and thereafter, is summarized as follows as of March 31, 2020:
(in thousands)
 
Remainder of 2020
$
13,750

2021
18,160

2022
17,651

2023
17,131

2024
16,540

Thereafter
42,584

Total estimated amortization
$
125,816





24

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


7. Accrued Liabilities
Accrued liabilities consist of the following:
(in thousands)
March 31,
2020
 
December 31,
2019
Compensation
$
10,089

 
$
13,167

Right of use liabilities - operating leases
5,484

 
5,187

Professional fees
3,298

 
4,128

Contract liabilities
1,524

 
1,584

Non-income taxes
665

 
427

Interest

 
569

Operating costs
757

 
637

Other
1,562

 
1,619

Total
$
23,379

 
$
27,318




8. Credit Agreement
2020 Credit Agreement
On January 27, 2020, we entered into an Amended and Restated Credit Agreement (the “2020 Credit Agreement”) with Truist Bank (successor to SunTrust Bank) as agent (the “Agent”) for the lenders (the “Lenders”), and as issuing bank and swingline lender, which amends the SunTrust Credit Agreement (as defined below) entered into by the parties on July 12, 2017.
Pursuant to the 2020 Credit Agreement, the Lenders agreed to provide us a $400.0 million senior secured revolving credit facility, which includes a $25.0 million sublimit for the issuance of standby letters of credit and a $40.0 million sublimit for swingline loans. The proceeds of the revolving facility were used to refinance indebtedness under the SunTrust Credit Agreement (as defined below) and to fund working capital and general corporate purposes.
Our revolving credit facility bears interest, at our election, of (i) with respect to Eurodollar borrowings, LIBOR plus the applicable Eurodollar margin and (ii) with respect to base rate borrowings, the Base Rate (the “prime rate” as published in the Wall Street Journal) plus the applicable Base Rate margin. The applicable margin for both LIBOR and Base Rate loans is determined by reference to our Consolidated Total Net Leverage Ratio, as defined in the 2020 Credit Agreement. As of March 31, 2020, the applicable margin is 1.125% for Eurodollar borrowings and 0.125% for base rate borrowings.
The outstanding balance of our revolving credit facility is due on January 27, 2025. Optional prepayments may be made at any time, without premium or penalty, upon written notice as prescribed in the 2020 Credit Agreement. Interest on base rate borrowings is payable quarterly while interest on Eurodollar borrowings is generally payable monthly.
The outstanding balance of the facility is secured by substantially all of our assets and a pledge of our capital stock, as well as a pledge of 65% of the capital stock of our first tier material foreign subsidiaries.
The carrying amount of our revolving credit facility was $227.4 million as of March 31, 2020, which is the principal amount outstanding, net of $4.6 million of unamortized deferred financing costs to

25

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


be amortized over the remaining term of the 2020 Credit Agreement. The revolving credit facility is subject to an unused commitment fee, which is determined by reference to our Consolidated Total Net Leverage Ratio, as defined in the 2020 Credit Agreement. Our unused commitment fee as of March 31, 2020 was 0.175%.
We may increase commitments to the revolving facility or establish new incremental term loans at any time on or before the final maturity date of the revolving facility, which is January 27, 2025. Incremental commitments to the revolving facility or term loans under the 2020 Credit Agreement will be used to fund future acquisitions, working capital and general corporate purposes.
2017 SunTrust Credit Agreement
In 2017, we entered into a credit agreement with SunTrust Bank, as a lender and an agent for the lenders (the “SunTrust Credit Agreement”). Pursuant to the SunTrust Credit Agreement, the lenders agreed to make loans to us as follows: (i) a term loan in an aggregate principal amount equal to $205.0 million; and (ii) a $50.0 million revolving credit facility for ongoing working capital purposes.
The loans bore interest at an annual rate, at our election, of (i) with respect to LIBOR rate loans, LIBOR plus the applicable margin and (ii) with respect to base rate loans, the Base Rate (the “prime rate” as published in the Wall Street Journal) plus the applicable margin. The applicable margin for both LIBOR and Base Rate loans was determined by reference to our Consolidated Total Net Leverage Ratio, as defined in the SunTrust Credit Agreement.
Debt Modification
In connection with our 2020 Credit Agreement, we repaid the outstanding indebtedness under the SunTrust Credit Agreement. Our refinancing via the 2020 Credit Agreement was accounted for as a debt modification pursuant to the provisions of ASC 470-50 - Debt - Modifications and Extinguishments.
Covenants
The 2020 Credit Agreement contains affirmative and financial covenants regarding the operations of our business and certain negative covenants that, among other things, limit our ability to incur additional indebtedness, grant certain liens, make certain investments, merge or consolidate, make certain restricted payments and engage in certain asset dispositions, including a sale of all, or substantially all, of our property. As of March 31, 2020, we were in compliance with our covenants.


9. Leases
We lease our administrative and service facilities, as well as certain office equipment, monitoring devices and information technology equipment under arrangements classified as leases under ASC 842.
We have non-cancelable operating leases expiring at various dates through 2031. Certain leases are renewable at the end of the lease term at our option, none of which are certain at this time. We have also entered into and acquired finance leases with various expiration dates through 2025, which are used primarily to finance office equipment, monitoring devices and other information technology equipment.

26

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


The components of our lease expense are as follows:
 
Three Months Ended
 
March 31,
(in thousands)
2020
 
2019
Operating lease cost:
 
 
 
Operating lease cost
$
1,579

 
$
1,408

Short-term lease cost
189

 
146

Total operating lease cost
1,768

 
1,554

 
 
 
 
Finance lease cost:
 
 
 
Amortization of right-of-use assets
89

 
865

Interest on lease liabilities
6

 
24

Total finance lease cost
95

 
889

 
 
 
 
Total lease cost
$
1,863

 
$
2,443


Supplemental balance sheet information related to leases as of March 31, 2020 and December 31, 2019 is as follows:
 
March 31, 2020
 
December 31, 2019
(in thousands, except percentages and years)
Operating
Leases
 
Finance
Leases
 
Operating
Leases
 
Finance
Leases
Property and equipment, net
$

 
$
481

 
$

 
$
493

Other assets
32,189

 

 
16,400

 

Total right-of-use assets
32,189

 
481

 
16,400

 
493

 
 
 
 
 
 
 
 
Accrued liabilities
5,484

 

 
5,187

 

Current portion of finance lease obligations

 
373

 

 
394

Long-term portion of finance lease obligations

 
272

 

 
289

Other long-term liabilities
29,451

 

 
14,029

 

Total lease obligations
$
34,935

 
$
645

 
$
19,216

 
$
683

 
 
 
 
 
 
 
 
Weighted average remaining lease term (years)
7.9

 
2.1

 
5.0

 
1.9

Weighted average discount rate
3.7
%
 
4.1
%
 
4.4
%
 
4.5
%


27

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


Future maturities of lease liabilities are as follows:
(in thousands)
Operating
Leases
 
Finance
Leases
Remainder of 2020
$
5,074

 
$
329

2021
6,230

 
210

2022
5,100

 
109

2023
4,326

 
10

2024
4,042

 
9

Thereafter
15,547

 
1

Total minimum lease payments
40,319

 
668

Less imputed interest
(5,384
)
 
(23
)
Present value of lease liabilities
$
34,935

 
$
645


Supplemental cash flow information related to leases is as follows:
 
Three Months Ended
 
March 31,
(in thousands)
2020
 
2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
Operating cash flows from operating leases
$
(1,558
)
 
$
(1,472
)
Operating cash flows from finance leases
(6
)
 
(24
)
Financing cash flows from finance leases
(179
)
 
(1,163
)
 
 
 
 
Right-of-use assets obtained in exchange for lease obligations, net of incentives:
 
 
 
Operating leases
17,055

 
21,810

Finance leases
$
68

 
$
787



10. Other Charges
We account for expenses associated with our acquisitions and activity associated with certain ongoing litigation as other charges as incurred. These expenses were primarily a result of activities surrounding our acquisitions and legal fees related to patent litigation in which we are the plaintiff. Integration costs are primarily due to employee-related costs. Other charges are costs that are not considered necessary to the ongoing business operations. We have reclassified the disclosure of our 2019 costs to more closely align with the discussion in “Part I; Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report and in our earnings release, and this reclassification did not change the total amount of other charges, which are summarized as follows:

28

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


 
Three Months Ended
 
March 31,
(in thousands)
2020
 
2019
Acquisition and integration costs
$
163

 
$
1,936

Information technology incident costs, net of insurance proceeds
(276
)
 

Change in fair value of acquisition-related contingent consideration
(290
)
 

Patent and other litigation
1,906

 
1,029

Other costs
581

 
105

Total
$
2,084

 
$
3,070


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


11. Equity
Common Stock
As of March 31, 2020 and December 31, 2019, we were authorized to issue 200,000,000 shares of common stock. As of March 31, 2020 and December 31, 2019, we had 34,138,516 and 34,023,053, respectively, shares issued and outstanding.
Preferred Stock
As of March 31, 2020 and December 31, 2019, we were authorized to issue 10,000,000 shares of preferred stock. As of March 31, 2020 and December 31, 2019, there were no shares of preferred stock issued or outstanding.


12. Stock-Based Compensation
We have three stock plans: our 2017 Omnibus Incentive Plan (“OIP”), our 2008 Equity Incentive Plan (the “2008 Plan”) and our 2003 Equity Incentive Plan (the “2003 Plan”) (collectively, the “Plans”). The OIP is the only remaining stock plan actively granting new stock options or units.  The purpose of these stock plans was, and the OIP is, to grant incentive stock options to employees and non-qualified stock options, RSUs, PSOs, PSUs and other stock-based incentive awards to officers, directors, employees and consultants.  The Plans are administered by our Board of Directors (the “Board”) or its delegates. The number, type, exercise price and vesting terms of awards are determined by the Board or its delegates in accordance with the terms of the Plans. The stock options granted expire on a date specified by the Board but generally not more than ten years from the grant date. Stock option grants to employees generally vest over four years while RSUs generally vest after three years.
2017 Omnibus Incentive Plan (OIP)
On May 11, 2017, our stockholders approved the OIP, which replaced the 2008 Plan. Stock options, RSUs, PSUs and PSOs have been granted under the OIP. Under the terms of the OIP, any cancellation, forfeiture or expiry of equity awards granted under the 2008 Plan roll into the availability under the OIP. There were 1,611,963 shares available for grant under the OIP as of March 31, 2020.

29

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


2008 Equity Incentive Plan
Our 2008 Plan became effective on March 18, 2008 and replaced our 2003 Plan. Under the terms of the 2008 Plan, all available shares in the 2003 Plan share reserve automatically rolled into the 2008 Plan. Any cancellations or forfeitures of granted stock options under the 2003 Plan also automatically rolled into the 2008 Plan. There are no shares available to grant under the 2008 Plan subsequent to the approval of the OIP.
Stock option and PSO activity is summarized as follows:
Stock Options
Number of
Stock Options
 
Weighted
Average
Exercise
Price
 
Weighted Average Remaining Contractual Term
(Years)
 
Aggregate Intrinsic Value
(in thousands)
Outstanding as of December 31, 2019
2,691,059

 
$
22.67

 

 


Granted
188,403

 
51.12

 

 


Forfeited

 

 

 


Exercised
(6,223
)
 
11.45

 

 


Outstanding as of March 31, 2020
2,873,239

 
$
24.56

 
5.7
 
$
54,796

Exercisable as of March 31, 2020
1,981,650

 
$
13.52

 
4.4
 
$
52,408

Expected to vest as of March 31, 2020
827,468

 
$
49.10

 
8.6
 
$
2,216


Performance Stock Options
Number of
PSOs
 
Weighted
Average
Exercise
Price
 
Weighted Average Remaining Contractual Term
(Years)
 
Aggregate Intrinsic Value
(in thousands)
Outstanding as of December 31, 2019
30,000

 
$
21.45

 
 
 
 
Granted

 

 
 
 
 
Forfeited

 

 
 
 
 
Exercised

 

 
 
 
 
Outstanding as of March 31, 2020
30,000

 
$
21.45

 
6.8
 
$
512

Exercisable as of March 31, 2020
30,000

 
$
21.45

 
6.8
 
$
512


The table below summarizes certain additional information with respect to our options:
 
 
Three Months Ended
 
 
March 31,
(in thousands, except per option amounts)
2020
 
2019
Aggregate intrinsic value of options exercised
$
194

 
$
16,059

Cash received from the exercise of stock options
71

 
2,923

Weighted average grant date fair value per option
$
28.51

 
$
42.35



30

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


The total compensation cost of options granted but not yet vested was $22.4 million as of March 31, 2020, which is expected to be recognized over a weighted average period of approximately three years.
RSU and PSU activity is summarized as follows:
 
Restricted Stock Units