BIOTELEMETRY, INC. The following discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year endedDecember 31, 2019 , and in conjunction with the accompanying quarterly unaudited consolidated financial statements and related notes. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those contained in these forward-looking statements due to a number of factors, including, but not limited to, those set forth herein and elsewhere in this report and in our other filings with theU.S. Securities and Exchange Commission ("SEC"). See the "Cautionary Note Regarding Forward-Looking Statements" at the beginning of this report. Unless otherwise noted, the figures in the following discussions are unaudited. Company Background We are the leading remote medical technology company focused on the delivery of health information to improve quality of life and reduce cost of care. We provide remote cardiac monitoring, centralized core laboratory services for clinical trials, remote blood glucose monitoring and original equipment manufacturing that serves both healthcare and clinical research customers. A more detailed description of our business is included in "Part I; Item 1. Business" of our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 . Executive Summary The following is a summary of certain financial highlights and trends related to the quarter endedJune 30, 2020 : • Recognized$99.1 million in total revenue, a decrease of 11.4% compared to
the prior year period, reflecting the impact of COVID-19.
• April was the low point for revenue after which we saw incremental
improvement in May and June.
• In April, we scaled back our operations to mitigate the impact of the
reduction in revenue. As volume has begun to recover, we have recalled
furloughed and reduced-hour employees.
• We generated positive cash flow in the quarter and repaid
our credit facility.
Recent Developments
In March 2020 , the World Health Organization declared the outbreak of COVID-19
as a global pandemic, and, in the following weeks, many U.S. states and
localities issued lockdown orders impacting demand for our services. We are
following the guidelines from public health officials and government agencies,
including implementation of enhanced cleaning measures, social distancing
guidelines and work from home policies. To date, we have not seen a significant
impact to our supply chain with regards to our ability to obtain supplies,
inventory or materials or a significant change in prices. We continue to monitor
the situation closely.
Our second quarter results reflect the impact the pandemic had on BioTelemetry .
We expect the ultimate significance of the impact on our financial condition,
results of operations and cash flows will be dictated by the length of time that
such circumstances continue and any further governmental and public actions
taken in response, including how quickly state governments decide to lift or
replace restrictions.
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While these unknowns make it more challenging for us to estimate future
performance, our business is flexible in terms of our ability to adjust the cost
structure to the appropriate level in response to the demand for our services.
During the second quarter of 2020, we received $9.7 million from the United
States Department of Health and Human Services ("HHS") Relief Funds appropriated
under the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") for a
portion of our lost revenues, as well as $23.7 million of advanced payments for
our future services from the Centers for Medicare and Medicaid Services ("CMS")
under their Accelerated and Advance Payment Program. We believe we will have
sufficient liquidity available through our operating cash flow and access to our
credit facility.
On January 27, 2020 , we entered into an Amended and Restated Credit Agreement
with Truist Bank (successor to SunTrust Bank ) (the "2020 Credit Agreement"),
which amends the SunTrust Credit Agreement entered into by the parties on July
12, 2017 . The 2020 Credit Agreement provides us with a $400.0 million senior
secured revolving credit facility. We used this revolving credit facility to
repay the debt under the SunTrust Credit Agreement. For more details, refer to
"Part I; Item 1. Financial Statements and Supplementary Data; Notes to
Consolidated Financial Statements; Note 8. Credit Agreement" of this report.
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Critical Accounting Policies and Estimates
We have prepared the consolidated financial statements and accompanying notes
included in "Part I; Item 1. Financial Statements" of this report in accordance
with U.S. generally accepted accounting principles. This requires us to make
estimates and assumptions that affect the amounts reported in our consolidated
financial statements and accompanying notes. These estimates and assumptions are
based on historical experience, analysis of current trends, and various other
factors that we believe to be reasonable under the circumstances. Actual results
could differ from those estimates under different assumptions or conditions.
We periodically reevaluate our accounting policies, assumptions, and estimates
and make adjustments when facts and circumstances warrant. Our significant
accounting policies are described in "Part II; Item 8. Financial Statements and
Supplementary Data; Notes to Consolidated Financial Statements; Note 2. Summary
of Significant Accounting Policies" of our Annual Report on Form 10-K for the
fiscal year ended December 31, 2019 . The accounting policies and related
assumptions that we consider to be more critical to the preparation of our
consolidated financial statements and accompanying notes and involve the most
significant management judgments and estimates are described in "Part II;
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations; Critical Accounting Policies and Estimates" of our Annual Report
on Form 10-K for the fiscal year ended December 31, 2019 .
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Results of Operations
Three Months Ended June 30, 2020 and June 30, 2019
Revenue
Three Months Ended
June 30 , Change
(in thousands, except percentages) 2020 2019 $ % Healthcare$ 74,680 $ 95,004 $ (20,324 ) (21.4 )% Research 11,459 13,879 (2,420 ) (17.4 )% Corporate and Other 3,268 2,920 348 11.9 % Subtotal 89,407 111,803 (22,396 ) (20.0 )% Other revenue 9,702 - 9,702 Total revenue$ 99,109 $ 111,803 $ (12,694 ) (11.4 )% Total revenue for the three months endedJune 30, 2020 decreased 11.4% due to the impact of the COVID-19 pandemic across most of our businesses. The decrease in Healthcare revenue was driven by generally lower demand for our monitoring services, as patients were hampered in their ability to see prescribing medical professionals. Since the stay-at-home orders have begun to be lifted and medical professionals have adjusted their practices to the pandemic, we saw an increase in overall demand for our monitoring services as the quarter progressed. Research revenue declined due to study close outs coupled with the delay in new study starts, primarily due to COVID-19. Corporate and Other revenue increased due to continued growth of diabetic product sales. Additionally, during the quarter we received Relief Funds distributed by HHS that represent reimbursements for a portion of our lost revenue and are recognized as other revenue. Gross Profit Three Months Ended June 30, Change
(in thousands, except percentages) 2020 2019 $
% Gross profit$ 61,527 $ 70,240 $ (8,713 ) (12.4 )% Percentage of total revenue 62.1 % 62.8 % Gross profit for the three months endedJune 30, 2020 decreased due to lower revenues, partially offset by the other revenue and cost reductions, including the deferral of pay increases, cancellation of travel and furloughing of a limited number of employees in certain operational areas that were directly impacted by our decreased volume. 39 --------------------------------------------------------------------------------
General and Administrative Expense
Three Months Ended
June 30 , Change
(in thousands, except percentages) 2020 2019 $ %
General and administrative expense
31.4 % 27.4 %
General and administrative expense for the three months ended
Three Months Ended
June 30 , Change
(in thousands, except percentages) 2020 2019 $
% Sales and marketing expense$ 10,521 $ 12,795 $ (2,274 ) (17.8 )% Percentage of total revenue 10.6 % 11.4 % Sales and marketing expense for the three months endedJune 30, 2020 decreased primarily due to a reduction in revenue-based commissions and reduced travel by our sales teams resulting from the various restrictions in place due to the COVID-19 pandemic. Credit Loss Expense Three Months Ended June 30, Change (in thousands, except percentages) 2020 2019 $ % Credit loss expense$ 6,166 $ 5,379 $ 787 14.6 % Percentage of total revenue 6.2 % 4.8 % Credit loss expense (formerly bad debt expense) for the three months endedJune 30, 2020 increased primarily due to the timing of Healthcare collections, which was slowed due, in part, to the economic impact of COVID-19. Credit loss expense for the three months endedJune 30, 2020 in Research and the Corporate and Other category was minimal. Research and Development Expense Three Months Ended June 30, Change (in thousands, except percentages) 2020 2019 $ % Research and development expense$ 2,699 $ 3,532 $ (833 ) (23.6 )% Percentage of total revenue 2.7 % 3.2 %
Research and development expense for the three months ended
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development team continues to focus on bringing new products and technologies to
market, including the further incorporation of artificial intelligence and
machine learning into our services.
Other Charges
Three Months Ended
June 30, Change
(in thousands, except percentages) 2020 2019 $ %
Other charges $ 5,003 $ 2,234 $ 2,769 123.9 %
Percentage of total revenue 5.0 % 2.0 %
Other charges for the three months ended June 30, 2020 increased primarily due
to the change in the fair value of acquisition-related contingent consideration,
partially offset by a decrease in patent and other litigation costs. For further
details, please see "Part I; Item 1, Financial Statements; Note 10. Other
Charges."
Other Expense
Three Months Ended
June 30, Change
(in thousands, except percentages) 2020 2019 $ %
Interest expense$ (1,702 ) $ (2,538 ) $ 836 (32.9 )% Loss on equity method investment - (154 ) 154 (100.0 )% Other non-operating income/(expense), net (1,400 ) 86 (1,486 ) (1,727.9 )% Total other expense, net$ (3,102 ) $ (2,606 ) $ (496 ) 19.0 % Percentage of total revenue 3.1 % 2.3 % Total other expense, net for the three months endedJune 30, 2020 increased primarily due to the effect of non-cash foreign currency transaction losses. This was partially offset by a decline in our current year interest expense as a result of the decrease in the LIBOR rate and the impact of our 2020 Credit Agreement. The 2020 Credit Agreement reduced our applicable LIBOR margin at the current Consolidated Total Net Leverage Ratio (as defined in the 2020 Credit Agreement) by 37.5 basis points. For further details regarding the 2020 Credit Agreement, please see "Part I; Item 1, Financial Statements; Note 8. Credit Agreement." Income Taxes Three Months Ended June 30, Change (in thousands, except percentages) 2020 2019 $ % Provision for income taxes$ (656 ) $ (4,807 ) $ 4,151 (86.4 )% Effective tax rate 22.3 % 36.7 % For the three months endedJune 30, 2020 and 2019, we recorded an income tax provision based on our estimated annual effective tax rate adjusted for discrete items. 41 -------------------------------------------------------------------------------- Six Months EndedJune 30, 2020 andJune 30, 2019 Revenue Six Months Ended June 30, Change (in thousands, except percentages) 2020 2019 $ % Healthcare$ 170,387 $ 183,013 $ (12,626 ) (6.9 )% Research 25,279 26,843 (1,564 ) (5.8 )% Corporate and Other 6,772 5,926 846 14.3 % Subtotal 202,438 215,782 (13,344 ) (6.2 )% Other revenue 9,702 - 9,702 Total revenue$ 212,140 $ 215,782 $ (3,642 ) (1.7 )% Total revenue for the six months endedJune 30, 2020 decreased 1.7% due to the impact of the COVID-19 pandemic across most of our businesses. The decrease in Healthcare revenue was driven by the lower demand for our MCT and Event services as patients were hampered in their ability to see prescribing medical professionals. This was partially offset by an increase in our extended Holter (ePatch™) and long-term cardiac monitoring services. Research revenue declined due to study close outs coupled with the delay in new study starts, primarily due to COVID-19. Corporate and Other revenue increased due to continued growth of diabetic product sales. Additionally, during the six months endedJune 30, 2020 , we received Relief Funds distributed by HHS that represent reimbursements for a portion of our lost revenue and are recognized as other revenue. Gross Profit Six Months Ended June 30,
Change
(in thousands, except percentages) 2020 2019 $ % Gross profit$ 132,035 $ 135,018 $ (2,983 ) (2.2 )% Percentage of total revenue 62.2 % 62.6 % Gross profit for the six months endedJune 30, 2020 decreased due to lower revenues, partially offset by other revenue and cost reductions, including the deferral of pay increases, cancellation of travel and furloughing a limited number of employees in certain operational areas that were directly impacted by our decreased volume. General and Administrative Expense Six Months Ended June 30, Change
(in thousands, except percentages) 2020 2019 $ %
General and administrative expense
29.7 % 27.0 %
General and administrative expense for the six months ended June 30, 2020
increased primarily due to additional headcount and related costs, as well as
increased technology expenses driven by our ongoing growth and investment in our
business systems and infrastructure.
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--------------------------------------------------------------------------------Sales and Marketing Expense
Six Months Ended
June 30 , Change
(in thousands, except percentages) 2020 2019 $
% Sales and marketing expense$ 23,967 $ 25,235 $ (1,268 ) (5.0 )% Percentage of total revenue 11.3 % 11.7 % Sales and marketing expense for the six months endedJune 30, 2020 decreased primarily due to a reduction in revenue-based commissions and reduced travel by our sales teams resulting from the various restrictions in place due to the COVID-19 pandemic. Credit Loss Expense Six Months Ended June 30, Change (in thousands, except percentages) 2020 2019 $ % Credit loss expense$ 12,186 $ 10,527 $ 1,659 15.8 % Percentage of total revenue 5.7 % 4.9 % Credit loss expense (formerly bad debt expense) for the six months endedJune 30, 2020 increased primarily due to the timing of Healthcare collections, which was slowed due, in part, to the economic impact of COVID-19. Credit loss expense for the six months endedJune 30, 2020 in Research and the Corporate and Other category was minimal. Research and Development Expense Six Months Ended June 30, Change
(in thousands, except percentages) 2020 2019 $ %
Research and development expense
3.0 % 3.2 %
Research and development expense for the six months ended June 30, 2020
decreased primarily due to the increased allocation of labor costs to projects
capitalized as technology assets. Our research and development team continues to
focus on bringing new products and technologies to market, including the further
incorporation of artificial intelligence and machine learning into our services.
Other Charges
Six Months Ended
June 30, Change
(in thousands, except percentages) 2020 2019 $ %
Other charges $ 7,087 $ 5,304 $ 1,783 33.6 %
Percentage of total revenue 3.3 % 2.5 %
Other charges for the six months ended June 30, 2020 increased primarily due to
the change in the fair value of acquisition-related contingent consideration,
partially offset by a decrease in acquisition and
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integration costs. For further details, please see "Part I; Item 1, Financial
Statements; Note 10. Other Charges."
Other Expense
Six Months Ended
June 30, Change
(in thousands, except percentages) 2020 2019 $ % Interest expense
$ (3,809 ) $ (5,020 ) $ 1,211 (24.1 )% Loss on equity method investment - (186 ) 186 (100.0 )% Other non-operating expense, net (469 ) (968 ) 499 (51.5 )% Total other expense, net$ (4,278 ) $ (6,174 ) $ 1,896 (30.7 )% Percentage of total revenue 2.0 % 2.9 % Total other expense, net for the six months endedJune 30, 2020 decreased primarily due to the decline in our interest expense as a result of the decrease in the LIBOR rate and the impact of our 2020 Credit Agreement. The 2020 Credit Agreement reduced our applicable LIBOR margin at the current Consolidated Total Net Leverage Ratio (as defined in the 2020 Credit Agreement) by 37.5 basis points. For further details regarding the 2020 Credit Agreement, please see "Part I; Item 1, Financial Statements; Note 8. Credit Agreement." Income Taxes Six Months Ended June 30, Change
(in thousands, except percentages) 2020 2019 $
% Provision for income taxes$ (5,880 ) $ (2,734 ) $ (3,146 ) 115.1 % Effective tax rate 38.5 % 12.0 % For the six months endedJune 30, 2020 and 2019, we recorded an income tax provision based on our estimated annual effective tax rate adjusted for discrete items. The change in the provision for income taxes is driven by higher stock compensation deductions in the prior year. -------------------------------------------------------------------------------- 44 -------------------------------------------------------------------------------- Liquidity and Capital Resources The following table highlights certain information related to our liquidity and capital resources: June 30, December 31, (in thousands, except ratios) 2020
2019
Cash and cash equivalents$ 84,003 $
68,614
Healthcare accounts receivable, net of allowance for credit losses
65,525 71,851
Other accounts receivable, net of allowance for credit losses
15,088 15,625
Availability under revolving credit facility 238,000 50,000 Working capital$ 106,164 $ 112,579 Current ratio 2.5 3.0 Total operating lease obligations$ 38,385 $
19,216
Total finance lease obligations 479 683 Total debt$ 157,655 $ 194,667
The following table highlights certain cash flow activities:
Six Months Ended
June 30, June 30,
(in thousands) 2020 2019
Net income $ 9,390 $ 19,985
Non-cash adjustments to net income 47,967 37,159
Cash provided by/(used for) working capital 12,188 (21,014 ) Cash provided by operating activities 69,545 36,130
Cash used in investing activities (17,110 ) (60,858 ) Cash used in financing activities$ (36,988 ) $ (4,448 ) Cash Provided By Operating Activities The increase in cash provided by operating activities was partially due to the receipt of funds from government stimulus programs. We received$9.7 million in HHS funding for a portion of our lost revenue, as well as$23.7 million of advanced payments for our future services from CMS under their Accelerated and Advance Payment Program. We expect to begin applying these advanced payments for our future services in the third quarter of 2020. Non-cash adjustments to net income increased for the six months endedJune 30, 2020 primarily due to the changes in acquisition-related contingent consideration, increases in other non-cash expenses, credit loss expense, depreciation and amortization, deferred income taxes and stock-based compensation. Cash Used In Investing Activities During the six months endedJune 30, 2020 we slightly increased our purchases for equipment and internally developed software, consistent with our continuation of the launch of our next generation products used in our monitoring services. During the six months endedJune 30, 2019 , we spent$44.8 million , net 45 -------------------------------------------------------------------------------- of cash acquired, related to ourGeneva acquisition, with no cash outflows related to acquisitions in the current year period. Cash Used In Financing Activities The increase in cash used in financing activities during the six months endedJune 30, 2020 was primarily due to the net effect of the borrowings and repayments resulting from the amendment of our credit facility (as defined below). As a result of our cash flows from operations, during the second quarter of 2020 we were able to repay$70.0 million on our revolver, including the$35.0 million we borrowed in the first quarter of 2020. OnJanuary 27, 2020 , we entered into an Amended and Restated Credit Agreement (the "2020 Credit Agreement") withTruist Bank (successor toSunTrust Bank ) in the form of a revolving credit facility. The 2020 Credit Agreement provides us more favorable financial terms, giving us more flexibility in the future. As ofJune 30, 2020 , we had$238.0 million of availability under our revolving credit facility. For further details regarding this agreement, please see "Part I; Item 1. Financial Statements; Notes to Consolidated Financial Statements; Note 8. Credit Agreement" of this report. We believe that our operating cash receipts will be sufficient to cover our operating cash needs. We do not expect the cash receipts in the second quarter related to certain COVID-related government stimulus programs to be reoccurring. -------------------------------------------------------------------------------- Contractual Obligations and Commitments Our contractual obligations payable reflected in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 have materially changed as a result of the 2020 Credit Agreement. The following table describes our long-term contractual obligations and commitments as ofJune 30, 2020 : Payments due by
period
Less than 1 More than 5
(in thousands) Total year 1-3 Years 3-5 Years Years
Operating lease
obligations $ 44,315 $ 6,787 $ 11,311 $ 9,008 $ 17,209
Finance lease
obligations 498 264 218 14 2
Purchase obligations(1) 27,950 4,821 9,643 13,486 -
Deferred consideration -
cash 11,068 - 11,068 - -
Debt and interest
obligations(2) 172,555 2,111 4,222 166,222 -
Total(3)(4)(5) $ 256,386 $ 13,983 $ 36,462 $ 188,730 $ 17,211 ________________
(1) Represents minimum annual volume commitments to purchase equipment and supplies under certain of our supplier contracts.
(2) Our debt bears a variable interest rate, at our election, with an applicable
margin determined by the 2020 Credit Agreement. The amounts above assume the
principal, rate and margin as of
term. The principal, rate and margin may fluctuate, as may our election of
LIBOR or Base Rate pricing, throughout the term of the loan. Excluded from
the amounts in the table is the 0.175% commitment fee payable on the unused
portion of our line of credit.
(3) In connection with certain acquisitions completed in 2019 and 2018, we have
acquisition-related contingent consideration obligations payable to the
sellers in these transactions upon the achievement of certain revenue-based
milestones that are not
46-------------------------------------------------------------------------------- reflected in the table above. The maximum aggregate undiscounted amounts potentially payable not included in the table above total$2.0 million , with the exception ofGeneva , which is uncapped. As ofJune 30, 2020 , the estimate of the cash portion of theGeneva contingent consideration is$9.7 million , which is scheduled to be paid in early 2022 and subject to certain indemnification obligations. See "Part I; Item 1. Financial Statements; Notes to Consolidated Financial Statements; Note 3. Acquisitions" in this Quarterly Report on Form 10-Q for further discussion related to theGeneva contingent consideration.
(4) As of
balance sheet includes reserves for unrecognized tax benefits. We are unable
to make reasonably reliable estimates of both the timing of tax audit
outcomes and if unfavorable, the timing of payments; therefore, such amounts
are not included in the above contractual obligation table. See "Part II;
Item 8. Financial Statements and Supplementary Data; Notes to Consolidated
Financial Statements; Note 17. Income Taxes" in our Annual Report on Form
10-K for further discussion related to uncertain tax positions.
(5) In conjunction with an acquisition of customer relationships in the second
quarter of 2020, we entered into a royalty agreement. The cash to be paid
related to this royalty is uncapped but is estimated to be approximately
based on revenue, which can vary from year to year, and there are no minimum
or maximum royalty payments, no amounts are included in the above
contractual obligations table.
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