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 endedSeptember 30, 2020 : •Recognized$114.7 million in total revenue, an increase of 3.0% compared to the prior year period, and a sequential increase of 15.7%, despite the impact of COVID-19. •Increased patient volumes to pre-COVID-19 levels by the end of the third quarter in our Healthcare business. •Completed the acquisition of certain assets and liabilities ofEnvolve PeopleCare, Inc , a Centene Corporation subsidiary, including the On.Demand remote patient monitoring and coaching platform, accelerating growth in our population health business. •Reduced our applicable LIBOR margin 12.5 basis points during the quarter, for a total reduction of 50 basis points sinceDecember 31, 2019 . •Generated positive operating cash flow in the quarter of$21.9 million . Recent Developments InMarch 2020 , theWorld Health Organization declared the outbreak of COVID-19 as a global pandemic, and, in the following weeks, manyU.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 an 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. 39 -------------------------------------------------------------------------------- Our year-to-date results reflect the impact of the pandemic. 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. 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 theUnited 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 theCenters for Medicare and Medicaid Services ("CMS") under their Accelerated and Advance Payment Program. We currently do not expect to receive additional funds under these programs. We believe we will have sufficient liquidity available through our operating cash flow and access to our credit facility. OnJanuary 27, 2020 , we entered into an Amended and Restated Credit Agreement withTruist Bank (successor toSunTrust Bank ) (the "2020 Credit Agreement"), which amends the SunTrust Credit Agreement entered into by the parties onJuly 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. 40 -------------------------------------------------------------------------------- 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 withU.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 endedDecember 31, 2019 . The accounting policies and related assumptions that we consider to be more critical to the preparation of our consolidated financial statements and accompanying notes and involve the most significant management judgments and estimates are described in "Part II; Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations; Critical Accounting Policies and Estimates" of our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 .
Results of Operations
Three Months Ended
Three Months Ended
September 30, Change
(in thousands, except percentages) 2020 2019 $ %
Healthcare $ 98,468 $ 93,873 $ 4,595 4.9 %
Research 12,117 14,236 (2,119) (14.9) %
Corporate and Other 4,070 3,182 888 27.9 %
Total revenue $ 114,655 $ 111,291 $ 3,364 3.0 %
Total revenue for the three months ended September 30, 2020 increased 3.0% due
to growth in Healthcare and Corporate and Other category revenue, partially
offset by the decrease in Research revenue. The increase in Healthcare revenue
was driven by growth in our recurring cardiac monitoring and extended wear
Holter services, partially offset by lower mobile cardiac telemetry ("MCT")
patient revenue resulting from the impact of COVID-19 and negative payor mix.
However, as the stay-at-home orders have continued to be lifted and medical
professionals have adjusted their practices to the pandemic, we continue to see
an increase in overall demand for our monitoring services since the low point in
April. 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 growth of population health platform and services.
41
--------------------------------------------------------------------------------Gross Profit
Three Months Ended
September 30, Change
(in thousands, except percentages) 2020 2019 $ %
Gross profit $ 68,987 $ 69,339
Percentage of total revenue 60.2 % 62.3 %
Gross profit for the three months ended September 30, 2020 decreased slightly
from prior year due to MCT volume declines related to COVID-19 and the related
impact of our fixed cost absorption as well as the negative payor mix and growth
in our recurring cardiac monitoring business, which carries lower margins.
General and Administrative Expense
Three Months Ended
September 30, Change
(in thousands, except percentages) 2020 2019 $ %
General and administrative expense
Percentage of total revenue 28.6 % 26.6 %
General and administrative expense for the three months ended September 30, 2020
increased primarily due to an increase in headcount and related costs,
stock-based compensation, software and cloud hosting services, as well as higher
facility and rent expenses. Technology related expenses also increased, driven
by our ongoing growth and investment in our business systems and infrastructure.
Sales and Marketing Expense
Three Months Ended
September 30, Change
(in thousands, except percentages) 2020 2019 $ %
Sales and marketing expense $ 11,652 $ 12,572
Percentage of total revenue 10.2 % 11.3 %
Sales and marketing expense for the three months ended September 30, 2020
decreased primarily due to a reduction in travel and trade shows attended by our
sales teams resulting from the various restrictions in place due to the COVID-19
pandemic.
Credit Loss Expense
Three Months Ended
September 30, Change
(in thousands, except percentages) 2020 2019 $ %
Credit loss expense $ 6,465 $ 5,858 $ 607 10.4 %
Percentage of total revenue 5.6 % 5.3 %
Credit loss expense (formerly bad debt expense) for the three months ended
42
--------------------------------------------------------------------------------Research and Development Expense
Three Months Ended
September 30, Change
(in thousands, except percentages) 2020 2019 $ %
Research and development expense
Percentage of total revenue 2.7 % 3.3 %
Research and development expense for the three months ended September 30, 2020
decreased primarily due to the increased allocation of labor costs to projects
capitalized as technology assets based on the current status of our development
activities on these 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
Three Months Ended
September 30, Change
(in thousands, except percentages) 2020 2019 $ %
Other charges $ 3,186 $ 2,598 $ 588 22.6 %
Percentage of total revenue 2.8 % 2.3 %
Other charges for the three months ended September 30, 2020 increased primarily
due to the change in the fair value of acquisition-related contingent
consideration and increases in other non-recurring charges, 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
September 30, Change
(in thousands, except percentages) 2020 2019 $
%
Interest expense$ (902) $ (2,338) $ 1,436 (61.4) % Loss on equity method investment - (65) 65 (100.0) % Other non-operating expense, net (312) (845) 533 (63.1) % Total other expense$ (1,214) $ (3,248) $ 2,034 (62.6) % Percentage of total revenue 1.1 % 2.9 % Total other expense, net for the three months endedSeptember 30, 2020 decreased primarily due to lower interest expense as a result of the decrease in the LIBOR rate and the impact of our 2020 Credit Agreement, including the lower principal balance under our revolving credit facility. 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 50 basis points. For further details regarding the 2020 Credit Agreement, please see "Part I; Item 1, Financial Statements; Note 8. Credit Agreement." Other expense also decreased as a result of the prior year non-cash foreign currency transaction loss, compared to a slight gain from non-cash foreign currency transactions in the current year. 43 --------------------------------------------------------------------------------
Income Taxes
Three Months Ended
September 30, Change
(in thousands, except percentages) 2020 2019 $ %
Provision for income taxes $ (3,960) $ (3,468)
Effective tax rate 37.1 % 29.5 %
For the three months ended September 30, 2020 and 2019, we recorded an income
tax provision based on our estimated annual effective tax rate adjusted for
discrete items. The increase in the effective tax rate is due to the greater
impact of discrete items recognized in the prior year.
Nine Months Ended September 30, 2020 and September 30, 2019
Revenue
Nine Months Ended
September 30, Change
(in thousands, except percentages) 2020 2019 $ %
Healthcare $ 268,855 $ 276,886 $ (8,031) (2.9) %
Research 37,396 41,079 (3,683) (9.0) %
Corporate and Other 10,842 9,108 1,734 19.0 %
Subtotal 317,093 327,073 (9,980) (3.1) %
Other revenue 9,702 - 9,702
Total revenue $ 326,795 $ 327,073 $ (278) (0.1) %
Total revenue for the nine months ended September 30, 2020 remained relatively
flat compared to prior year due to the Relief Funds distributed by HHS that
represent reimbursements for a portion of our lost revenue and are recognized as
other revenue during the second quarter of 2020, offset by the impact of the
COVID-19 pandemic across most of our businesses. The decrease in Healthcare
revenue was driven by the lower overall demand for our services as patients were
hampered in their ability to see prescribing medical professionals. 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 population health platform and services.
Gross Profit
Nine Months Ended
September 30, Change
(in thousands, except percentages) 2020 2019 $ %
Gross profit $ 201,022 $ 204,357
Percentage of total revenue 61.5 % 62.5 %
Gross profit for the nine months ended September 30, 2020 decreased due to
volume declines and the impact to revenue resulting from COVID-19, along with
the impact of our fixed cost absorption from volume declines and negative payor
mix, partially offset by 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.
44
--------------------------------------------------------------------------------General and Administrative Expense
Nine Months Ended
September 30, Change
(in thousands, except percentages) 2020 2019 $ %
General and administrative expense
Percentage of total revenue 29.3 % 26.9 %
General and administrative expense for the nine months ended September 30, 2020
increased primarily due to an increase in headcount and related costs,
stock-based compensation, as well as technology expenses driven by our ongoing
growth and investment in our business systems and infrastructure.
Sales and Marketing Expense
Nine Months Ended
September 30, Change
(in thousands, except percentages) 2020 2019 $ %
Sales and marketing expense $ 35,619 $ 37,807 $(2,188) (5.8) %
Percentage of total revenue 10.9 % 11.6 %
Sales and marketing expense for the nine months ended September 30, 2020
decreased primarily due to a reduction in revenue-based commissions, reduced
travel and trade shows attended by our sales teams resulting from the various
restrictions in place due to the COVID-19 pandemic.
Credit Loss Expense
Nine Months Ended
September 30, Change
(in thousands, except percentages) 2020 2019 $ % Credit loss expense$ 18,651 $ 16,385 $ 2,266 13.8 % Percentage of total revenue 5.7 % 5.0 %
Credit loss expense (formerly bad debt expense) for the nine months ended
Nine Months Ended
September 30, Change
(in thousands, except percentages) 2020 2019 $ %
Research and development expense
Percentage of total revenue 2.8 % 3.2 %
Research and development expense for the nine months ended September 30, 2020
decreased primarily due to the increased allocation of labor costs to projects
capitalized as technology assets based on the current status of our development
activities on these technology assets. Our research and
45
--------------------------------------------------------------------------------
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
Nine Months Ended
September 30, Change
(in thousands, except percentages) 2020 2019 $ % Other charges$ 10,273 $ 7,902 $ 2,371 30.0 % Percentage of total revenue 3.1 % 2.4 % Other charges for the nine months endedSeptember 30, 2020 increased primarily due to the change in the fair value of acquisition-related contingent consideration and increases in other non-recurring charges, partially offset by decreases in patent and other litigation charges and acquisition and integration costs. For further details, please see "Part I; Item 1, Financial Statements; Note 10. Other Charges." Other Expense Nine Months Ended September 30, Change (in thousands, except percentages) 2020 2019 $
%
Interest expense$ (4,711) $ (7,358) $ 2,647 (36.0) % Loss on equity method investment - (251) 251 (100.0) % Other non-operating expense, net (781) (1,813) 1,032 (56.9) % Total other expense$ (5,492) $ (9,422) $ 3,930 (41.7) % Percentage of total revenue 1.7 % 2.9 % Total other expense, net for the nine months endedSeptember 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 50 basis points. For further details regarding the 2020 Credit Agreement, please see "Part I; Item 1, Financial Statements; Note 8. Credit Agreement." Income Taxes Nine Months Ended September 30, Change (in thousands, except percentages) 2020 2019 $ % Provision for income taxes$ (9,840) $ (6,202) $
(3,638) 58.7 %
Effective tax rate 37.9 % 18.0 %
For the nine months ended September 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, partially offset by the impact of the
higher prior year earnings.
46
--------------------------------------------------------------------------------
Liquidity and Capital Resources
The following table highlights certain information related to our liquidity and
capital resources:
September 30, December 31,
(in thousands, except ratios) 2020 2019
Cash and cash equivalents $
90,229
72,351 71,851
Other accounts receivable, net of allowance for credit losses 16,287 15,625
Availability under revolving credit facility 238,000 50,000
Working capital $ 122,369 $ 112,579
Current ratio 2.8 3.0
Total operating lease obligations $ 46,753 $ 19,216
Total finance lease obligations 447 683
Total debt $ 157,883 $ 194,667 The following table highlights certain cash flow activities:
Nine Months Ended
September 30, September 30,
(in thousands) 2020 2019
Net income $ 16,104 $ 28,268
Non-cash adjustments to net income 73,726 60,683
Cash provided by/(used for) working capital 1,604
(36,349)
Cash provided by operating activities 91,434
52,602
Cash used in investing activities (34,377)
(68,452)
Cash used in financing activities$ (35,375) $
(3,489)
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. Non-cash adjustments to net income increased for the nine months endedSeptember 30, 2020 primarily due to the changes in acquisition-related contingent consideration, depreciation and amortization, credit loss expense, stock-based compensation and deferred income taxes. Cash Used In Investing Activities During the nine months endedSeptember 30, 2020 we slightly increased our purchases of equipment and investment in internally developed software, consistent with our continuation of the launch of our next generation products used in our monitoring and other services. During the nine months endedSeptember 30, 2020 , we paid$6.5 million related to our On.Demand acquisition, while 47
--------------------------------------------------------------------------------
during the nine months endedSeptember 30, 2019 , we paid$44.8 million , net of cash acquired, related to ourGeneva acquisition. Cash Used In Financing Activities The increase in cash used in financing activities during the nine months endedSeptember 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 ofSeptember 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 I, Item 2 of our Quarterly Report on Form 10-Q for the quarterly period endedJune 30, 2020 have not materially changed.
© Edgar Online, source
