Good afternoon. Thank you for joining us for the BioTelemetry Fourth Quarter 2017 Earnings Conference Call.

Certain statements during the conference call and question-and-answer period to follow may relate to future events and expectations and as such constitute forward-looking statements within the meaning of the Private Securities and Litigation Act of 1995.

Such statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance or achievements of the Company in the future to be materially different from those statements that the Company’s executives may make today.

These risks are described in detail in our public filings with the Securities and Exchange Commission, including our latest periodic report on Form 10-K or 10-Q. We assume no duty to update these statements. At this time, all participants have been placed on a listen-only mode.

The floor will be opened for questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, Mr. Joseph Capper. Sir, you may begin..

Thank you, operator, and good afternoon, everyone. I’m Joe Capper, President and CEO of BioTelemetry. I’m joined by Heather Getz, our Chief Financial Officer. I’ll start with a recap of our fourth quarter performance and other key developments. Heather will take you through a more detailed review of our financial results.

I will then provide commentary on how we see the business continuing to evolve throughout 2018. After our prepared remarks, we will open up the call for questions. As you will hear, we had a truly exceptional quarter. I could not be more pleased with how the team is working together to deliver on our objectives.

On this call, we will update you on the faster than anticipated integration of LifeWatch and the realization of the associated synergies which are running well ahead of schedule. You will also learn that our research services division has regained its momentum and that backlog stands at a record level.

We will elaborate on our role as a contributor to the high profile Apple Heart study. We will also detail how our population health business is progressing.

Last, you will learn that we didn’t miss a beat while integrating LifeWatch and posting another record setting quarter in which we set all time highs in revenue, EBITDA, and EBITDA margin making it our 22nd consecutive growth quarter. As you can tell, there is no shortage of good news to report this quarter.

So let's dig into the detail behind these many positive accomplishments. For the full year we far exceeded what were fairly aggressive growth objectives, driven in large part by the highly strategic acquisition of LifeWatch AG back in July. Since that time, the integration has been tracking well ahead of schedule.

In many cases we have achieved key milestones months in advance. Naturally, the focus since the acquisition has been to manage the successful integration of operations while continuing to execute on our business objectives in the same fashion we did prior to the transaction. I am pleased to report that is exactly what is happening.

As I mentioned on our last call, as we work through the integration, we are highly focused on two areas of vital importance, maximizing customer retention and adopting best practices. Key metrics in these areas have been excellent. As a result, we are now in a much stronger competitive position and better able to execute on our plan.

For those of you who are new to the company, it's important that you understand the three principles which guide our strategy and have led to the consistent growth we have had for more than five years. Every initiative we undertake could be tracked back to one or more of these themes.

Which are, to go deeper and wider in cardiac monitoring in order to expand our leadership position. To continue to build upon our leading research services business by expanding our service offerings. And last, to identify other markets that would benefit from the application of our wireless platform and proprietary technology.

The acquisition of LifeWatch was obviously consistent with our intent to solidify our leadership position in cardiac monitoring. Our global cardiac monitoring capabilities and reach are now unmatched, providing us an enviable position from which to launch other connected health solutions.

In support of our second key initiative, we purchased VirtualScopics in 2016 to broaden the scope of our clinical research capabilities, which is already helping to deliver solid growth.

The third element of our plan was advanced with the addition of Telcare, providing us a running start towards capitalizing on enormous opportunities and adjacent connected health markets. Let's take a few minutes to review in more detail some of the fourth quarter highlights.

During the period, revenue grew by 70% to $91.7 million, exceeding the upper end of our expectations. Organic revenue growth was an impressive 10%. Full year revenue was $287 million, up 38% from 2016, again driven in large part by the LifeWatch acquisition.

Overall margins continue to improve as quarterly EBITDA grew by 80% to $22.9 million, exceeding our expectations and bringing full year EBITDA for $65 million, representing an increase of 36% over 2016.

We ended the quarter with $36 million in cash, up nearly $10 million in the quarter which is amazing given all the onetime expenses associated with the integration. MCT volume was up 12% on a pro forma basis. Our research services team continued to expand backlog well ahead of expectations, closing 2017 at record highs for bookings and pipeline.

We continue efforts to build upon our new digital population health management business through key partnerships and internal investments. And we became the cardiac monitoring provider for the much touted Apple Heart Study.

As a reminder, we took operational control of LifeWatch on July 24 and we have made tremendous strides during the first few quarters of the integration process. I will like to again thank the entire team for the way they have embraced this combination.

I have done numerous acquisitions and integrations throughout my career and I can honestly say that I have never seen one work this efficiently which is a testament to all those involved. As a result of everyone's focus and hard work, we are well ahead of all key milestones including reaching our $30 million synergy objective.

In addition to making tremendous progress on the integration, during the quarter we continued to see excellent growth with the MCT product line, which was up an incredible 12% on a pro forma basis. We saw similar growth numbers in August and September in the first two months post the acquisition.

Instead of pulling back or flattening out, which would be typical on a combination of this kind, MCT growth has actually accelerated post-merger and is done so off of a much larger base of business. It is great news for our remote cardiac monitoring business that our flagship product line is performing so well.

The feedback we have been hearing about the transaction has been very positive and the marketplace is clearly confirming these sentiments. Additionally, we have done an excellent job retaining our largest and most valued accounts.

Within our top 500 customers, which account for 50% of our total healthcare business, we have actually experienced revenue increases since the acquisition. We look for continued growth throughout 2018 as we move into full market release of our latest version of the MCT.

As a reminder, this new system incorporates our unparalleled Arrhythmia detection capability in a product that can be configured as a patch or use lead wires when patients prefer not to wear patch. Complementing MCT growth are the extended wear Holters products, CardioKey and ePatch.

Which will continue to expand quite nicely as we get further into the year. With the combination complete, we are now the largest and most profitable connected health company in the world. We process over 4 billion heartbeats a day.

We have the most accurate and advanced technology in the market place which generates the highest yields with the fastest turnaround time for the more than 30,000 physicians who refer our products each month. In terms of sales force performance, no other company is even close.

To put this in perspective, in 2018 the healthcare division will generate approximately $320 million in revenue with a 100 reps. A productivity of $3.2 million per sales professional. This is not some metric we hope to get to in the future, this is what we are doing now.

As I mentioned on our last call, while much of the attention has appropriately been on the transformational acquisition and integration of the LifeWatch business, the other parts of the company continue to make steady progress against their specific objectives. Our research services team had an incredibly productive year.

As you may recall, our focus for research in 2017 was to integrate disparate systems resulting from the acquisition of our imaging platform in mid-2016 with the intent of streamlining operations and creating scalability within the business.

Throughout the year we also continued to deal with the headwind in the cardiac safety side of the business, resulting from unclear guidance from the FDA around study requirements. Given the strong internal focus and the slowdown in the cardiac safety market, we expect that the modest organic growth we experienced in research for the whole year 2017.

However, what we did not anticipate happening so quickly was the team's ability to reposition the business and leverage the portfolio in order to accelerate the rate at which we add to our backlog, which is a leading indicator of future revenue.

Throughout 2017 the research team made consistent progress building backlog, growing 50% year-over-year and ending 2017 at a historic high for the company. As a result, revenue began to pick up in the fourth quarter, growing 20% over the prior year quarter.

This portion of BioTelemetry is now poised for strong double digit growth in 2018, a rate at least twice that of the industry. Just as importantly, our operations are more integrated and better prepared to scale as we anticipate adding to the momentum we have created last year.

Okay, I just said a lot about the progress of the two main segments of BioTelemetry, healthcare and research services. So let's recap where we stand. These two divisions account for over 95% of our revenue and both are growing at double digits. The healthcare services portion of our business leads its market in every meaningful metric.

The research business is in a stronger position than at any point in its history. Both businesses are firing on all cylinders, growing. Getting more efficient and producing excellent returns and both of these markets represent attractive large opportunities with robust growth potential.

This provides us a luxury not many companies experience at this juncture of their lifecycle. It creates a possibility for us to extend our leadership position in the emerging connected health market by allocating more time and resources to other developing opportunities. And that is exactly what we are doing.

A few months back we announced our collaboration as the cardiac monitoring partner for the Apple Heart Study. With this study, Apple is attempting to validate the use of their watch as screening tool for heart rhythm abnormalities in the general population.

They had made clear that the watch is not a diagnostic tool and not on the path to becoming a regulated medical device. However, this initiative does have the potential to expand the cardiac monitoring market by alerting undiagnosed patients of their need for cardiac monitoring and potential treatment.

Our participation leverages our gold standard Arrhythmia monitoring technology and a world class project and data management of a research division. This study is in its early stages and we are excited how this potentially significant opportunity develops.

Additionally, last year we made our first investment into the digital population health management market with the acquisition of Telcare.

As you will recall, PHM programs are designed to provide information, education and assistance in an effort to modify the behavior of people living with expensive, chronic conditions, ultimately improving outcomes and lowering the overall cost of care.

Population health management programs need to be high touch while fitting into the lifestyle of the patient in order to be effective.

Coupling latest technology on wireless connectivity with the tools used in traditional PHM programs, allows for the continuous transmission of important information, dramatically improving the efficiency and effectiveness of these programs.

Our current PHM offering in the diabetes market is gaining traction and provides us an entrée into a large market with estimated direct annual cost in the U.S. of over $245 billion, and in desperate need of connected health solutions like the ones we provide.

Our focus in 2017 was to make investments necessary to scale the business and to develop several key partnerships, including the exciting one which was mentioned on our last call. In 2018 we will focus more on these partnerships and on other business development activities. To sum up, we closed out 2017 better than expected.

Providing us with tremendous momentum as we enter the new year. We are ahead of schedule on our key milestones and our performance metrics look outstanding. The new fully aligned organization is poised for another spectacular year. In 2018, we will service in excess of 1 million patients.

Our revenue will be north of $380 million, with an EBITDA margin in the mid-20s. And the company will be generating a significant amount of free cash, allowing for accelerated investments into other connected health solutions. Solutions which will improve the quality of care and dramatically reduce the cost to deliver that care.

I will now turn the call over to Heather for a detailed financial review of the quarter.

Heather?.

Thank you, Joe, and good afternoon everyone. As Joe just announced, the fourth quarter of 2017 marked our 22nd consecutive quarter of year-over-year revenue growth with total revenue of $91.7 million. This represents a 70% increase as compared to the fourth quarter of 2016.

Healthcare revenue was very strong with an increase of $36.3 million, resulting from volume increases, driven by the acquisition of LifeWatch, a 12% increase in pro forma MCT volumes and a favorable payer mix.

Partially offsetting these positive drivers was the lower Medicare rate that became effective January 1, which again as expected impacted by about $1 million in the quarter. On a pro forma basis, our healthcare revenue grew by 10% and if we did not have the Medicare rate reduction, the revenue growth would have been 12%.

Our research revenue increased 20% or $1.7 million largely due to a higher volume of imaging studies resulting from new customers. This increase was partially offset by pressure on our cardiac safety side of the business. Moving to gross profit. Our margin for the fourth quarter was 59% versus 61% in the fourth quarter of 2016.

The decline in margin was primarily due to the impact of the LifeWatch and Telcare acquisition which carry a lower margin than our existing business and the Medicare rate reduction. This decline was partially offset by volume and operational efficiencies.

Our third quarter adjusted EBITDA of $22.9 million was our highest quarterly adjusted EBITDA in the company's history and represented a 25% return on revenue. Similar to the dollar amount, this return is the highest EBITDA return in the company's history and was above our expectations.

It reflects the positive impact of targeted investments and faster than anticipated synergies realized from the integration of LifeWatch. Remember, pre-acquisition on a pro forma basis, the combined company's EBITDA return was approximately 18%. In less than two quarters, we have been realize a 700 basis point improvement in our return.

To expand on the synergies from LifeWatch, as you know we committed to deliver $25 million to $30 million of synergies. I announced on the third quarter call that we have already specifically identified $30 million. In Q4 we realized approximately $5 million in synergies bringing the total amount realized in 2017 to over $8 million.

By the end of 2018, we will reach the one rate necessary to fully achieve these annualized savings. I would also like to provide some clarification on the adjustments to our GAAP numbers. These adjustments are laid out in detail in our earnings release but I wanted to review them now at a high level.

In the fourth quarter we incurred $29 million of charges that are not part of our ongoing operations or removed from comparative purposes. These cost feel into three main categories. The first category is acquisition, integration and other cash charges of approximately $5 million. This includes things like severance and retention.

The second category is non-cash items totaling about $15.5 million resulting from integration and purchase accounting for write off of assets including trade names, equipment and some developed software that will not be utilized going forward, as well as the amortization of acquisition related intangibles.

And the third category is an $8.7 million non-cash write-down of our deferred tax assets. To elaborate on this $8.7 million, as many of you know, the tax reform enacted in December called for the federal statutory rate to drop from 35% to 21%.

This reduction in rate required us to revalue our net deferred tax assets at the new rate and to write off the difference. Our actual cash taxes for 2017 were approximately $700,000. Moving on to the balance sheet.

We ended the quarter with $36 million in cash and $204 million of net indebtedness, which was used to acquire LifeWatch and refinance our existing debt. Year-to-date we generated $23.8 million in cash from operations and used $13.7 million for capital expenditures, which provided $10.1 million in free cash flow.

$8.3 million of the CapEx was for additional devices in our healthcare segment with another $4.5 million for refresh of hardware in our data center to support additional security protocols and the acquisition of LifeWatch. The remainder of the CapEx was for leasehold improvements, software and tooling, needed to support our growth.

Before touching on the first quarter 2018 outlook, I wanted to mention the new revenue recognition standard also known as ASC 606. While there are some small changes in our revenue recognition and there is a need to provide more robust disclosures, we do not expect the new standard to have a significant impact on the way we record revenue.

We have provided a more detailed update on our implementation of the revenue recognition standard in our Form 10-K. Shifting gears, I will now touch on the outlook for the first quarter of 2018. Last quarter we guided to 2018 full year revenue of over $380 million and EBITDA of over $90 million.

This represents a 10% increase on the top line and EBITDA return in the mid-20s. We believe the momentum we experienced in 2017 coming out of the transaction will continue into 2018.

Adding to this momentum will be the positive impact expected from the launch of our MCT patch product, growth in our extended ware Holter business and the positive impact of synergies and operational efficiency.

Looking at the first quarter, we are expecting revenue to be approximately $91 million to $92 million and EBITDA of about $20 million or 21% return. As in prior years, these projections reflect certain expenses that are more heavily weighted to the first quarter, such as payroll taxes and sales meetings.

As we progress through the year, we expect to achieve the full year EBITDA return in the mid-20% range. In addition, to end the first quarter -- we expect to end the first quarter with about $30 million in cash, a slight reduction versus the year-end balance.

During the quarter there will be cash outlays related to the acquisition including severance, retention and the remaining shares of LifeWatch. And finally, we will use cash in Q1 for management incentive payments and increased capital expenditures to service our growing number of patients. To summarize.

The company remains in a strong financial position with modest leverage and additional capacity if needed. We just posted our 22nd consecutive quarter of year-over-year revenue growth. We are ahead of schedule in the integration of LifeWatch and are seeing the tangible benefit.

In less than six months post-acquisition, we grew pro forma revenue by 10% and drove a 700 basis point improvement to our EBITDA return. These results and consistent growth have provided and we will continue to provide us with the financial strength and flexibility to execute on our key growth initiatives.

And with that, I will now turn the call back over to Joe..

Thanks, Heather. As you have just heard, we had an excellent fourth quarter. Building on the momentum we have cultivated over the last five years. Our strategy is yielding the results we expected and we continue to broaden our opportunities. We are in the early stages of several potentially significant drivers of future growth.

The importance of the acquisition of LifeWatch should not be under-estimated. This transaction has advanced our growth plans by several years.

To ensure our continued success throughout 2018, we will focus on completing the integration of LifeWatch, expanding our comprehensive approach with the full market release of a series of patch products, both MCT and extended wear Holter.

Continuing to grow our research services backlog at the accelerated rate we are now experiencing and converting that backlog into revenue. Building out our digital population heath management business and expanding on key partnerships we have developed.

Given our excellent results, the momentum of our business, the stable reimbursement environment and greater visibility into the synergies created by the acquisition, the company has never been in a stronger position. All in all, things are tracking better than anticipated. Heather spoke about how we see 2018 beginning to take shape.

We are clearly in store for another great year. While we are pleased with the progress of the company, we get far more excited about what lies ahead. We currently operate the powerful cardiac monitoring and clinical research businesses which have the potential to produce solid growth for years to come.

This provides an excellent platform from which to commercialize additional innovative connected health solutions. As such, we plan to be more assertive to our 2018 in developing these opportunities. As I close, I would again like to thank those of you who help deliver our 22nd consecutive growth quarter.

Let's continue to build on the excellent momentum we have built together. With that, we will now pause and open the call to your questions. Operator, we are ready for our first question..

[Operator Instructions] Our first question comes from Brooks O'Neil with Lake Street Capital Markets. Your line is now open..

Congratulations on a terrific year, you guys. I was wondering if you would elaborate in any way on sort of what we should expect in terms of the pacing of your launch of the new MCOT products and the extended wear Holters..

As far as MCOT, Brooks, we put a few thousand on the fourth quarter. Feedback was tremendous. So we are in the process of accelerating the production of that product probably by kind of the end of -- I would say more like the middle of March we will see full production up and running. We are rolling product off the line now.

So kind of the end of the first quarter well into the second quarter we will be at full capacity. And that’s not a product, it's a swap out. It's kind of an inline update to the existing MCP product line..

Okay. And how about extended wear Holters, Joe..

Pretty much the same schedule, Brooks. We did not build enough to meet demand last year, so we accelerated the production of that as well. Heather talked about some of the uses of a cash in the quarter that had something to do with it. So we are accelerating that production as well. And pretty much on the same schedule I just outlined for MCT..

Great. And would you estimate that you will realize all of the available synergies related to LifeWatch in 2018 or do you think there could be a tail that might go into 2019 as well, I think by the end of 2018, we will be on the run rate to have achieved the $30 million. What we are somewhat conservative about, Brooks, is any dis-synergies, right.

What are additional expenses, do we incur to operate the business that we didn’t anticipate pre-merger. So we like the $30 million number. That’s when we sort of pegged in our public statements. We are tracking well ahead of schedule. Initially we thought that we wouldn’t get as much upfront as we have been able to realize.

As you know when you do integrations like this, squeezing the last few drops tend to be the more difficult ones to get out, so to speak. Integration of systems and products and things like that take a little bit longer..

Sure. That’s great. I appreciate all that color. So I just want to ask one more. You commented about some of the future partnerships and opportunities in population health. We obviously have some sense of what's going on with the Apple project.

Can you just talk a little bit about the diabetes work you are doing and would be willing to say if some of the work you are doing with partnerships, goes beyond what's been announced so far, or are we really still thinking about what you have talked about publically..

So we definitely have a few more interesting conversations that are ongoing, Brooks and obviously I can't elaborate. I would have liked to spend a little bit more time on that business. In 2017 that was my intent as we entered the year. Obviously, we were able to acquire LifeWatch and close that transaction.

So as you would expect, executive management team's focus sort of shifted. So I would anticipate putting more emphasis on that business in 2018. We really like it. We think that there is big potential. So more to come. And, yes, there are other conversations that were ongoing..

It's great. Just would sneak in one last one. Are we thinking that you could get beyond Arrhythmia management and diabetes in 2018 or is that going to be your primary focus..

If I could just continue to build out the current business in PHM, maybe add a few more capabilities to it. I am not as concerned about moving into other disease states at this juncture. I think the main thought process here is let's build a platform. It's flexible enough that we could add other capabilities.

I don’t want to just go out and collect capabilities until I am ready to handle them all..

Thank you. And our next question comes from Bruce Nudell from SunTrust. Your line is now open..

Joe, the extended Holter market seems to have enjoyed a renaissance with the emergence of [GO] [ph]. How do you view the durability of that segment's growth and how competitive do you believe the ePatch to be.

The competitive dimensions that I am interested in are length of monitoring 7 versus 14 days, sensitivity, specificity, predictive accuracy, as well as ergonomics..

Yes. So let me answer it in reverse. We actually have two products in the category. We have CardioKey which is a very light weight lean wire, configuration with micro patches that attach to the body. And that is easily a 14 day product. Very easy for the patient to move around.

And then we have the ePatch, which as you mentioned has a shorter duration today but there is projects in development to extend that and that’s strictly a patch today. But again, there is a project to move that into a more flexible configuration as well. So it could also be a lead wire configuration.

So one of the feedback is, patches are for everybody and this came back very loud and clear to us from our market research. So I do think we have a comparable product line. In fact I think it's more flexible than one that’s out there today. That’s the initial feedback that we are getting.

We also know that when you sell a product, it helps if you have more than one choice. One size fits all is not the answer for most healthcare markets that I have participated in.

So our portfolio approach, the reason we still market traditional 24-40 hour Holters and MCT and now extended wear Holters is because we are trying to offer the broadest product portfolio possible. Helps quite a bit in relationship building with large accounts. In terms of viability of the market, I don’t know.

That product was on the market for several years before as you said, it had a resurgence or renaissance. It was on the market with no competition and interestingly enough, it still operates under a temporary code which I am sure as you are aware means that there is a tremendous amount of inherent risk around reimbursement.

So that’s the thing that kind of gives me a little bit [indiscernible] when I think about growing that product category. I can assure you that if it does have viability, if it moves into permanent CPT code, we will take our unfair share of that market..

And just to follow up on that question. In terms of magic sauce via discrimination, accuracy -- you know sensitivity, specificity, predictive accuracy for your product line and the extended Holter demand..

We think that we are as good, if not better, than everybody else. That’s one of the reasons why you have multiple wear options likely. Wires, lead wires produce a better signal. Some clinicians are definitely more concerned with product signal quality which leads to specificity and sensitivity and ultimately diagnostic yield.

So we think we can pair favorably to what's out there..

And my second question in regards to segmentation in the MCOT market. Patient's segment of course is different than in the extended Holter market, probably with more syncope patients rather than AF patients. But AF is still, probably in the majority.

What are the patient segmentation factors in the AF segment that drives a doc to chose and extended Holter, like your products or [GO] [ph] versus an MCOT. Also I believe that [GO 80] [ph] is a two-week product versus a four week product and MCOT. And how would that influence once a doctor's' choice if they think telemetry is required..

I would tell you that the average -- again, I am going to work this backwards, if I can. The average wear time is north of two weeks. It's in the three-week range. Between two and three weeks, it fluctuates over time. So commissions want to be able to write for the period of time that they want covered.

As you know the code requires that the service line work for up to 30 days. I don’t know how you will overcome those challenges. So my guess is your product has to be flexible enough to meet those code specifications. As far as segmenting -- the MCT is used for all Arrhythmias, right. So it’s used for AFib, it’s used for syncope it's used for VTEC.

It's most often used for AFib because AFib is the most prevalent Arrhythmias in the marketplace. There is misconception that its used more narrowly. That’s just not true. So put yourself in the position of a clinician, right. You have a patient that is showing symptoms of Arrhythmia. Maybe AFib, maybe something else.

Maybe something a little bit more life threatening and time sensitive. You are probably going to want the most accurate device that provides you information in the fastest amount of time. I mean time has a lot to do with luxury -- has a lot to do with convenience.

So when we look at it, we look at it in terms of what's best for that clinician and clinicians have different prescribing behaviors. Some do look at what's more comfortable for the patient. Some clinicians have a better handle on symptoms leading to various Arrhythmias, some don’t.

But if you have a product line that’s extensive as ours, you can meet all of those needs. And then if you have a product that is accurate as the MCOT with near-real time, turnaround time with results, you can't miss. Right. So our approach is, here are the capabilities, doc. Here is what we would recommend in terms of customer segmentation.

But ultimately you are the decision maker and our goal is to give you service capability, flexibility. So that you can do what you need to do for your patient. If that makes sense.

It does. And just in terms of, just in a thumbnail, like which of the patients that are more likely or better survive telemetry rather than an extended Holter..

Well, again, if you think about what I just said, if you are the patient, what do you want? Do you want the most accurate device, clearly all the clinical evidence supports MCOT as the most accurate device. If you have AFib, it can detect AFib at levels that no other device can detect. And it can do it with a tremendous amount of specificity.

This is a device that is accurate up to 100% with a run of 30 second of AFib. Nobody else can make that claim. Do you want that or do you want something that’s accurate to the tune of about 75% or 80%. So you got a 20%, 25% of device calling it wrong. And do you want those results now or do you want them in 30 days.

I mean somebody's Arrhythmias are life threatening. We have people that die that are wearing these devices. So we try to get the information back to the clinician as fast as possible. We make emergency calls. We make urgent notifications 25% of the time to our clinicians who are using these devices, starting to diagnose these life-threatening events.

I always say to people, look the only drawback to using an MCT versus any other product line is it's a little bit more expensive. If you look at it, the fact that it goes out to 30 days versus 14 or 21, and you do it on a per hour basis, it's probably one of the cheapest devices in the market..

Thank you. And our next question comes from Nicholas Johnson from Raymond James. Your line is now open..

Thanks for all the commentary and appreciate all the comments on the extended Holter marketplace. I want to take the opposite. We have seen the ICM marketplace really explode lately, favorable reimbursement. We have seen some new devices being accrued by the FDA.

I just want to kind of get your thoughts on kind of the segmentation there between MCT and ICM and whether or not there is anything that you can do on that end to perhaps partner with leveraging your kind of channel and your resources. Thanks..

Yes. That’s been on the market -- I would say it's been marketed more aggressively over the last couple of years. We see it as a complementary product line. A lot of our clinicians will use an external monitor like MCOT prior to using an implantable device. Some insurance companies actually require it now. So we see this kind of complementary.

Once you are post-30 days, it's kind of your only choice, right. It's a much more expensive, obviously invasive and a far less accurate device than the MCT. But there is a niche for it, there is a market for it and docs make a lot of money when they implant it. So there is some demand, there is obviously demand for it and it's done well.

We think if anything, it's kind of risen the entire market..

That’s helpful. And then kind of going, switching gears to the Apple news that was in November. Now how do you think about that potential, if that study is successful, kind of really broadening the size of the market opportunity ahead of you? Certainly consumers taking more control over their healthcare decisions.

I would assume that this could really result in a big surge in the number of consumers going to their GP or cardiologists and asking for information. So how do you kind of frame that opportunity in your mind and when do you think we'll have some level of resolution on that front to make a decision or not? Thanks..

Very difficult to frame. Right. So for the first time in a consumer oriented -- I shouldn’t say the first time but in a large consumer oriented market there is now the ability to detect irregular heart rate and potentially screen for some sort of an Arrhythmia like AFib. So clearly the folks there, the first step is to go and see their doc.

So we see it as a potential expander of the market. Don’t know how much, Nick, honestly. Hard to say. But there has been a lot written and a lot of folks have advocated some sort of general screening for Arrhythmia. Specifically AFib, especially when you start to look at segments of the patients population that are more at-risk.

So folks with a CHAD score of 3 or above, certain age. You know co-morbid conditions that make them more at risk for Arrhythmia and diagnose -- folks that have been strong advocates for some sort of screening of that patient population. This is a bit broader than that, right. So this isn't today.

It's not talking about identifying folks that are at higher risk. It's just a general screening. But I do think they will find some and I do think it will be quite helpful to the healthcare community. If you can -- in my opinion if they avoid one stroke, it's been worth it. That’s just the way I look at it..

Very helpful. And then quickly for Heather. Is there a free cash flow that we should be thinking about for 2018 with the mid-20s EBITDA margin? What type of CapEx are we looking as we think about cash generation of the business in '18. Thanks..

Yes. No, problem. So we are thinking that when you take into account the increased CapEx and then also we have some one off from the prior year inauguration and restructuring cost like the severance and retention. It's probably in the $40 million to $50 million range..

Thank you. And our next question from Marco Rodriguez with Stonegate Capital Markets. Your line is now open..

I wanted to kind of take a little bit of a higher level view, if you will, of some of the questions here. Obviously you guys have been doing really well execution wise, the integration of LifeWatch.

It kind of sounds like the realization of the synergies that kind of have taken you guys by surprise in terms of the quickness that you have been able to kind of get them.

And so is that a fair statement and then if maybe you can talk a little bit about -- Joe, you mentioned in your prepared remarks that you have done a lot of acquisitions in your history and this is by far one of the better ones you have ever seen from an integration standpoint.

So maybe you can talk a little bit about what maybe you think kind of drove those types of successes..

Sure. I wouldn’t use the word surprised. I would say pleased. We are highly confident when we went into the integration process that we would get the synergies. And obviously there was a tremendous amount of diligence worked on it in advance to validate that. But once you acquire the company, you move into the integration phase, it's all about execution.

And getting a team of folks that are highly focused, and remember we did several acquisitions before we acquired LifeWatch, so we kind of had an opportunity as a management team to work out the kinks. The folks that joined the management team from the LifeWatch side came up to speed very quickly.

And so the aggregate management team has, I guess, if there is surprise, I am surprised at how quick they got it and how quickly they got aligned as a team and executed against the priorities. Now I think in terms of best practices, we had a really good approach. We had good structure in place. We had an integration team.

We had an integration committee, we had outside help. I think we did it the right way and that’s helped from a timeline perspective, get us to where we are today..

Got you. That’s helpful. And did you perhaps like put in sort of the incentives or any sort of processes that you learned over the years that kind of helped accelerate this..

Mostly process oriented. My opinion has always been, move prudently but move very very swiftly. Have the objectives clearly outlined, communicate as much as you can throughout the organization. Have people who are designated to the assignment, get outside help where you need it.

You can't do everything yourself so we got outside help in several different areas, PR, sales consulting, finance, tax. There is a lot of different areas that we got help on. And I think you need to do that. This was just too important.

We spent too much of the company's shareholders money to acquire this company to meet a strategic objective that we knew made sense. But realizing that this pace is another thing..

Got it. And then kind of shifting here to the sales and marketing team. Obviously, been doing pretty well here. You called out some impressive statistics here for the team. Just kind of wondering if you could perhaps talk a little bit more as far as how they are sort of being structure since the integration.

If like they, perhaps, enter different territories, different geographies. What sort of incentive structure you may have put in pace that might be somewhat different then they had before..

Very similar incentive structure that both companies had in place prior. There is -- in total there is less sales people in the company then there were with the two companies combined. For obvious reasons. That means almost if not, a hundred percent of the people either picked up territory, gave territory to somebody else.

And it required a tremendous amount of coordination, hand off and kind of co-selling to make sure that we were able to retain our largest and most valued customers. And I think that’s something that we track quite a bit. And I think they have done a really good job doing that.

Some of it is obviously incentive oriented but a lot of it is management direction. So that has gone about as well as I could have anticipated. Things like leaving the legacy brands behind and renaming the organization. So that team that used to market under cardio net LifeWatch will now market under BioTel Heart.

Integrating the customer-facing in a very coordinated way. Integrating and transitioning to product labeling and packaging in a very coordinated fashion. All of that is, when I tell you that thousand of line items on the integration task, I am not underestimating. So that has gone as well as can be expected.

Now because of that, right, now you have reached in a frequency in the existing territory that you really didn’t have before. Before you had 75-80 reps versus 45-50 reps competing with each other, now you have 100 with the same aligned message, which means better return frequency.

A more extensive product portfolio, adopting best practices across the organization. Now products in the pipeline that are about ready to launch. It's pretty darn exciting for these guys. And I can tell you, they are doing an incredible job. This team is producing at levels that I just did not anticipate.

Usually you see kind of slowdown of your business when you go through an integration process. There is churn, there is customers that leave you. There is people, there's key employees that leave you. They did a great job managing that process.

And let's be honest, that’s the first point of contact in a relationship that customers have with our companies through the sales organization..

Very helpful. And last quick question here for Heather.

I am not sure if I missed this on the call or your press release, but effective tax rate for '18, should we model in 21%?.

So the GAAP tax rate, we will still be utilizing NOLs for 2018. So our cash tax rate will be much less than that..

Got you.

And where do the NOLs stand right now?.

I don’t remember the exact number but I expect them to be, to start to run out in 2019..

Thank you. And our next question comes from Eugene Mannheimer from Dougherty & Company. Your line is now open..

Congrats on a strong finish to 2017. I wanted to ask about the performance of what I could call non-MCT volumes. Did you -- can you share that with us mid-single digit or whatever it was and any guidance on that going forward.

For example, would any theoretical decline in Holter volumes maybe be offset by deliberate conversion of those patients to patches and lifting revenue in that category..

Flattish for Event and Holter is single digit. Event, there was a couple of piece of the business that we walked away from that were there in early -- in '16 and went there in '17. Again, Holter is kind of flat but I think you hit the nail -- I am sorry, Event is kind of flat, Holter is kind of mid-single digits.

But I think you hit the nail in the head with Holter because we are seeing probably somewhat of a conversion to the extent that we are Holter..

Sure. All right, okay. That’s encouraging. And with respect to the earlier comment, Joe, and I appreciate the comments around MCT as the most accurate device whether you are testing for AFib or syncope etcetera. But how does insurance view that.

I mean we are hearing from peers that many health plans limit the MCP to second line testing for narrower indications, right. And that extended Holters would be the way to go for first line detection.

What is your experience there and can MCT be covered as a first line test?.

Yes. Gene, actually the commentary was brought to my attention within the last few days and it's really disappointing. The comments I heard were MCP, insurance companies typically approve it for narrow indications of use like for syncope and VTEC. And that is just a materially false statement.

I mean there is -- most insurance companies have broad coverage for MCT. So it's really disappointing to hear that. And the funny, or not funny part was that one of the comments also said that the reason that they do that is because there is a lack of clinical evidence and obviously you know this is coming from one of our peers.

And it's ironic because in order to get a permanent CPT code, you are required to show robust clinical peer reviewed evidence. And the MCOT has had a permanent CPT code since like probably ten plus years ago. I mean it's been years since we received a permanent CPT code.

The only products in our product portfolio that do not have a permanent CPT code are extended wear Holters which are reimbursed under the same temporary code that the Zio is reimbursed under. When we inquired as to why that was, we asked the bodies in charge of this in the co-setting process, why that was.

The response was, at this time there is a lack of clinical evidence to support the issuance of a permanent CPT code for extended wear Holter for that product category.

So it's ironic to me that those statements are coming out of a company whose entire revenue base is associated with a single product that has a temporary CPT code and a lot of inherent risk associated with it. MCT has been on the market for several years. It has broad coverage. It has ample clinical evidence.

It's the -- clinical evidence is second to none in the category. There has been north of 40 peer reviewed studies published on the product. So it's kind of bewildering that folks are making statements like that.

And then there was another comment, I guess, that most insurance companies require the use of a first line monitor prior to the use of MCT, patently false. Some do, some do require it. When they require it, they require a 24-48 hour Holter more often than not.

I think the statement was that most require a first line monitor like the Zio patch prior to -- or the Zio Holter prior to the use of MCOT. So I had my folks today do a quick review of all of our MCT contracts and as you know we are the largest MCT provider.

We have several hundred contracts and the number of contracts we have that require extended wear Holter like the Zio patch prior to use of MCT was zero. So it's disappointing you have false, misleading statements coming out like that. Folks that are going to get in the MCT market, they should learn it first..

Got you. Thanks for the commentary there, Joe. Let me switch gears if I could to research services. You know clearly record backlog, that’s impressive. How does that cadence of that backlog though convert? So I mean I assume I takes some time for those studies to rollout and recognize the revenue there.

So is the research business going to be more of a second half weighted type of impact in the year..

I think you are going to see decent growth year-over-year through the year for that product category. So when you receive an award for a study, the studies have varying lengths. Some of them last for several years. So we referenced backlog. We are referencing all years backlog.

Some of that is going to happen in 2018, a portion of it will happen in the out years. We don’t bifurcate that and make it for public consumption. I will tell you that we are really comfortable coming into this year versus where we were at the same point last year in terms of book backlog. And this is contracted business that you have.

Now obviously, some folds out and you add some throughout the course of the year but your backlog relative to your revenue, you can look at historic metrics to get pretty comfortable with where you are coming into the year and what you can expect for the year.

So when we say we expect that double digit growth, we are pretty comfortable it's going to happen and it will probably happen gradually throughout the year. It won't be a hockey stick at the end of the year..

Thank you. And our next question comes from Mitra Ramgopal with Sidoti. Your line is now open..

Just two quick follow up questions regarding the sales force. Joe, I was just wondering, I know you had mentioned in the prepared comments in terms of growing the business and your top 500 accounts. I was wondering if that was sort of the initial focus coming out of the integration and going forward you will be targeting more new accounts..

We target everything, right. But we put additional focus on our largest accounts. Trust me when I tell you, we are targeting everything. And I wouldn’t get hung up on that.

I just thought, I used that metric because I think it's a pretty good indicator of how well the team is doing managing the integration vis-à-vis less insurance than what you might see in less efficient integrations. But we are focused on the whole book of business..

Okay. No. That’s great. And I know you mentioned, you have I think about a hundred in terms of your reps right now and given the success you are having, are you more inclined to be looking to add or pretty much sort of go through '18 with pretty much the existing sales force..

I think we will look for opportunities to expand where appropriate. As you know we have done that in the past, we don’t add you know 15 new sales people in a year. Our business is a bit more mature than that. So we kind of manage the growth on an organic basis and where appropriate we add resources.

Sometimes there are things happening in the market, you might see the expanded payer coverage, it makes sense to put more resources in a certain part of country. There might be consolidation of practices that would dictate a different allocation of your resources. So we are watching at all the time.

I think we will probably expand but not like crazy expansion..

Thank you. And our last question in the queue comes from Bill Sutherland with Benchmark Company. Your line is now open..

Real quick, did I understand correctly the commentary about both the MCOT and also extended wear Holter, as far as being essentially supply constrained right now. And as you get to full capacity production wise, you will be able to meet demand which, I don’t know, kind of implies the growth could pickup from here. Thanks..

Yes. It could, right. So I wouldn’t say somewhat supply constrained. We had to manage the introduction of the product into the marketplace and get appropriate feedback in different stages of product launch, alpha, beta. And then you make changes to the product which take time.

So I do think there is going to be high demand for the product, of products I should say. But I don’t want to -- I think we are going to see a pretty good growth. I think we forecasted the addition of those products. We have assumed those products are valuable in our growth. We need those products in order to hit these growth numbers.

So I would think about it more on the lines of supporting the growth projections that we put out there..

Okay. And then Joe, I am not sure how much you are thinking about M&A these days, but what's the topic or wish list at this point. And is it possible that something maybe on the smaller side because size could happen this year. Thanks..

I wouldn’t put a time on it. So we have never stopped our corporate development activity. We are always looking at opportunities to accelerate our strategic plan and if we can do it through M&A that makes sense, then we do it.

Obviously, when you make an acquisition of size of the one we did with LifeWatch, your focus has to be integrate, integrate an get that done properly. Obviously, we are starting to get more comfortable with how that process has progressed or is progressing.

So there will probably be somewhat more emphasis on it but I don’t want you to think it's stopped and we will start all over again. We are pretty active in that [co-op dev] [ph] area and I wouldn’t put a timeline on a transaction..

Do you think it's more likely to be as far as your strategic initiatives, more in the pop health side or there's really no way to kind of create a rank order there..

I think that could, right. So when we talk about our three priorities, we would like them to be a little bit more balanced then they are right now. Obviously, the acquisition of LifeWatch was once, not once in a lifetime but they are rare opportunities that you can merge two like kind assets, accelerate a growth and realize the synergies.

So that was a deal that we wanted for a long time. We like the research business. It makes sense for us to look at additional services there. And obviously pop health or connected health, it's all still developing.

I am sure we have talked about this in the past, there is not many examples of companies that have built connected health business models like ours that are past the mom and pop phase and profitable. Some of them are growing real fast but there is no profitability. I am not sure how big the markets are going to be.

I personally think, these markets are going to be very very large and they are going to integrate more into general healthcare and less kind of segmented. But in the near-term they will probably be somewhat segmented. So we like pop health, we like research. In a perfect world, they would be the priorities for me.

But there is other areas that we are looking at as well. So I would say the theme throughout all of our market development, corporate development activity is connected health.

To the extent that we can build businesses that leverage technology in such a way that you can monitor, diagnose, treat, patients outside of the four walls of a hospital or another expensive infrastructure, pushing out the healthcare infrastructure and treat these folks and monitor these folks remotely with technology. It just makes sense, right.

And we think that’s the right size of the equation to be on and that’s how we do our business. So we will run the connected health theme through everything that we do and the opportunities that we just talked about, the three markets that we are in today, we like. But I think there is other opportunities as well..

Thank you. And I am showing no further questions in the queue at this time. I would like to turn the call back to the speakers for any closing remarks..

Thanks, everybody. Well, that concludes today's call and we will talk to you at our next call. It's a shorter period since we had a longer period this time. So we will talk to you in a few months. Operator, that concludes today's call. Thanks, everybody..

If you joined the conference late today, you may listen to the conference call via digital replay which will be available through the Investor Information section of the BioTelemetry Web site at www.gobio.com, until Thursday, March 8, 2018. This concludes your call and you may all disconnect. Everyone have a great day..