Good afternoon. Thank you for joining us for the BioTelemetry Second Quarter 2015 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 the 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 open 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 am Joe Capper, President and CEO of BioTelemetry. Also with me on the call today is our Chief Financial Officer, Heather Getz.

I will provide commentary on our second quarter performance, Heather will take you through a more detailed review of our operating results, and we will then open up the call to your questions.

I am extremely pleased to report that we met or exceeded all of our expectations, while completing our 12th consecutive growth quarter and generating positive GAAP quarterly and year-to-date EPS for the first time in 6 years.

Moreover, I am thrilled to report that our work in the reimbursement area is starting to pay dividends and is paving the way for a much brighter future, most notably with the CMS’ recent announcement for the proposed 2016 fee schedule, which I will talk about in more detail shortly.

If you have been following the company over the last few quarters, you know that at the outset of the year, we established financial guidance for 2015 that represented a significant increase over an extremely successful 2014, calling for a 50% increase in EBITDA.

Then at the end of Q1, we increased that guidance a bit further targeting 60% increase over 2014 EBITDA as a result of our faster than expected start to the year. In order to achieve this objective, we need to grow healthcare services faster than the industry, deliver solid results from research services and continued to control expenses.

I am pleased to report that is exactly what we continued to do during the second quarter and we remain on pace to reach this higher estimate. As I have reiterated on several previous calls, we are achieving these outstanding results both financially and operationally by hearing to the guiding principles we use to manage the company.

As a reminder, our daily focus is to solidify our leadership position in cardiac monitoring, establish a leading research services business around the Cardiocore platform and look to identify markets that would benefit from the application of our wireless platform and proprietary technology. Let’s take a few minutes to review the Q2 highlights.

During the period, revenue grew by 5% to approximately $45 million in line with our guidance in spite of a residual drag caused by the MCOT inventory shortage we dealt with in the first part of the year and I spoke about on our last call. EBITDA grew by 53% to $7.9 million exceeding our expectations.

We ended the quarter with $14.8 million in cash, up $2.5 million sequentially. We made tremendous headway on the reimbursement front and our research services backlog grew by 10% sequentially.

Taking a closer look at the components of the business which are driving the success, in our Healthcare Services division, we saw a continued improvement in gross and operating margins as we anticipated.

Our organic growth driven by a comprehensive approach to the market and the introduction of CardioKey coupled with the scale we created to acquisitions has accelerated our path toward improved profitability.

In the coming months, we expect this trend to continue as we further increase and streamline the business, one of the biggest developments in the quarter centered around MCOT reimbursement. To put this news in proper context and fully appreciate the magnitude of this development, we should take a moment and revisit the plan we laid out in late 2013.

As many of you will recall, a little more than a year and a half ago in November 2013, CMS announced a 14% rate reduction for MCOT to take effect January 1, 2014. We immediately began pursuing a two-pronged plan in response.

The primary focus of this plan was on accelerating the growth of the business and gain scale and efficiency through acquisition, the success of which has been well documented.

Concurrently, we stepped up efforts behind a well coordinated plan to help guide CMS’ thinking on a more appropriate way to set reimbursement levels for remote monitoring services in general and MCOT specifically. This endeavor was pursued primarily to an industry coalition.

The remote cardiac services provider group and involve numerous briefings to CMS, legislators, and their staff. On the early part of this year it became clear our message was gaining traction leading to three very important developments. First on April 16, President Obama signed into law the Medicare Access and CHIP Reimbursement Act HR2.

This legislation permanently repeals the Medicare sustainable growth rate with SGR formula for physician payments, provides for a modest rate increase 0.5% each year for the next 5 years beginning July 1, 2015.

Most importantly requires the GAO to conduct a study to quote – evaluate the challenges related to establishing appropriate valuation for remote patient monitoring services under the Medicare physician fee schedule in order to accurately reflect the resources involved in furnishing such services info.

Next on July 7, four members of Congress issued a joint press release announcing the introduction of H.R. 2948 the Medicare Telehealth Parity Act of 2015. This bipartisan legislation is intended to expand coverage of our telehealth services under Medicare by putting them on a path towards parity with in person healthcare visits.

As the press release stated, the use of technology in healthcare has created new ways for practitioners and patients to deliver in excess care. However, our current statutory and regulatory framework prevents many patients and doctors from taking advantage of telemedicine’s advancements.

This legislation recognizes and embraces these technological advancements, the impact they can have on improving patient care and outcomes and lowering healthcare costs. Remote patient monitoring was highlighted as an area of telehealth require an expansion.

In fact Mike Geldart, our COO who also serves as the President of the Remote Cardiac Services Provider Group was quoted in the congressional press release indicating our integral participation in advancing this legislation.

Finally, the development that will have the most immediate impact on our business was revealed last month when CMS published their proposed 2016 fee schedule. These rules indicate the rate for MCOT service will increase by approximately 8%.

In response to our request, CMS is incorporating certain changes to their calculation in order to appropriately account for unique costs associated with continuous monitoring. These rates – if these rates were in effect in 2015, we estimate that the company’s revenue and EBITDA would have been positively impacted by $5 million to $6 million.

We see these advancements in the reimbursement area not as independent events, but connected steps in the evolution of remote monitoring services and the recognition of the incredible value they provide as tools for addressing today’s healthcare challenges.

We see this trend continuing and creating the pathway for greater reimbursement stability, especially as CMS and commercial payers move to more advanced models incorporating value based payments.

We are pleased with our success to-date and we will continue to pursue this two-pronged approach having both the focus on margin improvement through growth and scale and constant communication and education with all facets of the payer world.

Turning to research services, during the quarter we continue to see improvement in outlook for this important division as we made excellent progress in several areas. As previously mentioned, we continue to make headway in our effort to expand our footprint outside of the U.S.

primarily through our recently formed alliance with Vitalograph, a European based respiratory core lab. This partnership has already yielded new business and we are actively collaborating on multiple opportunities.

We had a nice jump in our backlog and now have excellent visibility for our revenue throughout the second half of 2015 and into next year and we continue to evaluate what additional investments will be necessary to further expand outside of the U.S. and to broaden our service offerings.

In addition to the advancements in our core business, we continue to invest resources towards further diversification, which I had spoken about on previous calls. We are making excellent progress with our at-Home INR monitoring service which allows us to leverage our current IDTS and sales and marketing infrastructure.

Our collaboration with Wellbridge Health, a CHF care management solutions company aimed at reducing unnecessary hospital readmissions and emergency room visits is progressing according to plan and we are evaluating other opportunities for growth. 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. Q2 2015 was another strong quarter with revenue in line with our guidance at $44.8 million and with EBITDA exceeding our guidance at $7.9 million. Our revenue increased $2.1 million or 5% over the prior year stemming from strength in our healthcare and research segments.

This increase was largely due to favorable pricing dynamics in the healthcare services business. And while volume was up slightly in the quarter, we did see some unusual dynamics in the mix of the products. In the second quarter of last year, we saw a spike in volume as we brought on the Mednet and BMS patients, particularly in the Holter area.

As a result, this year we saw lower Holter volumes. In addition due to our MCOT inventory backlog that we discussed on last quarter’s call, we saw patients who are unable to receive an MCOT timely go on an event monitor or cancel service. This caused our event volume to increase in the quarter and MCT volume to decline slightly.

As Joe mentioned, we are now out of the backlog situations. Moving to gross profit, our margin was 60% which was 360 basis points higher than the prior year quarter and 160 basis points higher than the first quarter of 2015. This marks the fourth consecutive quarter of gross profit improvement post acquisitions and the Medicare reductions.

This margin improvement comes from favorable pricing dynamics in healthcare services as well as operational efficiencies and wireless device communication savings. While we may see some minor margin improvement in Q3 and Q4, we expect gross profit margin to remain around this level for the remainder of the year.

During the quarter, the increased gross margin leverage combined with operating expense discipline positively impacted the bottom line. As I mentioned, we generated positive adjusted EBITDA of $7.9 million for the second quarter of 2015, a 53% increase as compared to our Q2 2014 adjusted EBITDA of $5.1 million. Our EBITDA return was 17.6%.

And since the first quarter of 2014, we have more than doubled our EBITDA margin, while absorbing the 14% Medicare rate reduction, which occurred in January 2014. Now, turning to the balance sheet, we ended the quarter with $14.8 million in cash compared to $20 million at year end 2014.

In the first quarter, we paid $6.4 million to the Department of Justice for the negotiated settlement and we used $6.7 million for capital expenditures year-to-date, primarily for medical devices used to service patients. Excluding the payment for the Department of Justice, we generated free cash flow of $2.7 million.

In addition, our consolidated DSO declined 3 days to 48 days as compared to year end and I am proud to say that we hit another record low for DSO in our healthcare services business at 38 days. At the end of June, we had $24 million of debt, which is less than one times our trailing 12 month EBITDA.

We also have access to a $15 million facility, which remains undrawn. As you can see, we have maintained a very healthy balance sheet with our cash balance and low debt levels. Shifting gears now, I will touch on the outlook for 2015 and more specifically on the third quarter.

With our strong year-to-date performance, we are on track to meet our previously issued full year guidance of low double-digit revenue growth and EBITDA growth of 60%. In 2015, we have continued to build on our comprehensive strategy with the beta launch of our low cost Holter in the first quarter.

Our research and technology segments are doing well and we are investing in our international locations, which support both of these segments, while continuing to look for opportunities to further diversify our portfolio.

Lastly, we continue to achieve additional synergies from the integration of our 2014 acquisitions as evidenced by our increased EBITDA leverage. Looking specifically at Q3, we expect to see revenue and EBITDA increase over the second quarter of 2015, with an estimated revenue of approximately $46 million and adjusted EBITDA of around $8.4 million.

This increase as compared to the second quarter of 2015 is due to the momentum we are seeing coming out of the first half on the top line without any increase in SG&A expense.

To summarize, we posted our 12th consecutive quarter of year-over-year revenue growth, our fourth consecutive quarter of gross margin expansion, and fifth consecutive quarter of EBITDA margin expansion. In addition, we realized GAAP net income for the first time in 6 years.

We have a pretty strong balance sheet with $15 million of cash, low leverage and additional debt capacity if needed. As such we are confident about the company’s position and our ability to achieve the guidance provided for the remainder of the year. And with that I will now turn the call back to Joe..

Thanks, Heather. As you have just heard we had a highly successful second quarter meeting or exceeding all our expectations.

In addition to achieving excellent results and improving margins, we moved cardio key further into its launch phase, continue to see progress in our research and INR businesses and we see the outstanding news from CMS regarding 2016 rates ramp up. All of this gives us greater confidence in our outlook for the future.

As mentioned, we anticipate full year EBITDA of over $32 million representing a 6% growth year-over-year.

We expect a strong finish to the second half of the year with the focus on driving growth in the healthcare division by executing our comprehensive strategy and leveraging the advantages of cardio key to grab more share, preparing for the launch of our next generation MCT product in a patch format, continuing to exercise patent protection rights where appropriate, expanding research services business by growing and converting backlog, exploiting new revenue opportunities with our INR and CTEP initiatives and continuing to drive efficiencies throughout the organization to maximize margin opportunity.

Given all the positive momentum in the business and the improved reimbursement environment the prospects for next year and beyond look brighter than ever. Before I close, I would again like to thank those of the company who helped deliver our 12th consecutive growth quarter.

You should be very proud that your hard work and professionalism positively impacted the lives of hundreds of thousands of people who depend on our products. With that, we will now pause and open the call to questions. Operator we are ready for our first question..

Thank you. [Operator Instructions] Our first question for the day comes from the line of Jan Wald from Benchmark Company. Your line is open..

Good afternoon and congratulations on the quarter..

Thanks Jan..

I guess a couple of questions, one on the research services, I guess you are trying to grow your footprint in Europe what –how do you see that business growing I guess into future, what kinds of additions do you have to make to the capabilities you have now and are you going to grow in Europe through acquisitions or deals like you have with that respiratory company, how do you see itself moving there?.

Yes. Jan I think the business has a lot of upside. It’s a relatively small business in our shop and in the industry, it’s well recognized for its clinical expertise, its efficiency and its ability to deliver positive results to a customer in a timely fashion. So our customer satisfaction levels are very high.

We continued to compete for and win preferred provider relationships which open up door for opportunity to bid on more pieces of business.

We identified needs, some time ago those needs were really a greater logistical footprint more than anything is Europe not necessarily to win European – bids from the European-based pharmaceutical companies, which is an added bonus, but really to augment the logistical operations we have to support any research studies that we are doing, whether they originate here or there.

And also there was opportunity to add additional lines of service more, more we are finding that sponsors would prefer to deal with fewer vendors. So when they let studies similar to the ones we compete for if you can satisfy more of the needs, it puts you at a competitive advantage.

So we identified that as indeed last year we augmented the business a little bit by adding an imaging line. Frankly that’s not why it needs to be – needed to be build out a bit more. And then there is other opportunities to bring in additional lines of service.

So being somewhat repetitive of what I have talked about in the past, but we think it’s the right plan. We have been executing against that plan as a result, again we are starting to win more business. Our win rate is as high as it’s ever been before and we will be invited to be in a little more business.

So we just kind of get faster down that path I think and we are going to be a much better shape, again relatively small business, lot of room for upside. As far as Europe, we can do it other way to alliance which was what we are doing today or through acquisition if we identify the right company to partner with..

Number one, you acquired the business, it was one that was I guess primarily focused on Phase 1, maybe Phase 2 programs, are you able to bid on larger programs yet or is that going to take some more time?.

Yes, we are and we are winning some. I would say we are not yet at the point where we are winning our unfair share of those. So, that’s an area that we are focused on. I think that will present bigger growth opportunities, which you hit the nail on the head, smaller company by the cycle, the lower hanging fruit was the earlier phase studies..

Okay.

And I guess in the monitoring business, the next generation product that’s going to come out later this year, how do we understand what’s going to happen when that product is launched? Is it going to go and be immediately accretive? Is it – how does that launch proceeding? And is there cannibalization on the older products, how should we understand that, that launch?.

It’s probably too early to give a whole lot of detail on how we will rollout the launch. I would think in general the way I would encourage you to think about it is it’s a next generation, next evolution of the MCP product line.

It will incorporate all of the sort of market leading strengths that our current MCP product has like without a doubt the best protection capabilities, lowest sensitivity – highest specificity of any of light kind products in the market that we are of, which comes from the science and intelligence embedded in device and we will sort of evolve it to a more patient-friendly form factor, which has been the trend.

Ideally, that will drive higher compliance and it certainly will – we will realize the lower cost of goods as a result. How we decided to roll that out? Again, that detail would be premature to start talking about that. I think we still need to finish up the development process and put together the plans for launch.

Ideally, at the end of – once this thing is fully rolled out into the marketplace, it would start to replace the older product and we would realize some lower cost of sales by a few margin points as a result of cost of goods and the product coming down. That will take a while to phase in, because we capitalized on amortizing devices..

Okay.

And I guess I have to ask about anything new on the payer side?.

Well, the big news obviously from our single largest payer will be the 8% rate for next year.

I do think that there are some of our payer contracts that trigger off of that and that’s why we are given a range of $5 million to $6 million and not a specific number, because it’s hard to calculate that, but there are some that trigger off the Medicare rate automatically and then some that tied to it over time.

Certainly, it’s break in the right direction, Jan. And if you look at all the things that are – all the activity in the kind of payer world around benefits of telemedicine in general remote patient monitoring tool specifically, this is all positive for us.

We are sitting at a very interesting point, where the payer world has to address and when I say the payer world, I am including commercial payers as well as Medicare. They have to address this healthcare cost crisis sooner or later.

And there are impediments – there has been impediments to kind of rapid expansion of tools like this structurally and from a reimbursement standpoint and there is a commitment both legislatively and executively to eliminate some of those barriers.

So, you will start to see more and more implementation of remote monitoring services or telemedicine services so that we can gain greater access for patients, which is an issue and you can leverage the limited healthcare resources that are available today. So, I think it’s a trend that we are going continue to see. So, we are pretty excited about it.

As you know from following the stock the sort of drag on it has been or one of the drags has been the way the reimbursement world has treated us. And I think a lot of that had to do with figuring out the real value associated with this.

We, as a company, have done the best we could to communicate the value through efficacy studies and economic studies, now that the industry is catching up and actually passing us in that regard. So, it’s a pretty exciting time to be in this business..

I will stop there, but congratulations on the work you did on reimbursement. I think it’s really telling that you had such an effect, the effect you did, which seems to be large in getting that to work out, so congratulations..

Thanks..

Thanks, Jan..

Thank you. Our next question comes from the line of Bruce Jackson from Lake Street Capital. Your line is open..

Hi, guys. Nice quarter..

Hey, Bruce. Thank you..

So, taking a look at the special charges, what was in there in the $1.2 million?.

That was predominantly the remainder of the expense for the patent litigation, almost entirely..

Okay. And then EPS would have been $0.12 with that charge reverse, okay.

Then can I get the patient services unit growth year-over-year as reported and organic?.

Yes. It’s 100% organic. I mean, we have anniversaried our acquisitions..

And then what was the MCOT percent of the percent of the total?.

The MCOT was about 54%..

Okay.

And then any update on some of the ongoing patent litigation?.

Yes. We had one announcement last week I think about that was associated with Mednet loan we have one party that decided to try to fight out the 11th hour and I supposed to come off the market. We are dealing with that. That will get cleaned up here real soon. You saw the ruling on – from the judge that it was upheld his order.

So, just a matter of time before that was done and the other one that we had ongoing was ScottCare trial was postponed till November. As a reminder that’s one I think I mentioned on previous calls that we made it to the market inherent and one on the paid out of the 11 claims or something like that. So it’s a very strong case for us as well.

Our IP portfolio is incredibly strong..

Okay, great.

And then last question any update on the discussions that you are having with Anthem?.

Nothing that I can share with you today other than we continued to pursue them at various levels from various angles. I am confident that eventually we will have a breakthrough there. Some of these other activities which I mentioned on the call today can’t hurt. So I just I wish I could give you time and date, but I don’t have it..

Alright. Thank you very much..

Thanks, Bruce..

Thanks..

Thank you. Our next question comes from line of Dan Trang from Stonegate Capital. Your line is open..

Hi guys. Thanks for taking my question.

Regarding acquisition candidates, you guys thought of giving acquisition candidates and kind of what are some of the criterion?.

Yes. We are – it’s as I have indicated in the past that we will use M&A to accelerate the plan that we have laid out and that’s the way we have done it in the past. It’s got to fit – the criteria is very simple, does it accelerate that plan, does it fit one of the pillars of our plan, is it a good acquisition for us and is it EBITDA accretive.

We are not at the point where we can invest a lot of money in from a venture standpoint and technology. So we are really looking at business growth opportunities..

Okay.

And wondering how you guys are responding to competitor products that are coming into market knowing that they may have larger footprint than you guys and things like that?.

Yes. I mean, look you respect every competitor you have in the marketplace. They are some of the people who have come in recently indicate the attractiveness of the remote monitoring market and what the value of this business will be in the future. We are confident in our ability to compete. We have assets that nobody has.

We have without a doubt the richest IP portfolio in this space. We have performance levels that nobody can match. And we have a service platform that’s second to none. So we like where we stand.

I think there is a tendency when more people are in talking about the benefits of remote patient monitoring, especially in markets like A-Fib and cryptogenic stroke, it tends to rise all tides and if you are the best-in-breed you tend to get more of that business..

Okay, thank you..

Thanks, Dan..

Thank you. Our next question comes from the line of Charley Jones from Dougherty Market. Your line is open..

Hi good afternoon. Thanks for the time..

Hi, Charley..

So I guess could you tease out the revenue from your other revenue lines tells what they are straight there?.

So the patient revenue in the quarter was just over $36 million, product which is just north of 3 and research was about 5.5..

Okay.

And on the patient service side, can you tell us what maybe that impact might have been give us a range for what the differential might have been in revenue, help us feel a little bit better about where to take your third quarter number? Remind me what your guidance was for revenue in the third quarter?.

We said – for the third quarter, we said about $46 million..

Okay, great..

Overall and you have to remember in Q2 to Q3, our patient services business tends to be flattish. So, we have the summer months, lot of people choose not to be monitored in those months, so some of that growth is coming from our product and research segments.

So, the sequential increase we are seeing in our big piece of it is coming from the two smaller segments..

And those margins are lower by thousands of basis points or hundreds relative to your companywide?.

I don’t expect it to impact our gross margin numbers. So, you are going to say about what you saw in Q2 from a margin perspective. You will see a higher EBITDA margin, but….

Sorry, go ahead..

That’s okay. Go ahead..

So, when we look at the patient service business, the MCOT that you lost event monitoring, which obviously we love to hear that you take the revenue you can get in a situation like that, but what do you think that differential might have had on the second quarter if you would have gotten MCOT revenue instead?.

Yes, hard to say exact number, because some of it was transitioned out of first quarter into the second quarter. We thought we would have a much greater impact in the first quarter than we actually did. Our first quarter was better than expected. Second quarter was sort of in line with where we thought it would be.

And as you may recall, we typically have flattish first to second and a step up in the second half, which we anticipated coming in this year. So, there might have been maybe another $0.5 million to $1 million worth of revenue roughly.

Will you agree with that, Heather?.

Yes, I would agree with that..

Yes, okay. And then I guess maybe on the last line of question I want to go into, I was starting to roll through 17 and 16, because I don’t want to change my 16 ideas too much for CMS and for Blue Cross, but I want to start to filter it into ‘17 and sort of get some thoughts out there about the EBITDA level.

And so I am not looking for you to comment on severance payment by any means, but I do Heather want you to kind of help us understand the margin improvement that comes from the patch and you can just remind us if the FDA has had questions for the patch and then what kind of margin improvement it could have on that line of your business and in general where your margins could go as you see it with the business growing in the new Holter monitoring and whatnot? Sorry for all that, but that’s it.

Thanks. Great quarter..

Okay. I will try and get all those. So, starting with the new products that the patch has still indicated, it has a much lower cost of sales that will roll-in over time.

So, if you look at it – if we just roll it into meet growth and to address devices that come off service on that age out, you are looking at about a 3-year transition to the new monitor. That monitor is going to have – it’s going to affect your gross margin by maybe 200 to 300 basis points, okay, a consolidated margin, okay..

Yes..

So, that’s one piece. That would happen over the course of the few years.

Obviously, next year as we indicated if you look at 2015 volume from a rate perspective that $5 million to $6 million drop freight to margin, drop freight to the bottom line that’s about, if you can do the math on that, it’s about a 200 basis point improvement just from the Medicare increase.

So, all-in over the next four quarters, you are looking at 300 to 500 basis point improvement over the course of those years..

Good. That helps explain the model. Thank you. Appreciate it..

Yes..

Thank you. [Operator Instructions] And that’s all the questions that we have in the queue for today. So, I would like to turn the call back over to management for closing remarks.

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 website at www.gobio.com until Friday, August 21, 2015..

Thanks, operator. Thanks everyone for joining the call today and thanks for your continued support and interest in the company. We are going to conclude the call and we will speak to you next quarter. Good afternoon..