10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017

OR

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                   to

Commission File Number 000-55039

BioTelemetry, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware	46-2568498
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

1000 Cedar Hollow Road
Malvern, Pennsylvania	19355
(Address of Principal Executive Offices)	(Zip Code)

(610) 729-7000

(Registrant’s Telephone Number, including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x  No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer o	Accelerated filer x
Non-accelerated filer o	Smaller reporting company o
(Do not check if a smaller reporting company)
	Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o  No  x

As of April 26, 2017, 28,655,157 shares of the registrant’s common stock, $0.001 par value per share, were outstanding.

BIOTELEMETRY, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED March 31, 2017

TABLE OF CONTENTS

		Page No.
PART I.	FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements (Unaudited)	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	21
Item 4.	Controls and Procedures	21
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	22
Item 1A.	Risk Factors	22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3.	Defaults Upon Senior Securities	22
Item 4.	Mine Safety Disclosures	22
Item 5.	Other Information	22
Item 6.	Exhibits	22
SIGNATURES		23

2

Unless the context otherwise indicates or requires, the terms “we,” “our,” “us,” “BioTelemetry” and the “Company,” as used in this Form 10-Q, refer to BioTelemetry, Inc. and its directly and indirectly owned subsidiaries as a combined entity, except where otherwise stated or where it is clear through the context that the terms refer only to BioTelemetry, Inc. exclusive of its subsidiaries or a specific subsidiary of BioTelemetry, Inc.

FORWARD-LOOKING STATEMENTS

This document includes certain forward-looking statements within the meaning of the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995 regarding, among other things, our growth prospects, the prospects of our products and our confidence in our future.  These statements may be identified by words such as “expect,” “anticipate,” “estimate,” “intend,” “plan,” “believe,” “promises” and other words and terms of similar meaning.  Examples of forward-looking statements include statements we make regarding our ability to increase demand for our products and services, to leverage our Mobile Cardiac Outpatient TelemetryTM (“MCOTTM”) platform to expand into new markets, our market share, our expectations regarding revenue trends in our segments and the achievement of cost efficiencies through process improvement and gross margin improvements.  Such forward looking statements are based on current expectations and involve inherent risks and uncertainties, including important factors that could delay, divert or change any of these expectations, and could cause actual outcomes and results to differ materially from current expectations.  These factors include, among other things:

·the effectiveness of our cost savings initiatives;

·our ability to educate physicians and continue to obtain prescriptions for our products and services;

·changes to insurance coverage and reimbursement levels by Medicare and commercial payors for our products and services;

·our ability to attract and retain talented executive management and sales personnel;

·our ability to identify acquisition candidates, acquire them on attractive terms and integrate their operations into our business;

·the commercialization of new products;

·our ability to obtain and maintain required regulatory approvals for our products, services and manufacturing facilities;

·changes in governmental regulations and legislation;

·our ability to obtain and maintain adequate protection of our intellectual property;

·acceptance of our new products and services;

·adverse regulatory action;

·interruptions or delays in the telecommunications systems that we use;

·our ability to successfully resolve outstanding legal proceedings; and

·the other factors that are described in Item 1A. “Risk Factors” of our latest Annual Report on Form 10-K.

We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise, except as may be required by law.

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PART I — FINANCIAL INFORMATION

Item 1.  Financial Statements

BIOTELEMETRY, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

	(Unaudited)
	March 31, 2017			December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	25,098		$	23,052
Healthcare accounts receivable, net of allowance for doubtful accounts of $12,891 and $12,198, at March 31, 2017 and December 31, 2016, respectively	17,717			14,594
Other accounts receivable, net of allowance for doubtful accounts of $349 and $665, at March 31, 2017 and December 31, 2016, respectively	13,633			12,261
Inventory	4,323			5,176
Prepaid expenses and other current assets	3,267			4,477
Total current assets	64,038			59,560
Property and equipment, net	26,443			25,823
Intangible assets, net	32,574			33,472
Goodwill	41,049			41,068
Deferred tax asset	37,271			36,636
Other assets	3,200			2,425
Total assets	$	204,575		$	198,984
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	12,888		$	12,425
Accrued liabilities	14,548			13,698
Current portion of capital lease obligations	113			162
Current portion of long-term debt	1,563			1,250
Deferred revenue	4,738			3,972
Total current liabilities	33,850			31,507
Long-term capital lease obligations	110			126
Long-term debt	23,341			23,911
Other long-term liabilities	4,369			4,526
Total liabilities	61,670			60,070
Stockholders’ equity:
Common stock—$.001 par value as of March 31, 2017 and December 31, 2016; 200,000,000 shares authorized as of March 31, 2017 and December 31, 2016; 28,629,951 and 28,261,503 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively	29			28
Paid-in capital	285,435			281,642
Accumulated other comprehensive loss	(33		)	(34		)
Accumulated deficit	(142,526		)	(142,722		)
Total stockholders’ equity	142,905			138,914
Total liabilities and stockholders’ equity	$	204,575		$	198,984

See accompanying notes.

4

BIOTELEMETRY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)

(In thousands, except share and per share amounts)

	Three Months Ended March 31,
	2017			2016
Revenues:
Healthcare	$	42,511		$	41,149
Research	9,324			5,393
Technology	4,046			2,098
Total revenues	55,881			48,640
Cost of revenues:
Healthcare	14,648			13,162
Research	5,571			3,255
Technology	2,753			1,596
Total cost of revenues	22,972			18,013
Gross profit	32,909			30,627
Operating expenses:
General and administrative	15,917			12,336
Sales and marketing	7,701			7,545
Bad debt expense	2,791			2,638
Research and development	2,433			1,786
Other charges	1,739			1,788
Total operating expenses	30,581			26,093
Income from operations	2,328			4,534
Interest and other loss, net	(2,998		)	(423		)
(Loss) income before income taxes	(670		)	4,111
Benefit from (provision for) income taxes	866			(14		)
Net income	$	196		$	4,097
Other comprehensive (loss) income:
Foreign currency translation gain	1			2
Comprehensive income	$	197		$	4,099
Net income per common share:
Basic	$	0.01		$	0.15
Diluted	$	0.01		$	0.14
Weighted average number of common shares outstanding:
Basic	28,429,289			27,370,825
Diluted	31,315,317			29,521,471

See accompanying notes.

5

BIOTELEMETRY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Three Months Ended March 31,
	2017			2016
OPERATING ACTIVITIES
Net income	$	196		$	4,097
Adjustments to reconcile net income to net cash provided by operating activities:
Bad debt expense	2,791			2,638
Depreciation	2,720			2,587
Non-cash lease expense	(50		)	(34		)
Deferred income tax benefit	(635		)	(106		)
Change in fair value of acquisition-related contingent consideration	(605		)	—
Stock-based compensation	3,058			1,178
Amortization of intangibles	995			679
Accretion of discount on debt	55			55
Changes in operating assets and liabilities:
Accounts and other receivables	(7,286		)	(2,945		)
Inventory	810			(487		)
Prepaid expenses and other assets	463			108
Accounts payable	463			1,917
Accrued and other liabilities	1,678			(1,505		)
Net cash provided by operating activities	4,653			8,182
INVESTING ACTIVITIES
Purchases of property and equipment and investment in internally developed software	(2,967		)	(3,513		)
Net cash used in investing activities	(2,967		)	(3,513		)
FINANCING ACTIVITIES
Proceeds related to the exercising of stock options and employee stock purchase plan	2,617			954
Tax payments related to the vesting of shares	(1,881		)	(1,371		)
Principal payments on long-term debt	(312		)	(313		)
Principal payments on capital lease obligations	(65		)	(84		)
Net cash provided by (used in) financing activities	359			(814		)
Effect of exchange rate changes on cash	1			—
Net increase in cash and cash equivalents	2,046			3,855
Cash and cash equivalents - beginning of period	23,052			18,986
Cash and cash equivalents - end of period	$	25,098		$	22,841
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Non-cash purchases of property and equipment	$	498		$	—
Cash paid for interest	$	310		$	342
Cash paid for taxes	$	47		$	13

See accompanying notes.

6

BIOTELEMETRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(In thousands, except share and per share amounts)

1.Summary of Significant Accounting Policies

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and the requirements of Form 10-Q and Article 10 of Regulation S-X.  Accordingly, these consolidated financial statements do not include all of the information and footnotes necessary for a complete presentation of financial position, results of operations and cash flows.  In the opinion of management, these consolidated financial statements reflect all adjustments which are of a normal recurring nature and necessary for a fair presentation of BioTelemetry, Inc.’s (“BioTelemetry,” “Company,” “we,” “our” or “us” ) financial position as of March 31, 2017 and December 31, 2016, the results of operations for the three months ended March 31, 2017 and 2016 and cash flows for the three months ended March 31, 2017 and 2016.  The financial data and other information disclosed in these notes to the consolidated financial statements related to the three months ended March 31, 2017 and 2016 are unaudited.  The results for the three months ended March 31, 2017 are not necessarily indicative of the results to be expected for any future period.

Net Income Per Share

We compute net income per share in accordance with Accounting Standards Codification (“ASC”) 260, Earnings Per Share.  Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding during the period.  Diluted net income per share is computed by giving effect to all potential dilutive common shares, including stock options and restricted stock units.

The following table presents the calculation of basic and diluted net income per share:

	Three Months Ended March 31,
	2017		2016
	(Net income in thousands)
Numerator:
Net income	$	196	$	4,097
Denominator:
Weighted average shares used in computing basic net income per share	28,429,289		27,370,825
Potential dilutive common shares due to dilutive stock option and restricted stock units	2,886,028		2,150,646
Weighted average shares used in computing diluted net income per share	31,315,317		29,521,471
Net income per share:
Basic net income per share	$	0.01	$	0.15
Diluted net income per share	$	0.01	$	0.14

Certain stock options, which are priced higher than the market price of our shares as of March 31, 2017 and 2016, would be anti-dilutive and therefore have been excluded from the weighted average shares used in computing diluted net income per share. These options could become dilutive in future periods.

Fair Value of Financial Instruments

Fair value is defined as the exit price, the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date.  The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as defined below.  Observable inputs are inputs a market participant would use in valuing an asset or liability based on market data obtained from sources independent of the Company.  Unobservable inputs are inputs that reflect the Company’s own assumptions about the factors a market participant would use in valuing an asset or liability developed using the best information available in the circumstances.  The classification of an asset’s or liability’s level within the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

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Level 1—Quoted prices in active markets for an identical asset or liability.

Level 2—Inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the asset or liability.

Level 3—Inputs that are unobservable for the asset or liability, based on the Company’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

Our financial instruments consist primarily of cash and cash equivalents, Healthcare accounts receivable, other accounts receivable, accounts payable, short-term debt and long-term debt.  With the exception of the long-term debt, the carrying value of these financial instruments approximates their fair value because of their short-term nature (classified as Level 1).  For long-term debt, based on the borrowing rates currently available, the fair value was determined to be $25,500 as of March 31, 2017.  This is equal to the nominal value, which is the carrying value, exclusive of debt discount and deferred charges (classified as Level 2).

The fair value of contingent consideration is measured on a recurring basis using unobservable inputs such as projected payment dates, probabilities of meeting specified milestones and other such variables resulting in payment amounts which are discounted back to present value using a probability-weighted discounted cash flow model (classified as Level 3).  Adjustments to contingent consideration are recorded under other charges.

In addition to the recurring fair value measurements, the fair value of assets acquired and liabilities assumed in connection with a business combination are recorded at the acquisition date, using a discounted cash flow model (classified as Level 3).  This valuation technique requires the Company to make certain assumptions, including, but not limited to, future operating performance and cash flows, royalty rate and other such variables which are discounted to present value using a discount rate that reflects the risk factors associated with future cash flow, the characteristics of the assets acquired and liabilities assumed and the experience of the acquired business.

Equity Method Investments

We account for investments using the equity method of accounting if the investment provides us the ability to exercise significant influence, but not control, over the investee.  Significant influence is generally deemed to exist if the Company’s ownership interest in the voting stock of the investee ranges between 20% and 50%, although other factors, such as representation on the investee’s board of directors, are considered in determining whether the equity method of accounting is appropriate.  Under the equity method of accounting, the investment is recorded at cost in the consolidated balance sheet as a component of other assets and is periodically adjusted for capital contributions, dividends received and our share of the investee’s earnings or losses together with other-than-temporary impairments which are recorded as a component of interest and other loss, net in the consolidated statements of operations and comprehensive income.

Goodwill and Acquired Intangible Assets

Goodwill is the excess of the purchase price of an acquired business over the amounts assigned to assets acquired and liabilities assumed in a business combination. In accordance with ASC 350, Intangibles—Goodwill and Other (“ASC 350”), goodwill is reviewed for impairment annually, or when events arise that could indicate that an impairment exists. Initially, we qualitatively assess whether it is more-likely-than-not that an impairment exists for each reporting unit.  Such qualitative factors can include, among others, industry and market conditions, present and anticipated sales and cost factors, overall financial performance and relevant entity-specific events.  If we conclude based on our qualitative assessment that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value, we perform a two-step impairment test in accordance with ASC 350. In the first step, we compare the fair value of our reporting units to the carrying value of the reporting units.  If the carrying value of the net assets assigned to the reporting units exceeds the fair value of the reporting units, then the second step of the impairment test is performed in order to determine the implied fair value of the reporting units’ goodwill.  If the carrying value of the reporting units’ goodwill exceeds the implied fair value of those reporting units, an impairment loss equal to the difference is recorded.

For the purpose of performing our goodwill impairment analysis, we consider our business to be comprised of three reporting units:  Healthcare, Research and Technology.  We calculate the fair value of the reporting units utilizing a weighting of the income and market approaches.  The income approach is based on a discounted cash flow methodology that includes assumptions for, among other things, forecasted income, cash flow, growth rates, income tax rates, expected tax benefits and long-term discount rates, all of which require significant judgment.  The market approach utilizes our market data.  There are inherent uncertainties related to these factors and the judgment applied in the analysis.  We believe that the combination of an income and a market approach provides a reasonable basis to estimate the fair value of our reporting units.

8

Acquired intangible assets are recorded at fair value on the acquisition date.  The estimated fair values and useful lives of intangible assets are determined by assessing many factors including estimates of future operating performance and cash flow of the acquired business, the characteristics of the intangible assets acquired and the experience of the acquired business.  Independent appraisal firms may assist with the valuation of acquired assets. The impairment test for indefinite-lived intangible assets other than goodwill consists of a comparison of the fair value of the indefinite-lived intangible asset to the carrying value of the asset.  We estimate the fair value of the indefinite-lived intangibles using the relief from royalty method.

Accounting Pronouncements Recently Adopted

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Improvements to Employee Share-Based Payment Accounting. The standard revises the accounting for certain aspects of share-based compensation arrangements and requires any excess tax benefits or tax deficiencies to be recorded directly in the income statement when such awards vest or settle. In addition, the cash flows related to any excess tax benefits will no longer be separately classified as a financing activity, but will rather be classified as an operating activity, along with all other income tax cash flows. The standard also makes certain changes to the way the treasury stock method is applied when calculating diluted net income per share, as well as allows for a policy election to account for forfeitures as they occur, rather than using the estimation method currently prescribed by ASC 718. The standard is effective for annual and interim periods beginning after December 15, 2016, with early adoption permitted.

We elected to early adopt the standard during the fourth quarter of 2016. The standard requires the recognition of any pre-adoption date net operating loss (“NOL”) carryforwards from share-based compensation arrangements to be recognized on a modified retrospective basis, through an opening retained earnings adjustment on January 1, 2016. Any income tax effects from share-based compensation arrangements arising after January 1, 2016 will be recognized prospectively in the income statement during the period of adoption.

Upon adoption, we recognized all previously unrecognized tax benefits which resulted in a cumulative-effect adjustment of $1,752 to our accumulated deficit. These previously unrecognized tax benefits were recorded as a deferred tax asset, which was fully offset by a valuation allowance on January 1, 2016, thus there was no net impact from the adoption of ASU 2016-09 as of the same date. In addition, we recognized excess tax benefits as an adjustment to our previously reported (provision for) income taxes of $127 for the three months ended March 31, 2016. Corresponding adjustments were recorded in the operating section of our statement of cash flows for the three months ended March 31, 2016. The weighted average number of common shares outstanding for calculating diluted net income per share increased by 339,595 for the three months ended March 31, 2016.

Our adoption of the standard did not have any impact to our consolidated statements of cash flows as no NOL carryforwards from share-based compensation arrangements were recognized prior to January 1, 2016, due to our use of the “with and without” method of accounting for equity-generated NOL carryforwards. We have elected to continue to estimate forfeitures under the true-up provision of ASC 718.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. The standard requires inventory to be measured at the lower of cost or net realizable value. The guidance will not apply to inventories for which cost is determined using the last-in, first-out method or the retail inventory method. The adoption of this standard did not have a material impact on our consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. The standard eliminates step two in the current two-step impairment test under ASC 350. Under the new standard, a goodwill impairment will be recorded for any excess of a reporting unit’s carrying value over its fair value. A prospective transition approach is required. The standard is effective for annual and interim reporting periods beginning after December 15, 2019 with early adoption permitted for annual and interim goodwill impairment testing dates after January 1, 2017. We plan to early adopt the standard at the time of our 2017 goodwill impairment testing date and do not expect the standard to have a material impact on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases. The standard will require lessees to recognize most leases on their balance sheet and makes selected changes to lessor accounting. The standard is effective for annual and interim reporting periods beginning after December 15, 2018. A modified retrospective transition approach is required, with certain practical expedients available. We are currently evaluating the impact the adoption of this standard will have on our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which has been updated through several revisions and clarifications since its original issuance. The standard will require revenue recognized to represent the transfer of promised goods or services to customers at an amount that reflects the consideration which a company expects to receive in exchange for those goods or services. The standard also requires new, expanded disclosures regarding revenue recognition. The standard will be effective January 1, 2018 with early adoption permissible beginning January 1, 2017. We are currently evaluating the transition method we will elect. We are evaluating the specific impacts the standard will have on Healthcare revenue, particularly related to the valuation of revenue, accounts receivable and bad debt expense. We are evaluating the impact the standard will have on Research revenue, which involves reviewing a large number of long-term contracts. We do not expect the standard to have a material impact on Technology revenue.

9

2.    Acquisitions

Telcare, Inc.

On December 1, 2016, the Company, through its wholly-owned subsidiary BioTelemetry Care Management, LLC, entered into the Agreement with Telcare pursuant to which the Company acquired the stock of Telcare Medical Supply, Inc. and certain assets of Telcare. Inc. The total consideration paid at closing amounted to $7,000 in cash, with the potential for a performance-based earn out up to $5,000 upon reaching certain financial milestones. The fair value of the total consideration transferred in the acquisition, including contingent consideration, was $9,700 at the acquisition date.

The acquisition of Telcare provides us the opportunity to apply our expertise in remote monitoring to the diabetes market and increases our presence in the digital population health management market. We accounted for the transaction as a business combination, and as such, all assets acquired and liabilities assumed were recorded at their estimated fair values. The excess of the fair value of the purchase price over the fair value of the net assets acquired has been recognized as goodwill, which represents the expected future benefits arising from the assembled workforce and other synergies attributable to cost savings opportunities. The Company recognized $3,339 of goodwill as a result of the acquisition, all of which has been assigned to the Technology segment. We expect $578 of this goodwill will be deductible for tax purposes.

The amounts below represent our preliminary fair value estimates as of March 31, 2017 and are subject to subsequent adjustment as additional information is obtained during the applicable measurement period. The primary areas of these preliminary estimates that are not yet finalized related to certain tangible assets acquired and liabilities assumed, including deferred taxes and inventory, as well as the identifiable intangible assets. The Company expects to finalize all accounting for the acquisition of Telcare within one year of the acquisition date.

The total consideration and related preliminary allocation for Telcare is summarized as follows:

	Amount		Weighted Average Life (Years)
Fair value of assets acquired:
Other accounts receivable	$	235
Inventory	1,791
Prepaid expenses and other current assets	1,261
Property and equipment	55
Other assets	933
Identifiable intangible assets:
Customer relationships	400		5
Technology	2,000		5
Tradename	400		Indefinite
Total identifiable intangible assets	2,800
Total assets acquired	7,075
Fair value of liabilities assumed:
Accounts payable	459
Accrued liabilities	206
Deferred revenue	49
Total liabilities assumed	714
Total identifiable net assets	6,361
Goodwill	3,339
Net assets acquired	$	9,700

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The following unaudited pro forma financial information has been prepared using historical financial results of the Company and Telcare as if the acquisition had occurred as of January 1, 2016. Certain adjustments related to the elimination of transaction costs, as well as the addition of depreciation and amortization related to fair value adjustments on the tangible and identifiable intangible assets acquired, have been reflected for the purposes of the unaudited pro forma financial information presented below. We believe the assumptions used in preparing the unaudited pro forma financial information are reasonable, but not necessarily indicative of actual results should the acquisition have occurred on January 1, 2016.

Pro forma financial information for the periods presented is summarized as follows:

	Three Months EndedMarch 31, 2016
Revenue	$	49,759
Net income	$	2,980
Net income per common share:
Basic	$	0.11
Diluted	$	0.10
Weighted average number of common shares outstanding:
Basic	27,370,825
Diluted	29,521,471

Contingent Consideration

The Agreement includes the potential for a performance-based earn out up to $5,000 upon reaching certain milestones. The fair value of the contingent consideration associated with the Telcare acquisition was $2,700 as of the acquisition date and at March 31, 2017 and is included as a component of other liabilities in the accompanying consolidated balance sheets.

The following summarizes the changes in our contingent consideration during the year ended December 31, 2016:

	Total ContingentConsideration
Balance at December 31, 2016	$	2,700
Change in fair value of acquisition-related contingent consideration	—
Balance at March 31, 2017	$	2,700

VirtualScopics, Inc.

On March 25, 2016, the Company, through its wholly-owned subsidiary BioTelemetry Research Acquisition Corporation, entered into a definitive Agreement and Plan of Merger with VirtualScopics, Inc. (“VirtualScopics”), a leading provider of clinical trial imaging solutions.  Under the terms of the Merger Agreement, the Company purchased:  (i) any and all outstanding shares of VirtualScopics’ $0.001 par value common stock for $4.05 per share; (ii) any and all outstanding shares of VirtualScopics’ $0.001 par value Series A and Series B Convertible Preferred Stock for $336.30 per share; and (iii) any and all outstanding shares of VirtualScopics’ $0.001 par value Series C-1 Convertible Preferred Stock for $920.00 per share.  The all cash acquisition of VirtualScopics was completed on May 11, 2016.  The total consideration paid at closing amounted to $14,970, net of cash acquired of $849.

The acquisition of VirtualScopics expands the Company’s existing clinical research offerings and gives the Company further access to established customer relationships.  We accounted for the transaction as a business combination, and as such, all assets acquired and liabilities assumed were recorded at their estimated fair values.  The excess of the consideration paid over the fair value of the net assets acquired has been recognized as goodwill, which represents the expected future benefits arising from the assembled workforce and other synergies attributable to cost savings opportunities.  The Company recognized $4,698 of goodwill as a result of the acquisition, all of which has been assigned to the Research segment.  We do not expect that any of this goodwill will be deductible for tax purposes.

The amounts below represent our preliminary fair value estimates as of March 31, 2017 and are subject to subsequent adjustment as additional information is obtained during the applicable measurement period.  The primary areas of these preliminary estimates that are not yet finalized relate to certain tangible assets acquired and liabilities assumed, as well as the identifiable intangible assets.  The Company expects to finalize all accounting for the acquisition of VirtualScopics within one year of the acquisition date

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The total consideration and related allocation for VirtualScopics is summarized as follows:

			Weighted
			Average Life
	Amount		(Years)
Fair value of assets acquired:
Cash and cash equivalents	$	849
Other accounts receivable	3,679
Inventory	111
Prepaid expenses and other current assets	396
Property and equipment	500
Identifiable intangible assets:
Customer relationships	5,200		12
Technology	2,000		10
Backlog	3,100		4
Total identifiable intangible assets	10,300
Total assets acquired	15,835
Fair value of liabilities assumed:
Accounts payable	325
Accrued liabilities	3,008
Current portion of capital lease obligations	59
Current portion of long-term debt	91
Deferred revenue	700
Deferred taxes	272
Long-term capital lease obligations	162
Long-term debt	97
Total liabilities assumed	4,714
Total identifiable net assets	11,121
Goodwill	4,698
Net assets acquired	$	15,819

The following unaudited pro forma financial information has been prepared using historical financial results of the Company and VirtualScopics as if the acquisition had occurred as of January 1, 2016.  Certain adjustments related to the elimination of transaction costs and acquisition related indebtedness, as well as the addition of depreciation and amortization related to fair value adjustments on the tangible and identifiable intangible assets acquired, have been reflected for the purposes of the unaudited pro forma financial information presented below.  No adjustments for synergies or certain other expected benefits of the acquisition have been included.  We believe the assumptions used in preparing the unaudited pro forma financial information are reasonable, but not necessarily indicative of actual results should the acquisition have occurred on January 1, 2016.

Pro forma financial information for the periods presented is summarized as follows:

	Three Months EndedMarch 31, 2016
Revenue	$	52,496
Net income	$	5,103
Net income per common share:
Basic	$	0.19
Diluted	$	0.17
Weighted average number of common shares outstanding:
Basic	27,370,825
Diluted	29,521,471

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ePatch Division of DELTA Danish Electronics, Light, and Acoustics

On April 1, 2016, the Company, through its wholly-owned subsidiary BioTelemetry Technology ApS, entered into an Asset Purchase Agreement (“APA”) with DELTA Danish Electronics, Light, and Acoustics (“DELTA”), pursuant to which the Company acquired substantially all of the assets of the ePatch division of DELTA, inclusive of all products and indications currently under development.  The total consideration paid at closing amounted to $3,000 in cash and 244,519 shares of the Company’s common stock valued at $2,885.  In addition, there is the potential for a performance based earn out up to $3,000 upon reaching certain milestones, as defined in the APA.  The fair value of the total consideration transferred in the ePatch acquisition, including contingent consideration, was $6,490 at the acquisition date.

The ePatch acquisition is expected to generate future cost savings for the Company and will provide control over proprietary components for the Company’s next generation Mobile Cardiac Outpatient TelemetryTM (“MCOTTM”) device.  We accounted for the transaction as a business combination, and as such, all assets acquired and liabilities assumed were recorded at their estimated fair values.  The excess of the consideration paid over the fair value of the net assets acquired has been recognized as goodwill, which represents the expected future benefits arising from the assembled workforce and other synergies attributable to cost savings opportunities.  The company recognized $3,181 of goodwill as a result of the acquisition, all of which has been assigned to the Technology segment.  We expect all of this goodwill to be deductible for tax purposes.

The amounts below represent our final fair value estimates, which were completed in the first quarter of 2017.  The total consideration and related allocation for the ePatch acquisition is summarized as follows:

			Weighted
			Average Life
	Amount		(Years)
Fair value of assets acquired:
Inventory	$	100
Property and equipment	175
Identifiable intangible assets:
Customer relationships	400		10
Technology	2,800		10
Trade names	100		Indefinite
Total identifiable intangible assets	3,300
Total assets acquired	3,575
Fair value of liabilities assumed:
Accrued liabilities	266
Total liabilities assumed	266
Total identifiable net assets	3,309
Goodwill	3,181
Net assets acquired	$	6,490

While the ePatch acquisition provides control over proprietary components of our next generation cardiac monitoring device, the acquisition did not have a material effect on our consolidated results of operations.

Contingent Consideration

The APA includes the potential for a performance based earn out up to $3,000 upon reaching certain milestones.  The fair value of the contingent consideration associated with the ePatch acquisition was $0 and $605 at March 31, 2017 and December 31, 2016, respectively, and is included as a component of other liabilities in the accompanying consolidated balance sheets.

The following summarizes the changes in our contingent consideration during the three months ended March 31, 2017:

	Total ContingentConsideration
Balance at December 31, 2016	$	605
Change in fair value of acquisition-related contingent consideration	(605		)
Balance at March 31, 2017	$	—

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3.    Inventory

Inventory consists of the following:

	March 31, 2017		December 31, 2016
Raw materials	$	2,948	$	2,866
Finished goods	1,375		2,310
Total inventory	$	4,323	$	5,176

Inventory, which includes purchased parts, materials, direct labor and applied manufacturing overhead, is stated at the lower of cost or net realizable value, with cost determined by use of the first-in, first-out method.

4.    Goodwill

Goodwill was recognized at the time of our acquisitions.  The carrying amount of goodwill as of March 31, 2017 and December 31, 2016 was $41,049 and $41,068, respectively.  The decrease in goodwill during the three months ended March 31, 2017 relates to purchase period adjustments relate to our 2016 acquisitions, primarily the December acquisition of Telcare.

The changes in the carrying amounts of goodwill by segment were as follows:

	Reporting Segment
	Healthcare		Research		Technology			Total
Balance at December 31, 2016	$	14,724	$	16,643	$	9,701		$	41,068
Goodwill adjustments related to 2016 acquisitions	—		5		(24		)	(19		)
Balance at March 31, 2017	$	14,724	$	16,648	$	9,677		$	41,049

5.    Equity Method Investment

In December 2015, we acquired an ownership interest in Well Bridge Health, Inc. (“WellBridge”) through the conversion of an outstanding note receivable and the related accrued interest.  The investment is accounted for under the equity method. In December 2015, the equity method basis difference of $891 was allocated to equity method goodwill. As of March 31, 2017, our investment in WellBridge represented 30% of its outstanding stock.  A summary of our investment in Wellbridge is as follows:

	Three Months Ended March 31,
	2017			2016
January 1 balance	$	1,125		$	1,100
Our share of the investee’s losses	(96		)	(21		)
March 31 balance	$	1,029		$	1,079

6.Credit Agreement

On December 30, 2014, we entered into a Credit Agreement with Healthcare Financial Solutions, LLC (“HFS”), previously the General Electric Capital Corporation, as agent for the lenders (“Lenders”), and as a lender and swingline lender.  Pursuant to the Credit Agreement, the Lenders agreed to make loans to us as follows:  (i) Term Loans in an amount of $25,000 as of the closing date with an uncommitted ability to increase such Term Loans up to an amount not to exceed $10,000 and (ii) Revolving Loans up to $15,000.  As of both March 31, 2017 and December 31, 2016, $3,000 was drawn on the Revolving Loans.  The loan, inclusive of Term Loans and Revolving Loans, is recorded on our consolidated balance sheets as of March 31, 2017 in the amount of $24,903, which is net of a debt discount and deferred charges of $597.

The loan bears interest at an annual rate of LIBOR plus 4.0%, subject to a LIBOR floor of 1.0%.  The outstanding principal of the Term Loans will be paid as follows:  (i) beginning April 1, 2015, the principal amount of the Term Loans will be repaid, on a quarterly basis, in installments of $312, plus accrued interest; (ii) beginning January 1, 2018, the principal amount of the Term Loans will be repaid, on a quarterly basis, in installments of $625, plus accrued interest; and (iii) the remaining $16,563, along with any outstanding Revolving Loans, will be paid in full on or before December 30, 2019, or such earlier date upon an acceleration of the Term Loans by the Lenders upon an event of default or termination by us.  The loan is secured by substantially all of our assets and by a pledge of the capital stock of our U.S. based subsidiaries, as well as a pledge of 65% of the capital stock of the Company’s foreign subsidiaries.

The Credit Agreement contains affirmative and financial covenants regarding the operations of our business and certain negative covenants that, among other things, limit our ability to incur additional indebtedness, grant certain liens, make certain investments, merge or consolidate, make certain restricted payments and engage in certain asset dispositions, including a sale of all, or substantially all, of our property.  As of March 31, 2017, we were in compliance with all covenants.

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7.Stockholders’ Equity

Stock-Based Compensation

Stock options, restricted stock units (“RSUs”), performance stock units (“PSUs”) and performance stock options (“PSOs”) are granted under the BioTelemetry, Inc. 2008 Equity Incentive Plan (“EIP”).  In January 2017, the number of shares available for grant was increased by 1,130,460 shares, per the EIP documents.  At March 31, 2017, 3,725,477 shares remain available for grant under the EIP.  We recognized $3,058 and $1,178 of stock-based compensation expense for the three months ended March 31, 2017 and 2016, respectively.

Stock option and RSU activity is summarized as follows:

	Stock Options				RSUs
	Number of Shares		Weighted Average Exercise Price		Number of Shares		Weighted Average Grant Date Fair Value
Stock outstanding as of December 31, 2016	3,568,434		$	7.82	592,349		$	9.86
Granted	173,881		24.12		78,991		24.65
Cancelled/forfeited	—		—		—		—
Exercised/vested	(191,998	)	7.45		(176,362	)	8.89
Stock outstanding as of March 31, 2017	3,550,317		$	8.64	494,978		$	12.57

Performance Stock option and PSU activity is summarized as follows:

	Performance Stock Options				PSUs
	Number of Shares		Weighted Average Exercise Price		Number of Shares		Weighted Average Grant Date Fair Value
Stock outstanding as of December 31, 2016	100,000		$	18.33	132,992		$	8.68
Vested	100,000		21.45		—		—
Cancelled/forfeited	—		—		(132,992	)	8.68
Exercised	(30,000	)	18.33		—		—
Stock outstanding as of March 31, 2017	170,000		$	20.17	—		$	—

Stock-based compensation expense is only recognized for outstanding PSUs where the performance conditions are deemed probable for achievement. For PSUs deemed probable for achievement, stock-based compensation expense is recognized ratably over the expected vesting period. For the three months ended March 31, 2017 and 2016 we incurred PSU expenses of $0 and $89, respectively.

Performance stock options (“PSOs”) are valued and stock-based compensation expense is only recognized once the performance conditions of the outstanding PSOs have been met. For the three months ended March 31, 2017 and 2016, we incurred PSO expenses of $1,533 and $0, respectively.

Employee Stock Purchase Plan

In the three months ended March 31, 2017, 47,966 shares were purchased in accordance with the Employee Stock Purchase Plan (“ESPP”). Net proceeds from the issuance of shares of common stock under the ESPP for the three months ended March 31, 2017 were $636. In January 2017, the number of shares available for grant was increased by 282,615 shares, per the ESPP documents. At March 31, 2017, 859,825 shares remain available for purchase under the ESPP.

8.Other Charges

We account for expenses associated with exit or disposal activities in accordance with ASC 420, Exit or Disposal Cost Obligations, and record the expenses in other charges in our consolidated statements of operations and comprehensive income and record the related accrual in the accrued liabilities line on our consolidated balance sheets. These costs are primarily disclosed as severance and employee related costs below.

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We account for expenses associated with integration and certain litigation as other charges as incurred.  These expenses were primarily a result of legal fees related to patent litigation in which we are the plaintiff and activities surrounding our acquisitions.  Other charges are costs that are not considered necessary to the ongoing business operations. For the three months ending March 31, 2017, other charges has been partially offset by a reduction in contingent consideration. A summary of these expenses is as follows:

	Three Months Ended March 31,
	2017			2016
Legal fees	$	982		$	1,369
Professional fees	1,160			168
Severance and employee related costs	185			251
Change in contingent consideration	(605		)	—
Other costs	17			—
Total	$	1,739		$	1,788

9.Income Taxes

The income tax provision for interim periods is determined using an estimated annual effective tax rate adjusted for discrete items, if any, which are taken into account in the quarterly period in which they occur.  We review and update our estimated annual effective tax rate each quarter.  Income tax benefit of $866 was recorded for the three months ended March 31, 2017, primarily due to a discrete benefit recorded for equity compensation deductions under ASU 2016-09.  We recorded a tax provision of $14 for the three months ended March 31, 2016, primarily due to Alternative Minimum Tax (“AMT”) levied on taxable income, net of allowable AMT net operating loss carryovers.

At March 31, 2017 and December 31, 2016, we had deferred tax assets, net of deferred tax liabilities and valuation allowance, of $37,271 and $36,636, respectively.

10.Segment Information

We operate under three segments:  Healthcare, Research and Technology.  The Healthcare segment is focused on the diagnosis and monitoring of cardiac arrhythmias or heart rhythm disorders with our comprehensive suite of cardiac monitoring solutions in a healthcare setting.  Our Research segment is engaged in central core laboratory services providing cardiac monitoring, imaging, scientific consulting and data management services for drug and medical device trials. The Technology segment focuses on the development, manufacturing, testing and marketing of medical devices to medical companies, clinics and hospitals.  Intercompany revenues relating to the manufacturing of devices by the Technology segment for the other segments is included on the intersegment revenues line.

Expenses that can be specifically identified with a segment have been included as deductions in determining pre-tax segment income.  Any remaining expenses, including research and development costs incurred by the Technology segment for the benefit of the other segments, as well as the elimination of costs associated with intercompany revenues are included in Corporate and Other.  Also included in Corporate and Other is our net interest expense and other financing expenses as well as the loss from equity method investments.  We do not allocate assets to the individual segments.

For the three months ended:

	Healthcare		Research		Technology		Corporate and Other			Consolidated
March 31, 2017
Revenues	$	42,511	$	9,324	$	4,046	—			$	55,881
Intersegment revenues	—		—		4,210		$	(4,210	)	—
Income (loss) before income taxes	13,979		378		1,481		(16,508		)	(670		)
Depreciation and amortization	2,861		1,033		243		(422		)	3,715
Capital expenditures	2,890		—		77		—			2,967

	Healthcare		Research		Technology		Corporate and Other		Consolidated
March 31, 2016
Revenues	$	41,149	$	5,393	$	2,098	—		$	48,640
Intersegment revenues	—		—		3,392		(3,392	)	—
Income (loss) before income taxes	14,200		18		946		(11,053	)	4,111
Depreciation and amortization	2,481		804		50		(69	)	3,266
Capital expenditures	2,690		809		14		—		3,513

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11.United States Department of Health and Human Services Settlement

In 2011, we experienced the theft of two unencrypted laptop computers and, as a result, were required to provide notices under the HIPAA Breach Notification Rule to the United States Department of Health and Human Services’ Office for Civil Rights (“OCR”).  During the first quarter of 2017, the OCR concluded its investigation into the matter and reached a settlement agreement with the Company.  Per the agreement, BioTelemetry will pay the OCR $2,500 and agreed to submit a two-year corrective action plan regarding the Company’s HIPAA compliance program.  We did not admit any liability or wrongdoing.  As a result of the settlement, we recorded a non-operating charge of $2,500 to Interest and other loss, net in the consolidated statements of operations and is included in accrued liabilities on the balance sheet as of March 31, 2017.

12.Subsequent Events

On April 9, 2017, we entered into a transaction agreement governing the proposed acquisition of all of the outstanding shares of LifeWatch AG (“LifeWatch”), a Swiss corporation, with a nominal value of CHF 1.30 each. The per-share consideration for the tendered LifeWatch Shares will be comprised, at the election of each LifeWatch shareholder, of either (i) 0.1457 shares of BioTelemetry Common Stock, along with CHF10.00 in cash, or alternatively (ii) 0.2185 shares of BioTelemetry Common Stock along with CHF8.00 in cash.  The acquisition will be funded by a combination of cash on hand, BioTelemetry Common Stock and debt.  We have obtained a fully underwritten commitment from SunTrust Banks, Inc. and KeyBanc Capital Markets Inc. for a $205 million Term A Loan and expect to enter into a loan agreement in conjunction with the closing of the tender offer.

The consummation of the offer is subject to customary closing conditions, including the tender of such number of LifeWatch Shares that represent at least 67% of all issued and outstanding LifeWatch Shares; clearance by relevant merger control authorities; the absence of a material adverse effect with respect to LifeWatch; the absence of certain adverse resolutions by the general shareholders’ meeting of LifeWatch; resignation of all current members of the board of directors of LifeWatch and election of Biotelemetry’s nominees to LifeWatch’s board of directors; and absence of any judgment, decision, order or any other authoritative measure of a competent court or governmental authority temporarily or permanently preventing, prohibiting or declaring illegal the Offer or its settlement. The consummation of the Offer is also subject to the approval of our board of directors or shareholders (if required) of the issuance of the shares of Biotelemetry Common Stock pursuant to the Offer, and the approval of the shares of Biotelemetry Common Stock issuable upon consummation of the Offer for listing on NASDAQ Global Select Market.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2016, and in conjunction with the accompanying quarterly unaudited condensed consolidated financial statements.  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 the U.S. Securities and Exchange Commission (“SEC”).  See the “Forward-Looking Statements” section at the beginning of this report.

Company Background

We provide cardiac monitoring services, cardiac monitoring device manufacturing and centralized core laboratory services.  We operate under three reportable segments:  Healthcare, Research and Technology.  The Healthcare segment is focused on the diagnosis and monitoring of cardiac arrhythmias, or heart rhythm disorders. We offer cardiologists and electrophysiologists a full spectrum of solutions which provides them with a single source of cardiac monitoring services.  These services range from the differentiated Mobile Cardiac Telemetry (“MCT”) service marketed as Mobile Cardiac Outpatient TelemetryTM (“MCOTTM”) or External Cardiac Ambulatory Telemetry (“ECAT”), to wireless and trans-telephonic event, Holter, Pacemaker and International Normalized Ratio (“INR”) monitoring.  The Research segment is engaged in central core laboratory services providing cardiac monitoring, imaging, scientific consulting and data management services for pharmaceutical and medical device clinical trials.  The Technology segment focuses on the development, manufacturing, testing and marketing of medical devices to medical companies, clinics and hospitals.

Recent Acquisitions

On December 1, 2016, the Company entered into a Share and Asset Purchase Agreement (“Agreement”) with Telcare, Inc. (“Telcare”) pursuant to which the Company acquired the stock of Telcare Medical Supply, Inc. and certain assets of Telcare. The total consideration paid at closing amounted to $7.0 million in cash, with the potential for a performance-based earn out up to $5.0 million upon reaching certain milestones, as defined in the Agreement. The fair value of the total consideration transferred in the acquisition, including contingent consideration, was $9.7 million at the acquisition date. Telcare is included in the Technology segment.

On May 11, 2016, the Company completed the acquisition of VirtualScopics, Inc. (“VirtualScopics”), a leading provider of clinical trial imaging solutions. The all cash Tender Offer commenced on April 8, 2016 and ended on May 9, 2016, pursuant to which the business and operations of VirtualScopics were acquired by the Company. The total consideration paid at closing amounted to $15.0 million, net of cash acquired of $0.8 million. VirtualScopics is included in the Research segment.

On April 1, 2016, the Company entered into an Asset Purchase Agreement (“APA”) with DELTA Danish Electronics, Light, and Acoustics (“DELTA”), pursuant to which the Company acquired substantially all of the assets of the ePatch division of DELTA, inclusive of all products and indications currently under development. The total consideration paid at closing amounted to $3.0 million in cash and 244,519 shares of the Company’s common stock valued at $2.9 million. In addition, there is the potential for a performance-based earn out up to $3.0 million upon reaching certain milestones, as defined in the APA. The fair value of the total consideration transferred in the acquisition, including contingent consideration, was $6.5 million at the acquisition date. ePatch is included in the Technology segment.

Revenue Recognition

Healthcare

Healthcare revenue includes revenue from MCT, wireless and trans-telephonic event, Holter, Pacemaker and INR monitoring services.  We receive a significant portion of our revenue from third-party commercial insurance organizations and governmental entities.  We also receive reimbursement directly from patients through co-pays and self-pay arrangements.  Billings for services reimbursed by contracted third-party payors, including Medicare, are recorded as revenue, net of contractual allowances.  Adjustments to the estimated receipts, based on final settlement with the third-party payors, are recorded upon settlement.  If we do not have sufficient historical information regarding collectability from a given payor to support revenue recognition at the time of service, revenue is recognized when cash is received.  Unearned amounts are appropriately deferred until the service has been completed.  For the three months ended March 31, 2017 and 2016, revenue from Medicare as a percentage of our Healthcare revenue was 40.3% and 41.7%, respectively.

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Research

Research revenue includes revenue for core laboratory services, including cardiac monitoring, imaging, scientific consulting and data management services.  Our Research revenue is provided on a fee-for-service basis, and revenue is recognized as the related services are performed.  We also provide consulting services on a time and materials basis and this revenue is recognized as the services are performed.  Our site support revenue, consisting of equipment rentals and sales along with related supplies and logistics management, are recognized at the time of sale or over the rental period.  Under a typical contract, customers pay us a portion of our fee for these services upon contract execution as an upfront deposit, some of which is typically non-refundable upon contract termination.  Unearned revenue, including upfront deposits, are deferred, and then recognized as the services are performed.

For arrangements with multiple deliverables, the revenue is allocated to each element (both delivered and undelivered items) based on their relative selling prices or management’s best estimate of their selling prices, when vendor-specific or third-party evidence is unavailable.

We record reimbursements received for out-of-pocket expenses incurred, including freight, as revenue in the accompanying consolidated statements of operations.

Technology

Technology revenue includes revenue received from the sale of products, product repairs and supplies to medical companies, clinics and hospitals.  Our Technology revenue is recognized when shipped, or as service is completed.

Reimbursement - Healthcare

We are dependent on reimbursement for our patient services by government and commercial insurance payors.  Medicare reimbursement rates for our MCT, event, Holter, Pacemaker and INR monitoring services have been established nationally by the Centers for Medicare and Medicaid Services (“CMS”) and fluctuate periodically based on the annually published CMS rate table.

In addition to government reimbursement through Medicare, we have successfully secured contracts with most national and regional commercial payors for our monitoring services.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable related to the Healthcare segment are recorded at the time revenue is recognized, net of contractual allowances, and are presented on the consolidated balance sheets net of an allowance for doubtful accounts.  The ultimate collection of accounts receivable may not be known for several months after services have been provided and billed.  We record an allowance for doubtful accounts based on the aging of receivables using payor-specific historical data.  The percentages and amounts used to record bad debt expense and the allowance for doubtful accounts are supported by various methods and analyses, including current and historical cash collections and the aging of receivables by payor.  Because of continuing changes in the healthcare industry and third-party reimbursement, it is possible that our estimates of collectability could change, which could have a material impact on our operations and cash flows.

Other accounts receivable related to the Research and Technology segments are recorded at the time revenue is recognized, or when products are shipped or services are performed.  We estimate the allowance for doubtful accounts on a specific account basis and consider several factors in our analysis, including customer-specific information and the aging of the account.

We write-off receivables when the likelihood for collection is remote and when we believe collection efforts have been fully exhausted and we do not intend to devote additional resources in attempting to collect. We perform write-offs on a monthly basis.  In the Healthcare segment, we wrote off $2.0 million and $2.6 million of receivables for the three months ended March 31, 2017 and 2016, respectively.  The impact was a reduction of gross receivables and a reduction in the allowance for doubtful accounts.  There were no material write-offs in the Research and Technology segments.  We recorded bad debt expense of $2.8 million and $2.6 million, respectively, for the three months ended March 31, 2017 and 2016.

Other Charges

We account for expenses associated with our acquisitions and certain litigation as other charges as incurred. These expenses were primarily a result of legal fees related to patent litigation in which we are the plaintiff and activities surrounding our acquisitions. Other charges are costs that are not considered necessary to the ongoing business operations.

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Results of Operations

Three Months Ended March 31, 2017 and 2016

Revenues.   Total revenues for the three months ended March 31, 2017 were $55.9 million compared to $48.6 million for the three months ended March 31, 2016, reflecting an increase of $7.3 million, or 14.9%.  Healthcare revenue increased $1.4 million due to increased patient volumes and a favorable product mix, partially offset by a reduction in MCT Medicare pricing effective January 1, 2017.  Research revenue increased $3.9 million, due to the acquisition of VirtualScopics which occurred during the second quarter of 2016. Technology revenue increased $2.0 million, due to the acquisition of Telcare during the fourth quarter of 2016.

Gross Profit.   Gross profit increased to $32.9 million for the three months ended March 31, 2017 from $30.6 million for the three months ended March 31, 2016, reflecting an increase of $2.3 million, or 7.5%.  Gross profit as a percentage of revenues was 58.9% for the three months ended March 31, 2017 compared to 63.0% for the three months ended March 31, 2016.  The decrease in gross margin percentage was due to the impact of our acquisitions, which carry lower profit margins than our existing business, as well as the aforementioned reduction in MCT Medicare pricing effective January 1, 2017.

General and Administrative Expense.   General and administrative expense was $15.9 million for the three months ended March 31, 2017 compared to $12.3 million for the three months ended March 31, 2016.  The increase of $3.6 million, or 29.0%, was due to the addition of $1.8 million from our acquired businesses as well as $1.5 million of stock compensation expense related to a performance bonus awarded to a third-party and a $0.3 million increase in consulting and professional services.  As a percent of total revenues, general and administrative expense was 28.5% for the three months ended March 31, 2017 compared to 25.4% for the three months ended March 31, 2016.

Sales and Marketing Expense.   Sales and marketing expense was $7.7 million for the three months ended March 31, 2017 compared to $7.5 million for the three months ended March 31, 2016. The increase of $0.2 million, or 2.1%, was due to the addition of $0.3 million from our acquired businesses and a $0.3 million increase related to the creation of our strategic sales group, partially offset by a $0.4 million decrease in meeting and travel expenses. As a percent of total revenues, sales and marketing expense was 13.8% for the three months ended March 31, 2017 compared to 15.5% for the three months ended March 31, 2016.

Bad Debt Expense.   Bad debt expense was $2.8 million for the three months ended March 31, 2017 compared to $2.6 million for the three months ended March 31, 2016. The increase of $0.2 million, or 5.8%, was due to the timing of revenues and collections.  As a percentage of total revenues, bad debt expense was 5.0% for the three months ended March 31, 2017 compared to 5.4% for the three months ended March 31, 2016.  Substantially all of our bad debt expense relates to the Healthcare segment.  Bad debt expense in the Research and Technology segments, which include our recently acquired companies, was minimal and is recorded on a specific account basis.

Research and Development Expense.   Research and development expense was $2.4 million for the three months ended March 31, 2017 compared to $1.8 million for the three months ended March 31, 2016. The increase of $0.6 million, or 36.2%, was due entirely to the addition of our acquired businesses. As a percent of total revenues, research and development expense was 4.4% for the three months ended March 31, 2017 compared to 3.7% for the three months ended March 31, 2016.

Other Charges.   During the three months ended March 31, 2017, we incurred $1.7 million of other charges primarily related to professional service fees related to our pending and prior year acquisitions.  These charges were partially offset by a $0.6 million decrease in fair value of acquisition-related contingent consideration. For the three months ended March 31, 2017, other charges were 3.1% of total revenues.

During the three months ended March 31, 2016, we incurred $1.8 million of other charges primarily related to legal fees for patent litigation as well as professional services related to our acquisitions.  For the three months ended March 31, 2016, other charges were 3.7% of total revenue.

Interest and Other Loss, net.   Interest and other loss, net was $3.0 million for the three months ended March 31, 2017 compared to $0.4 million for the three months ended March 31, 2016.  The increase was due to a non-operating charge of $2.5 million recorded for a settlement with the Office for Civil Rights related to the theft of two unencrypted laptop computers in 2011.

Income Taxes.   For the three months ended March 31, 2017, we recognized an income tax benefit of $0.9 million. After considering windfall benefits from the exercise of stock options, we expect our 2017 annual effective tax rate to be in the range of 38% to 40%, absent changes in tax laws or significant changes in uncertain tax positions. For the three months ended March 31, 2016, we recorded a minimal income tax expense.

Net (Loss) Income.   We recognized net income of $0.2 million for the three months ended March 31, 2017 compared to net income of $4.1 million for the three months ended March 31, 2016.

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Liquidity and Capital Resources

Our Annual Report on Form 10-K for the year ended December 31, 2016 includes a detailed discussion of our liquidity, contractual obligations and commitments.  The information presented below updates and should be read in conjunction with the information disclosed in that Form 10-K.

As of March 31, 2017, our principal source of liquidity was cash and cash equivalents of $25.1 million and net healthcare and other accounts receivables of $31.4 million.  We had working capital of $30.2 million as of March 31, 2017.

We generated $4.7 million of cash from operations for the three months ended March 31, 2017.  Our ongoing operations during this period resulted in a net income of $0.2 million, which included $8.3 million of non-cash items primarily related to bad debt, depreciation, amortization and stock-based compensation expense.  These items were partially offset by $3.9 million of cash used for working capital.

We used $3.0 million of cash in investing activities for the three months ended March 31, 2017.  We used $3.0 million of cash for capital purchases primarily related to medical devices in the Healthcare and Research segments for use in our ongoing operations and an investment in internally developed software for the three months ended March 31, 2017.

In December 2014, we entered into a $25.0 million Term Loan and $15.0 million Revolving Loan with Healthcare Financial Solutions, LLC, previously the General Electric Capital Corporation.  At March 31, 2017, $3.0 million was drawn under the Revolving Loan.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Our cash balance as of March 31, 2017 was $25.1 million.  We do not invest in any trading securities, nor do we use derivative financial instruments.

At March 31, 2017, we had $25.5 million of variable rate debt, exclusive of debt discounts and deferred charges, based off of LIBOR rates.  A change in LIBOR rates would result in an incremental change in interest expense.

Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) of the Exchange Act as of the end of the period covered by this report.  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of March 31, 2017 to ensure that information required to be disclosed in these reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended March 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

21

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

From time to time, in the ordinary course of business, and like others in the industry, we receive requests for information from government agencies in connection with their regulatory or investigational authority or are involved in traditional employment or business litigation.  We review such requests and notices and take appropriate action.

The final outcome of any current or future litigation or governmental or internal investigations cannot be accurately predicted, nor can we predict any resulting penalties, fines or other sanctions that may be imposed at the discretion of federal or state regulatory authorities.  We record accruals for such contingencies to the extent that we conclude it is probable that a liability has been incurred and the amount of the loss can be projected.

Item 1A.  Risk Factors

In evaluating an investment in BioTelemetry common stock, investors should consider carefully, among other things, the risk factors previously disclosed in Part I, Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2016, as well as the information contained in this Quarterly Report and other reports and registration statements filed by us with the SEC.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3.  Defaults Upon Senior Securities

Not applicable.

Item 4.  Mine Safety Disclosures

Not applicable.

Item 5.  Other Information

Not applicable.

Item 6.  Exhibits

EXHIBIT INDEX

Exhibit Number
31.1	Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities and Exchange Act of 1934, as amended.
31.2	Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities and Exchange Act of 1934, as amended.
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Label Linkbase Document
101.PRE	XBRL Taxonomy Presentation Linkbase Document
101.DEF	XBRL Taxonomy Definition Linkbase Document

22

BioTelemetry, Inc.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	BIOTELEMETRY, INC.
Date: May 4, 2017	By:	/s/ Heather C. Getz
		Heather C. Getz, CPA
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer and authorized officer of the Registrant)

23

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Joseph H. Capper, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of BioTelemetry, Inc.;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 4, 2017

/s/ Joseph H. Capper

Joseph H. Capper

President and Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Heather C. Getz, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of BioTelemetry, Inc.;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 4, 2017

/s/ Heather C. Getz

Heather C. Getz, CPA

Senior Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350, as adopted), Joseph H. Capper, the President and Chief Executive Officer of BioTelemetry, Inc. (the “Company”), and Heather C. Getz, the Chief Financial Officer of the Company, each hereby certifies that, to the best of his or her knowledge:

1.The Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, to which this Certification is attached as Exhibit 32.1 (the “Periodic Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

2.The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 4, 2017
/s/ Joseph H. Capper	/s/ Heather C. Getz
Joseph H. Capper	Heather C. Getz, CPA
President and Chief Executive Officer	Senior Vice President and Chief Financial Officer

This certification accompanies the Quarterly Report on Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or Securities Exchange Act of 1934, as amended (whether made before or after the date of the Quarterly Report on Form 10-Q), irrespective of any general incorporation language contained in such filing.

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2017	Apr. 26, 2017
Document and Entity Information
Entity Registrant Name	BioTelemetry, Inc.
Entity Central Index Key	0001574774
Document Type	10-Q
Document Period End Date	Mar. 31, 2017
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		28,655,157
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q1

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents	$ 25,098	$ 23,052
Healthcare accounts receivable, net of allowance for doubtful accounts of $12,891 and $12,198, at March 31, 2017 and December 31, 2016, respectively	17,717	14,594
Other accounts receivable, net of allowance for doubtful accounts of $349 and $665, at March 31, 2017 and December 31, 2016, respectively	13,633	12,261
Inventory	4,323	5,176
Prepaid expenses and other current assets	3,267	4,477
Total current assets	64,038	59,560
Property and equipment, net	26,443	25,823
Intangible assets, net	32,574	33,472
Goodwill	41,049	41,068
Deferred tax asset	37,271	36,636
Other assets	3,200	2,425
Total assets	204,575	198,984
Current liabilities:
Accounts payable	12,888	12,425
Accrued liabilities	14,548	13,698
Current portion of capital leases obligations	113	162
Current portion of long-term debt	1,563	1,250
Deferred revenue	4,738	3,972
Total current liabilities	33,850	31,507
Long-term capital lease obligations	110	126
Long-term debt	23,341	23,911
Other long-term liabilities	4,369	4,526
Total liabilities	61,670	60,070
Stockholders' equity:
Common stock-$.001 par value as of March 31, 2017 and December 31, 2016; 200,000,000 shares authorized as of March 31, 2017 and December 31, 2016; 28,629,951 and 28,261,503 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively	29	28
Paid-in capital	285,435	281,642
Accumulated other comprehensive loss	(33)	(34)
Accumulated deficit	(142,526)	(142,722)
Total stockholders' equity	142,905	138,914
Total liabilities and stockholders' equity	$ 204,575	$ 198,984

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
CONSOLIDATED BALANCE SHEETS
Accounts receivable, net of allowance for doubtful accounts (in dollars)	$ 12,891	$ 12,198
Other accounts receivable, net of allowance for doubtful accounts (in dollars)	$ 349	$ 665
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	200,000,000	200,000,000
Common stock, shares issued	28,629,951	28,261,503
Common stock, shares outstanding	28,629,951	28,261,503

XML

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Revenues:
Healthcare	$ 42,511	$ 41,149
Research	9,324	5,393
Technology	4,046	2,098
Total revenues	55,881	48,640
Cost of revenues:
Healthcare	14,648	13,162
Research	5,571	3,255
Technology	2,753	1,596
Total cost of revenues	22,972	18,013
Gross profit	32,909	30,627
Operating expenses:
General and administrative	15,917	12,336
Sales and marketing	7,701	7,545
Bad debt expense	2,791	2,638
Research and development	2,433	1,786
Other charges	1,739	1,788
Total operating expenses	30,581	26,093
Income from operations	2,328	4,534
Interest and other loss, net	(2,998)	(423)
(Loss) income before income taxes	(670)	4,111
Benefit from (provision for) income taxes	866	(14)
Net income	196	4,097
Other comprehensive (loss) income:
Foreign currency translation gain	1	2
Comprehensive income	$ 197	$ 4,099
Net income per share:
Basic (in dollars per share)	$ 0.01	$ 0.15
Diluted (in dollars per share)	$ 0.01	$ 0.14
Weighted average number of common shares outstanding:
Basic (in shares)	28,429,289	27,370,825
Diluted (in shares)	31,315,317	29,521,471

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
OPERATING ACTIVITIES
Net income	$ 196	$ 4,097
Adjustments to reconcile net income to net cash provided by operating activities:
Bad debt expense	2,791	2,638
Depreciation	2,720	2,587
Non-cash lease expense	(50)	(34)
Deferred income tax benefit	(635)	(106)
Change in fair value of acquisition-related contingent consideration	(605)
Stock-based compensation	3,058	1,178
Amortization of intangibles	995	679
Accretion of discount on debt	55	55
Changes in operating assets and liabilities:
Accounts and other receivables	(7,286)	(2,945)
Inventory	810	(487)
Prepaid expenses and other assets	463	108
Accounts payable	463	1,917
Accrued and other liabilities	1,678	(1,505)
Net cash provided by operating activities	4,653	8,182
INVESTING ACTIVITIES
Purchases of property and equipment and investment in internally developed software	(2,967)	(3,513)
Net cash used in investing activities	(2,967)	(3,513)
FINANCING ACTIVITIES
Proceeds related to the exercising of stock options and employee stock purchase plan	2,617	954
Tax payments related to the vesting of shares	(1,881)	(1,371)
Principal payments on long-term debt	(312)	(313)
Principal payments on capital lease obligations	(65)	(84)
Net cash provided by (used in) financing activities	359	(814)
Effect of exchange rate changes on cash	1
Net increase in cash and cash equivalents	2,046	3,855
Cash and cash equivalents-beginning of period	23,052	18,986
Cash and cash equivalents-end of period	25,098	22,841
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Non-cash purchases of property and equipment	498
Cash paid for interest	310	342
Cash paid for taxes	$ 47	$ 13

XML

Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2017

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

1.Summary of Significant Accounting Policies

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and the requirements of Form 10-Q and Article 10 of Regulation S-X.  Accordingly, these consolidated financial statements do not include all of the information and footnotes necessary for a complete presentation of financial position, results of operations and cash flows.  In the opinion of management, these consolidated financial statements reflect all adjustments which are of a normal recurring nature and necessary for a fair presentation of BioTelemetry, Inc.’s (“BioTelemetry,” “Company,” “we,” “our” or “us” ) financial position as of March 31, 2017 and December 31, 2016, the results of operations for the three months ended March 31, 2017 and 2016 and cash flows for the three months ended March 31, 2017 and 2016.  The financial data and other information disclosed in these notes to the consolidated financial statements related to the three months ended March 31, 2017 and 2016 are unaudited.  The results for the three months ended March 31, 2017 are not necessarily indicative of the results to be expected for any future period.

Net Income Per Share

We compute net income per share in accordance with Accounting Standards Codification (“ASC”) 260, Earnings Per Share. Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding during the period.  Diluted net income per share is computed by giving effect to all potential dilutive common shares, including stock options and restricted stock units.

The following table presents the calculation of basic and diluted net income per share:

	Three Months Ended March 31,
	2017		2016
	(Net income in thousands)
Numerator:
Net income	$	196	$	4,097
Denominator:
Weighted average shares used in computing basic net income per share	28,429,289		27,370,825
Potential dilutive common shares due to dilutive stock option and restricted stock units	2,886,028		2,150,646
Weighted average shares used in computing diluted net income per share	31,315,317		29,521,471
Net income per share:
Basic net income per share	$	0.01	$	0.15
Diluted net income per share	$	0.01	$	0.14

Certain stock options, which are priced higher than the market price of our shares as of March 31, 2017 and 2016, would be anti-dilutive and therefore have been excluded from the weighted average shares used in computing diluted net income per share. These options could become dilutive in future periods.

Fair Value of Financial Instruments

Fair value is defined as the exit price, the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date.  The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as defined below.  Observable inputs are inputs a market participant would use in valuing an asset or liability based on market data obtained from sources independent of the Company.  Unobservable inputs are inputs that reflect the Company’s own assumptions about the factors a market participant would use in valuing an asset or liability developed using the best information available in the circumstances.  The classification of an asset’s or liability’s level within the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

Level 1—Quoted prices in active markets for an identical asset or liability.

Level 2—Inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the asset or liability.

Level 3—Inputs that are unobservable for the asset or liability, based on the Company’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

Our financial instruments consist primarily of cash and cash equivalents, Healthcare accounts receivable, other accounts receivable, accounts payable, short-term debt and long-term debt.  With the exception of the long-term debt, the carrying value of these financial instruments approximates their fair value because of their short-term nature (classified as Level 1).  For long-term debt, based on the borrowing rates currently available, the fair value was determined to be $25,500 as of March 31, 2017.  This is equal to the nominal value, which is the carrying value, exclusive of debt discount and deferred charges (classified as Level 2).

The fair value of contingent consideration is measured on a recurring basis using unobservable inputs such as projected payment dates, probabilities of meeting specified milestones and other such variables resulting in payment amounts which are discounted back to present value using a probability-weighted discounted cash flow model (classified as Level 3).  Adjustments to contingent consideration are recorded under other charges.

In addition to the recurring fair value measurements, the fair value of assets acquired and liabilities assumed in connection with a business combination are recorded at the acquisition date, using a discounted cash flow model (classified as Level 3).  This valuation technique requires the Company to make certain assumptions, including, but not limited to, future operating performance and cash flows, royalty rate and other such variables which are discounted to present value using a discount rate that reflects the risk factors associated with future cash flow, the characteristics of the assets acquired and liabilities assumed and the experience of the acquired business.

Equity Method Investments

We account for investments using the equity method of accounting if the investment provides us the ability to exercise significant influence, but not control, over the investee.  Significant influence is generally deemed to exist if the Company’s ownership interest in the voting stock of the investee ranges between 20% and 50%, although other factors, such as representation on the investee’s board of directors, are considered in determining whether the equity method of accounting is appropriate.  Under the equity method of accounting, the investment is recorded at cost in the consolidated balance sheet as a component of other assets and is periodically adjusted for capital contributions, dividends received and our share of the investee’s earnings or losses together with other-than-temporary impairments which are recorded as a component of interest and other loss, net in the consolidated statements of operations and comprehensive income.

Goodwill and Acquired Intangible Assets

Goodwill is the excess of the purchase price of an acquired business over the amounts assigned to assets acquired and liabilities assumed in a business combination. In accordance with ASC 350, Intangibles—Goodwill and Other (“ASC 350”), goodwill is reviewed for impairment annually, or when events arise that could indicate that an impairment exists. Initially, we qualitatively assess whether it is more-likely-than-not that an impairment exists for each reporting unit.  Such qualitative factors can include, among others, industry and market conditions, present and anticipated sales and cost factors, overall financial performance and relevant entity-specific events.  If we conclude based on our qualitative assessment that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value, we perform a two-step impairment test in accordance with ASC 350. In the first step, we compare the fair value of our reporting units to the carrying value of the reporting units.  If the carrying value of the net assets assigned to the reporting units exceeds the fair value of the reporting units, then the second step of the impairment test is performed in order to determine the implied fair value of the reporting units’ goodwill.  If the carrying value of the reporting units’ goodwill exceeds the implied fair value of those reporting units, an impairment loss equal to the difference is recorded.

For the purpose of performing our goodwill impairment analysis, we consider our business to be comprised of three reporting units:  Healthcare, Research and Technology.  We calculate the fair value of the reporting units utilizing a weighting of the income and market approaches.  The income approach is based on a discounted cash flow methodology that includes assumptions for, among other things, forecasted income, cash flow, growth rates, income tax rates, expected tax benefits and long-term discount rates, all of which require significant judgment.  The market approach utilizes our market data.  There are inherent uncertainties related to these factors and the judgment applied in the analysis.  We believe that the combination of an income and a market approach provides a reasonable basis to estimate the fair value of our reporting units.

Acquired intangible assets are recorded at fair value on the acquisition date.  The estimated fair values and useful lives of intangible assets are determined by assessing many factors including estimates of future operating performance and cash flow of the acquired business, the characteristics of the intangible assets acquired and the experience of the acquired business.  Independent appraisal firms may assist with the valuation of acquired assets. The impairment test for indefinite-lived intangible assets other than goodwill consists of a comparison of the fair value of the indefinite-lived intangible asset to the carrying value of the asset.  We estimate the fair value of the indefinite-lived intangibles using the relief from royalty method.

Accounting Pronouncements Recently Adopted

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Improvements to Employee Share-Based Payment Accounting. The standard revises the accounting for certain aspects of share-based compensation arrangements and requires any excess tax benefits or tax deficiencies to be recorded directly in the income statement when such awards vest or settle. In addition, the cash flows related to any excess tax benefits will no longer be separately classified as a financing activity, but will rather be classified as an operating activity, along with all other income tax cash flows. The standard also makes certain changes to the way the treasury stock method is applied when calculating diluted net income per share, as well as allows for a policy election to account for forfeitures as they occur, rather than using the estimation method currently prescribed by ASC 718. The standard is effective for annual and interim periods beginning after December 15, 2016, with early adoption permitted.

We elected to early adopt the standard during the fourth quarter of 2016. The standard requires the recognition of any pre-adoption date net operating loss (“NOL”) carryforwards from share-based compensation arrangements to be recognized on a modified retrospective basis, through an opening retained earnings adjustment on January 1, 2016. Any income tax effects from share-based compensation arrangements arising after January 1, 2016 will be recognized prospectively in the income statement during the period of adoption.

Upon adoption, we recognized all previously unrecognized tax benefits which resulted in a cumulative-effect adjustment of $1,752 to our accumulated deficit. These previously unrecognized tax benefits were recorded as a deferred tax asset, which was fully offset by a valuation allowance on January 1, 2016, thus there was no net impact from the adoption of ASU 2016-09 as of the same date. In addition, we recognized excess tax benefits as an adjustment to our previously reported (provision for) income taxes of $127 for the three months ended March 31, 2016. Corresponding adjustments were recorded in the operating section of our statement of cash flows for the three months ended March 31, 2016. The weighted average number of common shares outstanding for calculating diluted net income per share increased by 339,595 for the three months ended March 31, 2016.

Our adoption of the standard did not have any impact to our consolidated statements of cash flows as no NOL carryforwards from share-based compensation arrangements were recognized prior to January 1, 2016, due to our use of the “with and without” method of accounting for equity-generated NOL carryforwards. We have elected to continue to estimate forfeitures under the true-up provision of ASC 718.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. The standard requires inventory to be measured at the lower of cost or net realizable value. The guidance will not apply to inventories for which cost is determined using the last-in, first-out method or the retail inventory method. The adoption of this standard did not have a material impact on our consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. The standard eliminates step two in the current two-step impairment test under ASC 350. Under the new standard, a goodwill impairment will be recorded for any excess of a reporting unit’s carrying value over its fair value. A prospective transition approach is required. The standard is effective for annual and interim reporting periods beginning after December 15, 2019 with early adoption permitted for annual and interim goodwill impairment testing dates after January 1, 2017. We plan to early adopt the standard at the time of our 2017 goodwill impairment testing date and do not expect the standard to have a material impact on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases. The standard will require lessees to recognize most leases on their balance sheet and makes selected changes to lessor accounting. The standard is effective for annual and interim reporting periods beginning after December 15, 2018. A modified retrospective transition approach is required, with certain practical expedients available. We are currently evaluating the impact the adoption of this standard will have on our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which has been updated through several revisions and clarifications since its original issuance. The standard will require revenue recognized to represent the transfer of promised goods or services to customers at an amount that reflects the consideration which a company expects to receive in exchange for those goods or services. The standard also requires new, expanded disclosures regarding revenue recognition. The standard will be effective January 1, 2018 with early adoption permissible beginning January 1, 2017. We are currently evaluating the transition method we will elect. We are evaluating the specific impacts the standard will have on Healthcare revenue, particularly related to the valuation of revenue, accounts receivable and bad debt expense. We are evaluating the impact the standard will have on Research revenue, which involves reviewing a large number of long-term contracts. We do not expect the standard to have a material impact on Technology revenue.

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Acquisitions

3 Months Ended

Mar. 31, 2017

Acquisitions

Acquisitions

2.    Acquisitions

Telcare, Inc.

On December 1, 2016, the Company, through its wholly-owned subsidiary BioTelemetry Care Management, LLC, entered into the Agreement with Telcare pursuant to which the Company acquired the stock of Telcare Medical Supply, Inc. and certain assets of Telcare. Inc. The total consideration paid at closing amounted to $7,000 in cash, with the potential for a performance-based earn out up to $5,000 upon reaching certain financial milestones. The fair value of the total consideration transferred in the acquisition, including contingent consideration, was $9,700 at the acquisition date.

The acquisition of Telcare provides us the opportunity to apply our expertise in remote monitoring to the diabetes market and increases our presence in the digital population health management market. We accounted for the transaction as a business combination, and as such, all assets acquired and liabilities assumed were recorded at their estimated fair values. The excess of the fair value of the purchase price over the fair value of the net assets acquired has been recognized as goodwill, which represents the expected future benefits arising from the assembled workforce and other synergies attributable to cost savings opportunities. The Company recognized $3,339 of goodwill as a result of the acquisition, all of which has been assigned to the Technology segment. We expect $578 of this goodwill will be deductible for tax purposes.

The amounts below represent our preliminary fair value estimates as of March 31, 2017 and are subject to subsequent adjustment as additional information is obtained during the applicable measurement period. The primary areas of these preliminary estimates that are not yet finalized related to certain tangible assets acquired and liabilities assumed, including deferred taxes and inventory, as well as the identifiable intangible assets. The Company expects to finalize all accounting for the acquisition of Telcare within one year of the acquisition date.

The total consideration and related preliminary allocation for Telcare is summarized as follows:

	Amount		Weighted Average Life (Years)
Fair value of assets acquired:
Other accounts receivable	$	235
Inventory	1,791
Prepaid expenses and other current assets	1,261
Property and equipment	55
Other assets	933
Identifiable intangible assets:
Customer relationships	400		5
Technology	2,000		5
Tradename	400		Indefinite
Total identifiable intangible assets	2,800
Total assets acquired	7,075
Fair value of liabilities assumed:
Accounts payable	459
Accrued liabilities	206
Deferred revenue	49
Total liabilities assumed	714
Total identifiable net assets	6,361
Goodwill	3,339
Net assets acquired	$	9,700

The following unaudited pro forma financial information has been prepared using historical financial results of the Company and Telcare as if the acquisition had occurred as of January 1, 2016. Certain adjustments related to the elimination of transaction costs, as well as the addition of depreciation and amortization related to fair value adjustments on the tangible and identifiable intangible assets acquired, have been reflected for the purposes of the unaudited pro forma financial information presented below. We believe the assumptions used in preparing the unaudited pro forma financial information are reasonable, but not necessarily indicative of actual results should the acquisition have occurred on January 1, 2016.

Pro forma financial information for the periods presented is summarized as follows:

	Three Months Ended March 31, 2016
Revenue	$	49,759
Net income	$	2,980
Net income per common share:
Basic	$	0.11
Diluted	$	0.10
Weighted average number of common shares outstanding:
Basic	27,370,825
Diluted	29,521,471

Contingent Consideration

The Agreement includes the potential for a performance-based earn out up to $5,000 upon reaching certain milestones. The fair value of the contingent consideration associated with the Telcare acquisition was $2,700 as of the acquisition date and at March 31, 2017 and is included as a component of other liabilities in the accompanying consolidated balance sheets.

The following summarizes the changes in our contingent consideration during the year ended December 31, 2016:

	Total Contingent Consideration
Balance at December 31, 2016	$	2,700
Change in fair value of acquisition-related contingent consideration	—
Balance at March 31, 2017	$	2,700

VirtualScopics, Inc.

On March 25, 2016, the Company, through its wholly-owned subsidiary BioTelemetry Research Acquisition Corporation, entered into a definitive Agreement and Plan of Merger with VirtualScopics, Inc. (“VirtualScopics”), a leading provider of clinical trial imaging solutions.  Under the terms of the Merger Agreement, the Company purchased:  (i) any and all outstanding shares of VirtualScopics’ $0.001 par value common stock for $4.05 per share; (ii) any and all outstanding shares of VirtualScopics’ $0.001 par value Series A and Series B Convertible Preferred Stock for $336.30 per share; and (iii) any and all outstanding shares of VirtualScopics’ $0.001 par value Series C-1 Convertible Preferred Stock for $920.00 per share.  The all cash acquisition of VirtualScopics was completed on May 11, 2016.  The total consideration paid at closing amounted to $14,970, net of cash acquired of $849.

The acquisition of VirtualScopics expands the Company’s existing clinical research offerings and gives the Company further access to established customer relationships.  We accounted for the transaction as a business combination, and as such, all assets acquired and liabilities assumed were recorded at their estimated fair values.  The excess of the consideration paid over the fair value of the net assets acquired has been recognized as goodwill, which represents the expected future benefits arising from the assembled workforce and other synergies attributable to cost savings opportunities.  The Company recognized $4,698 of goodwill as a result of the acquisition, all of which has been assigned to the Research segment.  We do not expect that any of this goodwill will be deductible for tax purposes.

The amounts below represent our preliminary fair value estimates as of March 31, 2017 and are subject to subsequent adjustment as additional information is obtained during the applicable measurement period.  The primary areas of these preliminary estimates that are not yet finalized relate to certain tangible assets acquired and liabilities assumed, as well as the identifiable intangible assets.  The Company expects to finalize all accounting for the acquisition of VirtualScopics within one year of the acquisition date

The total consideration and related allocation for VirtualScopics is summarized as follows:

			Weighted
			Average Life
	Amount		(Years)
Fair value of assets acquired:
Cash and cash equivalents	$	849
Other accounts receivable	3,679
Inventory	111
Prepaid expenses and other current assets	396
Property and equipment	500
Identifiable intangible assets:
Customer relationships	5,200		12
Technology	2,000		10
Backlog	3,100		4
Total identifiable intangible assets	10,300
Total assets acquired	15,835
Fair value of liabilities assumed:
Accounts payable	325
Accrued liabilities	3,008
Current portion of capital lease obligations	59
Current portion of long-term debt	91
Deferred revenue	700
Deferred taxes	272
Long-term capital lease obligations	162
Long-term debt	97
Total liabilities assumed	4,714
Total identifiable net assets	11,121
Goodwill	4,698
Net assets acquired	$	15,819

The following unaudited pro forma financial information has been prepared using historical financial results of the Company and VirtualScopics as if the acquisition had occurred as of January 1, 2016.  Certain adjustments related to the elimination of transaction costs and acquisition related indebtedness, as well as the addition of depreciation and amortization related to fair value adjustments on the tangible and identifiable intangible assets acquired, have been reflected for the purposes of the unaudited pro forma financial information presented below.  No adjustments for synergies or certain other expected benefits of the acquisition have been included.  We believe the assumptions used in preparing the unaudited pro forma financial information are reasonable, but not necessarily indicative of actual results should the acquisition have occurred on January 1, 2016.

Pro forma financial information for the periods presented is summarized as follows:

	Three Months Ended March 31, 2016
Revenue	$	52,496
Net income	$	5,103
Net income per common share:
Basic	$	0.19
Diluted	$	0.17
Weighted average number of common shares outstanding:
Basic	27,370,825
Diluted	29,521,471

ePatch Division of DELTA Danish Electronics, Light, and Acoustics

On April 1, 2016, the Company, through its wholly-owned subsidiary BioTelemetry Technology ApS, entered into an Asset Purchase Agreement (“APA”) with DELTA Danish Electronics, Light, and Acoustics (“DELTA”), pursuant to which the Company acquired substantially all of the assets of the ePatch division of DELTA, inclusive of all products and indications currently under development.  The total consideration paid at closing amounted to $3,000 in cash and 244,519 shares of the Company’s common stock valued at $2,885.  In addition, there is the potential for a performance based earn out up to $3,000 upon reaching certain milestones, as defined in the APA.  The fair value of the total consideration transferred in the ePatch acquisition, including contingent consideration, was $6,490 at the acquisition date.

The ePatch acquisition is expected to generate future cost savings for the Company and will provide control over proprietary components for the Company’s next generation Mobile Cardiac Outpatient TelemetryTM (“MCOTTM”) device.  We accounted for the transaction as a business combination, and as such, all assets acquired and liabilities assumed were recorded at their estimated fair values.  The excess of the consideration paid over the fair value of the net assets acquired has been recognized as goodwill, which represents the expected future benefits arising from the assembled workforce and other synergies attributable to cost savings opportunities.  The company recognized $3,181 of goodwill as a result of the acquisition, all of which has been assigned to the Technology segment.  We expect all of this goodwill to be deductible for tax purposes.

The amounts below represent our final fair value estimates, which were completed in the first quarter of 2017.  The total consideration and related allocation for the ePatch acquisition is summarized as follows:

			Weighted
			Average Life
	Amount		(Years)
Fair value of assets acquired:
Inventory	$	100
Property and equipment	175
Identifiable intangible assets:
Customer relationships	400		10
Technology	2,800		10
Trade names	100		Indefinite
Total identifiable intangible assets	3,300
Total assets acquired	3,575
Fair value of liabilities assumed:
Accrued liabilities	266
Total liabilities assumed	266
Total identifiable net assets	3,309
Goodwill	3,181
Net assets acquired	$	6,490

While the ePatch acquisition provides control over proprietary components of our next generation cardiac monitoring device, the acquisition did not have a material effect on our consolidated results of operations.

Contingent Consideration

The APA includes the potential for a performance based earn out up to $3,000 upon reaching certain milestones.  The fair value of the contingent consideration associated with the ePatch acquisition was $0 and $605 at March 31, 2017 and December 31, 2016, respectively, and is included as a component of other liabilities in the accompanying consolidated balance sheets.

The following summarizes the changes in our contingent consideration during the three months ended March 31, 2017:

	Total Contingent Consideration
Balance at December 31, 2016	$	605
Change in fair value of acquisition-related contingent consideration	(605		)
Balance at March 31, 2017	$	—

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Inventory

3 Months Ended

Mar. 31, 2017

Inventory

Inventory

3.    Inventory

Inventory consists of the following:

	March 31, 2017		December 31, 2016
Raw materials	$	2,948	$	2,866
Finished goods	1,375		2,310
Total inventory	$	4,323	$	5,176

Inventory, which includes purchased parts, materials, direct labor and applied manufacturing overhead, is stated at the lower of cost or net realizable value, with cost determined by use of the first-in, first-out method.

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Goodwill

3 Months Ended

Mar. 31, 2017

Goodwill

Goodwill

4.    Goodwill

Goodwill was recognized at the time of our acquisitions.  The carrying amount of goodwill as of March 31, 2017 and December 31, 2016 was $41,049 and $41,068, respectively.  The decrease in goodwill during the three months ended March 31, 2017 relates to purchase period adjustments relate to our 2016 acquisitions, primarily the December acquisition of Telcare.

The changes in the carrying amounts of goodwill by segment were as follows:

	Reporting Segment
	Healthcare		Research		Technology			Total
Balance at December 31, 2016	$	14,724	$	16,643	$	9,701		$	41,068
Goodwill adjustments related to 2016 acquisitions	—		5		(24		)	(19		)
Balance at March 31, 2017	$	14,724	$	16,648	$	9,677		$	41,049

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Equity Method Investment

3 Months Ended

Mar. 31, 2017

Equity Method Investment

Equity Method Investment

5.    Equity Method Investment

In December 2015, we acquired an ownership interest in Well Bridge Health, Inc. (“WellBridge”) through the conversion of an outstanding note receivable and the related accrued interest.  The investment is accounted for under the equity method. In December 2015, the equity method basis difference of $891 was allocated to equity method goodwill. As of March 31, 2017, our investment in WellBridge represented 30% of its outstanding stock.  A summary of our investment in Wellbridge is as follows:

	Three Months Ended March 31,
	2017			2016
January 1 balance	$	1,125		$	1,100
Our share of the investee’s losses	(96		)	(21		)
March 31 balance	$	1,029		$	1,079

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Credit Agreement

3 Months Ended

Mar. 31, 2017

Credit Agreement

Credit Agreement

6.Credit Agreement

On December 30, 2014, we entered into a Credit Agreement with Healthcare Financial Solutions, LLC (“HFS”), previously the General Electric Capital Corporation, as agent for the lenders (“Lenders”), and as a lender and swingline lender.  Pursuant to the Credit Agreement, the Lenders agreed to make loans to us as follows:  (i) Term Loans in an amount of $25,000 as of the closing date with an uncommitted ability to increase such Term Loans up to an amount not to exceed $10,000 and (ii) Revolving Loans up to $15,000.  As of both March 31, 2017 and December 31, 2016, $3,000 was drawn on the Revolving Loans.  The loan, inclusive of Term Loans and Revolving Loans, is recorded on our consolidated balance sheets as of March 31, 2017 in the amount of $24,903, which is net of a debt discount and deferred charges of $597.

The loan bears interest at an annual rate of LIBOR plus 4.0%, subject to a LIBOR floor of 1.0%.  The outstanding principal of the Term Loans will be paid as follows:  (i) beginning April 1, 2015, the principal amount of the Term Loans will be repaid, on a quarterly basis, in installments of $312, plus accrued interest; (ii) beginning January 1, 2018, the principal amount of the Term Loans will be repaid, on a quarterly basis, in installments of $625, plus accrued interest; and (iii) the remaining $16,563, along with any outstanding Revolving Loans, will be paid in full on or before December 30, 2019, or such earlier date upon an acceleration of the Term Loans by the Lenders upon an event of default or termination by us.  The loan is secured by substantially all of our assets and by a pledge of the capital stock of our U.S. based subsidiaries, as well as a pledge of 65% of the capital stock of the Company’s foreign subsidiaries.

The Credit Agreement contains affirmative and financial covenants regarding the operations of our business and certain negative covenants that, among other things, limit our ability to incur additional indebtedness, grant certain liens, make certain investments, merge or consolidate, make certain restricted payments and engage in certain asset dispositions, including a sale of all, or substantially all, of our property.  As of March 31, 2017, we were in compliance with all covenants.

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Stockholders' Equity

3 Months Ended

Mar. 31, 2017

Stockholders' Equity

Stockholders' Equity

7.Stockholders’ Equity

Stock-Based Compensation

Stock options, restricted stock units (“RSUs”), performance stock units (“PSUs”) and performance stock options (“PSOs”) are granted under the BioTelemetry, Inc. 2008 Equity Incentive Plan (“EIP”).  In January 2017, the number of shares available for grant was increased by 1,130,460 shares, per the EIP documents.  At March 31, 2017, 3,725,477 shares remain available for grant under the EIP.  We recognized $3,058 and $1,178 of stock-based compensation expense for the three months ended March 31, 2017 and 2016, respectively.

Stock option and RSU activity is summarized as follows:

	Stock Options				RSUs
	Number of Shares		Weighted Average Exercise Price		Number of Shares		Weighted Average Grant Date Fair Value
Stock outstanding as of December 31, 2016	3,568,434		$	7.82	592,349		$	9.86
Granted	173,881		24.12		78,991		24.65
Cancelled/forfeited	—		—		—		—
Exercised/vested	(191,998	)	7.45		(176,362	)	8.89
Stock outstanding as of March 31, 2017	3,550,317		$	8.64	494,978		$	12.57

Performance Stock option and PSU activity is summarized as follows:

	Performance Stock Options				PSUs
	Number of Shares		Weighted Average Exercise Price		Number of Shares		Weighted Average Grant Date Fair Value
Stock outstanding as of December 31, 2016	100,000		$	18.33	132,992		$	8.68
Vested	100,000		21.45		—		—
Cancelled/forfeited	—		—		(132,992	)	8.68
Exercised	(30,000	)	18.33		—		—
Stock outstanding as of March 31, 2017	170,000		$	20.17	—		$	—

Stock-based compensation expense is only recognized for outstanding PSUs where the performance conditions are deemed probable for achievement. For PSUs deemed probable for achievement, stock-based compensation expense is recognized ratably over the expected vesting period. For the three months ended March 31, 2017 and 2016 we incurred PSU expenses of $0 and $89, respectively.

Performance stock options (“PSOs”) are valued and stock-based compensation expense is only recognized once the performance conditions of the outstanding PSOs have been met. For the three months ended March 31, 2017 and 2016, we incurred PSO expenses of $1,533 and $0, respectively.

Employee Stock Purchase Plan

In the three months ended March 31, 2017, 47,966 shares were purchased in accordance with the Employee Stock Purchase Plan (“ESPP”). Net proceeds from the issuance of shares of common stock under the ESPP for the three months ended March 31, 2017 were $636. In January 2017, the number of shares available for grant was increased by 282,615 shares, per the ESPP documents. At March 31, 2017, 859,825 shares remain available for purchase under the ESPP.

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Other Charges

3 Months Ended

Mar. 31, 2017

Other Charges

Other Charges

8.     Other Charges

We account for expenses associated with exit or disposal activities in accordance with ASC 420, Exit or Disposal Cost Obligations, and record the expenses in other charges in our consolidated statements of operations and comprehensive income and record the related accrual in the accrued liabilities line on our consolidated balance sheets. These costs are primarily disclosed as severance and employee related costs below.

We account for expenses associated with integration and certain litigation as other charges as incurred.  These expenses were primarily a result of legal fees related to patent litigation in which we are the plaintiff and activities surrounding our acquisitions.  Other charges are costs that are not considered necessary to the ongoing business operations. For the three months ending March 31, 2017, other charges has been partially offset by a reduction in contingent consideration. A summary of these expenses is as follows:

	Three Months Ended March 31,
	2017			2016
Legal fees	$	982		$	1,369
Professional fees	1,160			168
Severance and employee related costs	185			251
Change in contingent consideration	(605		)	—
Other costs	17			—
Total	$	1,739		$	1,788

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Income Taxes

3 Months Ended

Mar. 31, 2017

Income Taxes

Income Taxes

9.     Income Taxes

The income tax provision for interim periods is determined using an estimated annual effective tax rate adjusted for discrete items, if any, which are taken into account in the quarterly period in which they occur.  We review and update our estimated annual effective tax rate each quarter. Income tax benefit of $866 was recorded for the three months ended March 31, 2017, primarily due to a discrete benefit recorded for equity compensation deductions under ASU 2016-09. We recorded a tax provision of $14 for the three months ended March 31, 2016, primarily due to Alternative Minimum Tax (“AMT”) levied on taxable income, net of allowable AMT net operating loss carryovers.

At March 31, 2017 and December 31, 2016, we had deferred tax assets, net of deferred tax liabilities and valuation allowance, of $37,271 and $36,636, respectively.

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Segment Information

3 Months Ended

Mar. 31, 2017

Segment Information

Segment Information

10.   Segment Information

We operate under three segments:  Healthcare, Research and Technology.  The Healthcare segment is focused on the diagnosis and monitoring of cardiac arrhythmias or heart rhythm disorders with our comprehensive suite of cardiac monitoring solutions in a healthcare setting.  Our Research segment is engaged in central core laboratory services providing cardiac monitoring, imaging, scientific consulting and data management services for drug and medical device trials. The Technology segment focuses on the development, manufacturing, testing and marketing of medical devices to medical companies, clinics and hospitals.  Intercompany revenues relating to the manufacturing of devices by the Technology segment for the other segments is included on the intersegment revenues line.

Expenses that can be specifically identified with a segment have been included as deductions in determining pre-tax segment income.  Any remaining expenses, including research and development costs incurred by the Technology segment for the benefit of the other segments, as well as the elimination of costs associated with intercompany revenues are included in Corporate and Other.  Also included in Corporate and Other is our net interest expense and other financing expenses as well as the loss from equity method investments.  We do not allocate assets to the individual segments.

For the three months ended:

	Healthcare		Research		Technology		Corporate and Other			Consolidated
March 31, 2017
Revenues	$	42,511	$	9,324	$	4,046	—			$	55,881
Intersegment revenues	—		—		4,210		$	(4,210	)	—
Income (loss) before income taxes	13,979		378		1,481		(16,508		)	(670		)
Depreciation and amortization	2,861		1,033		243		(422		)	3,715
Capital expenditures	2,890		—		77		—			2,967

	Healthcare		Research		Technology		Corporate and Other		Consolidated
March 31, 2016
Revenues	$	41,149	$	5,393	$	2,098	—		$	48,640
Intersegment revenues	—		—		3,392		(3,392	)	—
Income (loss) before income taxes	14,200		18		946		(11,053	)	4,111
Depreciation and amortization	2,481		804		50		(69	)	3,266
Capital expenditures	2,690		809		14		—		3,513

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United States Department of Health and Human Services Settlement

3 Months Ended

Mar. 31, 2017

United States Department of Health and Human Services Settlement

United States Department of Health and Human Services Settlement

11.   United States Department of Health and Human Services Settlement

In 2011, we experienced the theft of two unencrypted laptop computers and, as a result, were required to provide notices under the HIPAA Breach Notification Rule to the United States Department of Health and Human Services’ Office for Civil Rights (“OCR”).  During the first quarter of 2017, the OCR concluded its investigation into the matter and reached a settlement agreement with the Company.  Per the agreement, BioTelemetry will pay the OCR $2,500 and agreed to submit a two-year corrective action plan regarding the Company’s HIPAA compliance program.  We did not admit any liability or wrongdoing.  As a result of the settlement, we recorded a non-operating charge of $2,500 to Interest and other loss, net in the consolidated statements of operations and is included in accrued liabilities on the balance sheet as of March 31, 2017.

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Subsequent Events

3 Months Ended

Mar. 31, 2017

Subsequent Events

Subsequent Events

12.   Subsequent Events

On April 9, 2017, we entered into a transaction agreement governing the proposed acquisition of all of the outstanding shares of LifeWatch AG (“LifeWatch”), a Swiss corporation, with a nominal value of CHF 1.30 each. The per-share consideration for the tendered LifeWatch Shares will be comprised, at the election of each LifeWatch shareholder, of either (i) 0.1457 shares of BioTelemetry Common Stock, along with CHF10.00 in cash, or alternatively (ii) 0.2185 shares of BioTelemetry Common Stock along with CHF8.00 in cash.  The acquisition will be funded by a combination of cash on hand, BioTelemetry Common Stock and debt.  We have obtained a fully underwritten commitment from SunTrust Banks, Inc. and KeyBanc Capital Markets Inc. for a $205 million Term A Loan and expect to enter into a loan agreement in conjunction with the closing of the tender offer.

The consummation of the offer is subject to customary closing conditions, including the tender of such number of LifeWatch Shares that represent at least 67% of all issued and outstanding LifeWatch Shares; clearance by relevant merger control authorities; the absence of a material adverse effect with respect to LifeWatch; the absence of certain adverse resolutions by the general shareholders’ meeting of LifeWatch; resignation of all current members of the board of directors of LifeWatch and election of Biotelemetry’s nominees to LifeWatch’s board of directors; and absence of any judgment, decision, order or any other authoritative measure of a competent court or governmental authority temporarily or permanently preventing, prohibiting or declaring illegal the Offer or its settlement. The consummation of the Offer is also subject to the approval of our board of directors or shareholders (if required) of the issuance of the shares of Biotelemetry Common Stock pursuant to the Offer, and the approval of the shares of Biotelemetry Common Stock issuable upon consummation of the Offer for listing on NASDAQ Global Select Market.

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Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2017

Summary of Significant Accounting Policies

Net Income Per Share

Net Income Per Share

We compute net income per share in accordance with Accounting Standards Codification (“ASC”) 260, Earnings Per Share. Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding during the period.  Diluted net income per share is computed by giving effect to all potential dilutive common shares, including stock options and restricted stock units.

The following table presents the calculation of basic and diluted net income per share:

	Three Months Ended March 31,
	2017		2016
	(Net income in thousands)
Numerator:
Net income	$	196	$	4,097
Denominator:
Weighted average shares used in computing basic net income per share	28,429,289		27,370,825
Potential dilutive common shares due to dilutive stock option and restricted stock units	2,886,028		2,150,646
Weighted average shares used in computing diluted net income per share	31,315,317		29,521,471
Net income per share:
Basic net income per share	$	0.01	$	0.15
Diluted net income per share	$	0.01	$	0.14

Certain stock options, which are priced higher than the market price of our shares as of March 31, 2017 and 2016, would be anti-dilutive and therefore have been excluded from the weighted average shares used in computing diluted net income per share. These options could become dilutive in future periods.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

Fair value is defined as the exit price, the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date.  The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as defined below.  Observable inputs are inputs a market participant would use in valuing an asset or liability based on market data obtained from sources independent of the Company.  Unobservable inputs are inputs that reflect the Company’s own assumptions about the factors a market participant would use in valuing an asset or liability developed using the best information available in the circumstances.  The classification of an asset’s or liability’s level within the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

Level 1—Quoted prices in active markets for an identical asset or liability.

Level 2—Inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the asset or liability.

Level 3—Inputs that are unobservable for the asset or liability, based on the Company’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

Our financial instruments consist primarily of cash and cash equivalents, Healthcare accounts receivable, other accounts receivable, accounts payable, short-term debt and long-term debt.  With the exception of the long-term debt, the carrying value of these financial instruments approximates their fair value because of their short-term nature (classified as Level 1).  For long-term debt, based on the borrowing rates currently available, the fair value was determined to be $25,500 as of March 31, 2017.  This is equal to the nominal value, which is the carrying value, exclusive of debt discount and deferred charges (classified as Level 2).

The fair value of contingent consideration is measured on a recurring basis using unobservable inputs such as projected payment dates, probabilities of meeting specified milestones and other such variables resulting in payment amounts which are discounted back to present value using a probability-weighted discounted cash flow model (classified as Level 3).  Adjustments to contingent consideration are recorded under other charges.

In addition to the recurring fair value measurements, the fair value of assets acquired and liabilities assumed in connection with a business combination are recorded at the acquisition date, using a discounted cash flow model (classified as Level 3).  This valuation technique requires the Company to make certain assumptions, including, but not limited to, future operating performance and cash flows, royalty rate and other such variables which are discounted to present value using a discount rate that reflects the risk factors associated with future cash flow, the characteristics of the assets acquired and liabilities assumed and the experience of the acquired business.

Equity Method Investments

Equity Method Investments

We account for investments using the equity method of accounting if the investment provides us the ability to exercise significant influence, but not control, over the investee.  Significant influence is generally deemed to exist if the Company’s ownership interest in the voting stock of the investee ranges between 20% and 50%, although other factors, such as representation on the investee’s board of directors, are considered in determining whether the equity method of accounting is appropriate.  Under the equity method of accounting, the investment is recorded at cost in the consolidated balance sheet as a component of other assets and is periodically adjusted for capital contributions, dividends received and our share of the investee’s earnings or losses together with other-than-temporary impairments which are recorded as a component of interest and other loss, net in the consolidated statements of operations and comprehensive income.

Goodwill and Acquired Intangible Assets

Goodwill and Acquired Intangible Assets

Goodwill is the excess of the purchase price of an acquired business over the amounts assigned to assets acquired and liabilities assumed in a business combination. In accordance with ASC 350, Intangibles—Goodwill and Other (“ASC 350”), goodwill is reviewed for impairment annually, or when events arise that could indicate that an impairment exists. Initially, we qualitatively assess whether it is more-likely-than-not that an impairment exists for each reporting unit.  Such qualitative factors can include, among others, industry and market conditions, present and anticipated sales and cost factors, overall financial performance and relevant entity-specific events.  If we conclude based on our qualitative assessment that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value, we perform a two-step impairment test in accordance with ASC 350. In the first step, we compare the fair value of our reporting units to the carrying value of the reporting units.  If the carrying value of the net assets assigned to the reporting units exceeds the fair value of the reporting units, then the second step of the impairment test is performed in order to determine the implied fair value of the reporting units’ goodwill.  If the carrying value of the reporting units’ goodwill exceeds the implied fair value of those reporting units, an impairment loss equal to the difference is recorded.

For the purpose of performing our goodwill impairment analysis, we consider our business to be comprised of three reporting units:  Healthcare, Research and Technology.  We calculate the fair value of the reporting units utilizing a weighting of the income and market approaches.  The income approach is based on a discounted cash flow methodology that includes assumptions for, among other things, forecasted income, cash flow, growth rates, income tax rates, expected tax benefits and long-term discount rates, all of which require significant judgment.  The market approach utilizes our market data.  There are inherent uncertainties related to these factors and the judgment applied in the analysis.  We believe that the combination of an income and a market approach provides a reasonable basis to estimate the fair value of our reporting units.

Acquired intangible assets are recorded at fair value on the acquisition date.  The estimated fair values and useful lives of intangible assets are determined by assessing many factors including estimates of future operating performance and cash flow of the acquired business, the characteristics of the intangible assets acquired and the experience of the acquired business.  Independent appraisal firms may assist with the valuation of acquired assets. The impairment test for indefinite-lived intangible assets other than goodwill consists of a comparison of the fair value of the indefinite-lived intangible asset to the carrying value of the asset.  We estimate the fair value of the indefinite-lived intangibles using the relief from royalty method.

Accounting Pronouncements Recently Adopted and Not Yet Adopted

Accounting Pronouncements Recently Adopted

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Improvements to Employee Share-Based Payment Accounting. The standard revises the accounting for certain aspects of share-based compensation arrangements and requires any excess tax benefits or tax deficiencies to be recorded directly in the income statement when such awards vest or settle. In addition, the cash flows related to any excess tax benefits will no longer be separately classified as a financing activity, but will rather be classified as an operating activity, along with all other income tax cash flows. The standard also makes certain changes to the way the treasury stock method is applied when calculating diluted net income per share, as well as allows for a policy election to account for forfeitures as they occur, rather than using the estimation method currently prescribed by ASC 718. The standard is effective for annual and interim periods beginning after December 15, 2016, with early adoption permitted.

We elected to early adopt the standard during the fourth quarter of 2016. The standard requires the recognition of any pre-adoption date net operating loss (“NOL”) carryforwards from share-based compensation arrangements to be recognized on a modified retrospective basis, through an opening retained earnings adjustment on January 1, 2016. Any income tax effects from share-based compensation arrangements arising after January 1, 2016 will be recognized prospectively in the income statement during the period of adoption.

Upon adoption, we recognized all previously unrecognized tax benefits which resulted in a cumulative-effect adjustment of $1,752 to our accumulated deficit. These previously unrecognized tax benefits were recorded as a deferred tax asset, which was fully offset by a valuation allowance on January 1, 2016, thus there was no net impact from the adoption of ASU 2016-09 as of the same date. In addition, we recognized excess tax benefits as an adjustment to our previously reported (provision for) income taxes of $127 for the three months ended March 31, 2016. Corresponding adjustments were recorded in the operating section of our statement of cash flows for the three months ended March 31, 2016. The weighted average number of common shares outstanding for calculating diluted net income per share increased by 339,595 for the three months ended March 31, 2016.

Our adoption of the standard did not have any impact to our consolidated statements of cash flows as no NOL carryforwards from share-based compensation arrangements were recognized prior to January 1, 2016, due to our use of the “with and without” method of accounting for equity-generated NOL carryforwards. We have elected to continue to estimate forfeitures under the true-up provision of ASC 718.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. The standard requires inventory to be measured at the lower of cost or net realizable value. The guidance will not apply to inventories for which cost is determined using the last-in, first-out method or the retail inventory method. The adoption of this standard did not have a material impact on our consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. The standard eliminates step two in the current two-step impairment test under ASC 350. Under the new standard, a goodwill impairment will be recorded for any excess of a reporting unit’s carrying value over its fair value. A prospective transition approach is required. The standard is effective for annual and interim reporting periods beginning after December 15, 2019 with early adoption permitted for annual and interim goodwill impairment testing dates after January 1, 2017. We plan to early adopt the standard at the time of our 2017 goodwill impairment testing date and do not expect the standard to have a material impact on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases. The standard will require lessees to recognize most leases on their balance sheet and makes selected changes to lessor accounting. The standard is effective for annual and interim reporting periods beginning after December 15, 2018. A modified retrospective transition approach is required, with certain practical expedients available. We are currently evaluating the impact the adoption of this standard will have on our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which has been updated through several revisions and clarifications since its original issuance. The standard will require revenue recognized to represent the transfer of promised goods or services to customers at an amount that reflects the consideration which a company expects to receive in exchange for those goods or services. The standard also requires new, expanded disclosures regarding revenue recognition. The standard will be effective January 1, 2018 with early adoption permissible beginning January 1, 2017. We are currently evaluating the transition method we will elect. We are evaluating the specific impacts the standard will have on Healthcare revenue, particularly related to the valuation of revenue, accounts receivable and bad debt expense. We are evaluating the impact the standard will have on Research revenue, which involves reviewing a large number of long-term contracts. We do not expect the standard to have a material impact on Technology revenue.

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Summary of Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2017

Summary of Significant Accounting Policies

Schedule of calculation of basic and diluted net income per share

	Three Months Ended March 31,
	2017		2016
	(Net income in thousands)
Numerator:
Net income	$	196	$	4,097
Denominator:
Weighted average shares used in computing basic net income per share	28,429,289		27,370,825
Potential dilutive common shares due to dilutive stock option and restricted stock units	2,886,028		2,150,646
Weighted average shares used in computing diluted net income per share	31,315,317		29,521,471
Net income per share:
Basic net income per share	$	0.01	$	0.15
Diluted net income per share	$	0.01	$	0.14

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Acquisitions (Tables)

3 Months Ended

Mar. 31, 2017

Telcare

Acquisitions

Schedule of total consideration and related allocation for net assets acquired

	Amount		Weighted Average Life (Years)
Fair value of assets acquired:
Other accounts receivable	$	235
Inventory	1,791
Prepaid expenses and other current assets	1,261
Property and equipment	55
Other assets	933
Identifiable intangible assets:
Customer relationships	400		5
Technology	2,000		5
Tradename	400		Indefinite
Total identifiable intangible assets	2,800
Total assets acquired	7,075
Fair value of liabilities assumed:
Accounts payable	459
Accrued liabilities	206
Deferred revenue	49
Total liabilities assumed	714
Total identifiable net assets	6,361
Goodwill	3,339
Net assets acquired	$	9,700

Schedule of pro forma financial information

	Three Months Ended March 31, 2016
Revenue	$	49,759
Net income	$	2,980
Net income per common share:
Basic	$	0.11
Diluted	$	0.10
Weighted average number of common shares outstanding:
Basic	27,370,825
Diluted	29,521,471

Summary of changes in contingent consideration

	Total Contingent Consideration
Balance at December 31, 2016	$	2,700
Change in fair value of acquisition-related contingent consideration	—
Balance at March 31, 2017	$	2,700

VirtualScopics

Acquisitions

Schedule of total consideration and related allocation for net assets acquired

			Weighted
			Average Life
	Amount		(Years)
Fair value of assets acquired:
Cash and cash equivalents	$	849
Other accounts receivable	3,679
Inventory	111
Prepaid expenses and other current assets	396
Property and equipment	500
Identifiable intangible assets:
Customer relationships	5,200		12
Technology	2,000		10
Backlog	3,100		4
Total identifiable intangible assets	10,300
Total assets acquired	15,835
Fair value of liabilities assumed:
Accounts payable	325
Accrued liabilities	3,008
Current portion of capital lease obligations	59
Current portion of long-term debt	91
Deferred revenue	700
Deferred taxes	272
Long-term capital lease obligations	162
Long-term debt	97
Total liabilities assumed	4,714
Total identifiable net assets	11,121
Goodwill	4,698
Net assets acquired	$	15,819

Schedule of pro forma financial information

	Three Months Ended March 31, 2016
Revenue	$	52,496
Net income	$	5,103
Net income per common share:
Basic	$	0.19
Diluted	$	0.17
Weighted average number of common shares outstanding:
Basic	27,370,825
Diluted	29,521,471

ePatch Division

Acquisitions

Schedule of total consideration and related allocation for net assets acquired

			Weighted
			Average Life
	Amount		(Years)
Fair value of assets acquired:
Inventory	$	100
Property and equipment	175
Identifiable intangible assets:
Customer relationships	400		10
Technology	2,800		10
Trade names	100		Indefinite
Total identifiable intangible assets	3,300
Total assets acquired	3,575
Fair value of liabilities assumed:
Accrued liabilities	266
Total liabilities assumed	266
Total identifiable net assets	3,309
Goodwill	3,181
Net assets acquired	$	6,490

Summary of changes in contingent consideration

	Total Contingent Consideration
Balance at December 31, 2016	$	605
Change in fair value of acquisition-related contingent consideration	(605		)
Balance at March 31, 2017	$	—

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Inventory (Tables)

3 Months Ended

Mar. 31, 2017

Inventory

Schedule of inventory

	March 31, 2017		December 31, 2016
Raw materials	$	2,948	$	2,866
Finished goods	1,375		2,310
Total inventory	$	4,323	$	5,176

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Goodwill (Tables)

3 Months Ended

Mar. 31, 2017

Goodwill

Schedule of changes in the carrying amounts of goodwill by segment

	Reporting Segment
	Healthcare		Research		Technology			Total
Balance at December 31, 2016	$	14,724	$	16,643	$	9,701		$	41,068
Goodwill adjustments related to 2016 acquisitions	—		5		(24		)	(19		)
Balance at March 31, 2017	$	14,724	$	16,648	$	9,677		$	41,049

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Equity Method Investment (Tables)

3 Months Ended

Mar. 31, 2017

Equity Method Investment

Summary of investment

	Three Months Ended March 31,
	2017			2016
January 1 balance	$	1,125		$	1,100
Our share of the investee’s losses	(96		)	(21		)
March 31 balance	$	1,029		$	1,079

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Stockholders' Equity (Tables)

3 Months Ended

Mar. 31, 2017

Stockholders' Equity

Summary of stock option activity

Stock option and RSU activity is summarized as follows:

	Stock Options				RSUs
	Number of Shares		Weighted Average Exercise Price		Number of Shares		Weighted Average Grant Date Fair Value
Stock outstanding as of December 31, 2016	3,568,434		$	7.82	592,349		$	9.86
Granted	173,881		24.12		78,991		24.65
Cancelled/forfeited	—		—		—		—
Exercised/vested	(191,998	)	7.45		(176,362	)	8.89
Stock outstanding as of March 31, 2017	3,550,317		$	8.64	494,978		$	12.57

Performance Stock option and PSU activity is summarized as follows:

	Performance Stock Options				PSUs
	Number of Shares		Weighted Average Exercise Price		Number of Shares		Weighted Average Grant Date Fair Value
Stock outstanding as of December 31, 2016	100,000		$	18.33	132,992		$	8.68
Vested	100,000		21.45		—		—
Cancelled/forfeited	—		—		(132,992	)	8.68
Exercised	(30,000	)	18.33		—		—
Stock outstanding as of March 31, 2017	170,000		$	20.17	—		$	—

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Other Charges (Tables)

3 Months Ended

Mar. 31, 2017

Other Charges

Summary of expenses

	Three Months Ended March 31,
	2017			2016
Legal fees	$	982		$	1,369
Professional fees	1,160			168
Severance and employee related costs	185			251
Change in contingent consideration	(605		)	—
Other costs	17			—
Total	$	1,739		$	1,788

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Segment Information (Tables)

3 Months Ended

Mar. 31, 2017

Segment Information

Summary of financial information concerning the entity's reportable segments

	Healthcare		Research		Technology		Corporate and Other			Consolidated
March 31, 2017
Revenues	$	42,511	$	9,324	$	4,046	—			$	55,881
Intersegment revenues	—		—		4,210		$	(4,210	)	—
Income (loss) before income taxes	13,979		378		1,481		(16,508		)	(670		)
Depreciation and amortization	2,861		1,033		243		(422		)	3,715
Capital expenditures	2,890		—		77		—			2,967

	Healthcare		Research		Technology		Corporate and Other		Consolidated
March 31, 2016
Revenues	$	41,149	$	5,393	$	2,098	—		$	48,640
Intersegment revenues	—		—		3,392		(3,392	)	—
Income (loss) before income taxes	14,200		18		946		(11,053	)	4,111
Depreciation and amortization	2,481		804		50		(69	)	3,266
Capital expenditures	2,690		809		14		—		3,513

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Summary of Significant Accounting Policies - Net Income Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Numerator:
Net income	$ 196	$ 4,097
Denominator:
Weighted average shares used in computing basic net income per share	28,429,289	27,370,825
Potential dilutive common shares due to dilutive stock option and restricted stock units	2,886,028	2,150,646
Weighted average shares used in computing diluted net income per share	31,315,317	29,521,471
Net income per share:
Basic net income per share	$ 0.01	$ 0.15
Diluted net income per share	$ 0.01	$ 0.14

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Summary of Significant Accounting Policies - Fair Value of Financial Instruments (Details) $ in Thousands	Mar. 31, 2017 USD ($)
Summary of Significant Accounting Policies
Fair value of long-term debt	$ 25,500

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Summary of Significant Accounting Policies - Equity method investments (Details)	Mar. 31, 2017
Minimum
Equity Method Investments
Percentage of ownership interest in the voting stock	20.00%
Maximum
Equity Method Investments
Percentage of ownership interest in the voting stock	50.00%

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Summary of Significant Accounting Policies - Goodwill and Acquired Intangible assets (Details)	3 Months Ended
	Mar. 31, 2017 segment
Goodwill and Acquired Intangible Assets
Number of reporting units	3

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Summary of Significant Accounting Policies - Recent Accounting Pronouncements (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Recent Accounting Pronouncements
Weighted average shares used in computing diluted net income (loss) per share	31,315,317	29,521,471
ASU 2016-09
Recent Accounting Pronouncements
Adjustment of unrecognized tax benefit	$ 1,752
Excess tax benefit adjustment	$ 127
Weighted average shares used in computing diluted net income (loss) per share		339,595

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Acquisitions - Telcare Inc, (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 01, 2016	Dec. 31, 2016
Fair value of liabilities assumed:
Goodwill	$ 41,049		$ 41,068
Teclare
Acquisitions
Cash consideration		$ 7,000
Maximum performance-based earn out		5,000
Total consideration transferred		9,700
Amount of goodwill preliminarily expected to be deductible for tax purposes		$ 578
Maximum period for finalizing accounting for acquisition from acquisition date (in years)		1 year
Fair value of assets acquired:
Other accounts receivable	235
Inventory	1,791
Prepaid expenses and other current assets	1,261
Property and equipment	55
Other assets	933
Identifiable intangible assets:
Total identifiable intangible assets	2,800
Total assets acquired	7,075
Fair value of liabilities assumed:
Accounts payable	459
Accrued liabilities	206
Deferred revenue	49
Total liabilities assumed	714
Total identifiable net assets	6,361
Goodwill	3,339
Net assets acquired	9,700
Teclare | Customer relationships
Identifiable intangible assets:
Total identifiable intangible assets	$ 400
Weighted Average Life (Years)	5 years
Teclare | Technology
Identifiable intangible assets:
Total identifiable intangible assets	$ 2,000
Weighted Average Life (Years)	5 years
Teclare | Tradename
Identifiable intangible assets:
Total identifiable intangible assets	$ 400

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Acquisitions - Pro Forma Financial Information Telcare, Inc & VirtualScopics, Inc (Details) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2016 USD ($) $ / shares shares
Telcare
Unaudited pro forma information
Revenue | $	$ 49,759
Net income | $	$ 2,980
Net income per common share:
Basic (in dollars per share) | $ / shares	$ 0.11
Diluted (in dollars per share) | $ / shares	$ 0.10
Weighted average number of common shares outstanding:
Basic (in shares) | shares	27,370,825
Diluted (in shares) | shares	29,521,471
VirtualScopics
Unaudited pro forma information
Revenue | $	$ 52,496
Net income | $	$ 5,103
Net income per common share:
Basic (in dollars per share) | $ / shares	$ 0.19
Diluted (in dollars per share) | $ / shares	$ 0.17
Weighted average number of common shares outstanding:
Basic (in shares) | shares	27,370,825
Diluted (in shares) | shares	29,521,471

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Acquisitions - Contingent Consideration (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Dec. 31, 2016	Apr. 01, 2016
Summary of changes in contingent consideration
Change in fair value of acquisition-related contingent consideration	$ (605)
Telcare
Contingent Consideration
Maximum performance-based earn out	5,000
Summary of changes in contingent consideration
Balance at the beginning of the period	2,700	$ 2,700	$ 2,700
Change in fair value of acquisition-related contingent consideration
Balance at the end of the period	2,700	2,700	2,700
ePatch Division
Contingent Consideration
Maximum performance-based earn out			$ 3,000
Summary of changes in contingent consideration
Balance at the beginning of the period		605
Change in fair value of acquisition-related contingent consideration	(605)
Balance at the end of the period		605
ePatch Division | Other liabilities
Summary of changes in contingent consideration
Balance at the beginning of the period	0	605
Balance at the end of the period	$ 0	$ 605

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Acquisitions - VirtualScopics, Inc.(Details) - USD ($) $ / shares in Units, $ in Thousands		3 Months Ended
	May 11, 2016	Mar. 31, 2017	Dec. 31, 2016
Acquisitions
Common stock, par value (in dollars per share)		$ 0.001	$ 0.001
Fair value of liabilities assumed:
Goodwill		$ 41,049	$ 41,068
VirtualScopics
Acquisitions
Total consideration paid, net of cash acquired	$ 14,970
Maximum period for finalizing accounting for acquisition from acquisition date (in years)	1 year
Fair value of assets acquired:
Cash and cash equivalents		849
Other accounts receivable		3,679
Inventory		111
Prepaid expenses and other current assets		396
Property and equipment		500
Identifiable intangible assets:
Total identifiable intangible assets		10,300
Total assets acquired		15,835
Fair value of liabilities assumed:
Accounts payable		325
Accrued liabilities		3,008
Current portion of capital lease obligations		59
Current portion of long-term debt		91
Deferred revenue		700
Deferred taxes		272
Long-term capital lease obligations		162
Long-term debt		97
Total liabilities assumed		4,714
Total identifiable net assets		11,121
Goodwill		4,698
Net assets acquired		15,819
VirtualScopics | Customer relationships
Identifiable intangible assets:
Total identifiable intangible assets		$ 5,200
Weighted Average Life (Years)		12 years
VirtualScopics | Technology
Identifiable intangible assets:
Total identifiable intangible assets		$ 2,000
Weighted Average Life (Years)		10 years
VirtualScopics | Backlog
Identifiable intangible assets:
Total identifiable intangible assets		$ 3,100
Weighted Average Life (Years)		4 years
VirtualScopics | Common Stock
Acquisitions
Common stock, par value (in dollars per share)	$ 0.001
Share price (in dollars per share)	4.05
Series A and B Convertible Preferred Stock | VirtualScopics
Acquisitions
Share price (in dollars per share)	0.001
Preferred stock, par value (in dollars per share)	336.30
Series C-1 Convertible Preferred Stock | VirtualScopics
Acquisitions
Share price (in dollars per share)	920.00
Preferred stock, par value (in dollars per share)	$ 0.001

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Acquisitions - ePatch Division of DELTA Danish Electronics, Light, and Acoustics (Details) - USD ($) $ in Thousands		3 Months Ended
	Apr. 01, 2016	Mar. 31, 2017	Dec. 31, 2016
Fair value of liabilities assumed:
Goodwill		$ 41,049	$ 41,068
ePatch Division
Acquisitions
Cash consideration	$ 3,000
Consideration in common stock (in shares)	244,519
Consideration in common stock	$ 2,885
Maximum performance-based earn out	3,000
Total consideration transferred	$ 6,490
Fair value of assets acquired:
Inventory		100
Property and equipment		175
Identifiable intangible assets:
Total identifiable intangible assets		3,300
Total assets acquired		3,575
Fair value of liabilities assumed:
Accrued liabilities		266
Total liabilities assumed		266
Total identifiable net assets		3,309
Goodwill		3,181
Net assets acquired		6,490
ePatch Division | Customer relationships
Identifiable intangible assets:
Total identifiable intangible assets		$ 400
Weighted Average Life (Years)		10 years
ePatch Division | Technology
Identifiable intangible assets:
Total identifiable intangible assets		$ 2,800
Weighted Average Life (Years)		10 years
ePatch Division | Tradename
Identifiable intangible assets:
Total identifiable intangible assets		$ 100

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Inventory (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Inventory
Raw materials	$ 2,948	$ 2,866
Finished goods	1,375	2,310
Total inventory	$ 4,323	$ 5,176

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Goodwill - Changes In Carrying Amounts (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2017 USD ($)
Changes in the carrying amounts of goodwill by segment
Balance at the beginning of the year	$ 41,068
Goodwill adjustments related to 2016 acquisitions	(19)
Balance at the end of the year	41,049
Healthcare
Changes in the carrying amounts of goodwill by segment
Balance at the beginning of the year	14,724
Balance at the end of the year	14,724
Research
Changes in the carrying amounts of goodwill by segment
Balance at the beginning of the year	16,643
Goodwill adjustments related to 2016 acquisitions	5
Balance at the end of the year	16,648
Technology
Changes in the carrying amounts of goodwill by segment
Balance at the beginning of the year	9,701
Goodwill adjustments related to 2016 acquisitions	(24)
Balance at the end of the year	$ 9,677

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Equity Method Investment (Details) - Well Bridge Health, Inc - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Mar. 31, 2017
Summary of investments
Beginning balance	$ 1,125	$ 1,100
Our share of the investee's losses	(96)	(21)
Ending balance	1,029	1,079
Equity Method Investments	1,125	$ 1,100	$ 1,029
Percentage of ownership interest in the voting stock			30.00%
Goodwill
Summary of investments
Ending balance	891
Equity Method Investments	$ 891		$ 891

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Credit Agreement (Details) - HFS - USD ($) $ in Thousands	Dec. 30, 2014	Mar. 31, 2017	Dec. 31, 2016
Credit Agreement
Percentage of capital stock of U.S. based subsidiaries	65.00%
LIBOR
Credit Agreement
Debt instrument, basis spread on variable rate (as a percent)	4.00%
LIBOR floor (as a percent)	1.00%
Term Loan
Credit Agreement
Maximum borrowing capacity	$ 25,000
Additional uncommitted borrowing capacity	10,000
Term Loan | April 2015 to December 2017
Credit Agreement
Principal amount of quarterly installment payments	312
Term Loan | January 2018 to September 2019
Credit Agreement
Principal amount of quarterly installment payments	625
Term Loan | October 2019 to December 2019
Credit Agreement
Principal amount of quarterly installment payments	16,563
Revolving Loan
Credit Agreement
Maximum borrowing capacity	$ 15,000
Amount drawn on credit borrowing		$ 3,000	$ 3,000
Term Loans and Revolving Loans
Credit Agreement
Loan balance net of original issue discount		24,903
Debt discount and deferred charges		$ 597

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Stockholders' Equity (Details) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended	3 Months Ended
	Jan. 31, 2017	Mar. 31, 2017	Mar. 31, 2016
Stock-Based Compensation
Stock based compensation		$ 3,058	$ 1,178
Stock options
Number of Shares
Stock outstanding balance at the beginning of the period (in shares)	3,568,434	3,568,434
Granted/Vested (in shares)		173,881
Exercised/vested (in shares)		(191,998)
Stock outstanding balance at the end of the period (in shares)		3,550,317
Weighted Average Exercise Price
Balance at the beginning of the period (in dollars per share)	$ 7.82	$ 7.82
Granted (in dollars per share)		24.12
Exercised/vested (in dollars per share)		7.45
Balance at the end of the period (in dollars per share)		$ 8.64
RSUs
Number of Shares
Stock outstanding balance at the beginning of the year (in shares)	592,349	592,349
Granted (in shares)		78,991
Exercised/vested (in shares)		(176,362)
Stock outstanding balance at the end of the year (in shares)		494,978
Weighted Average Grant Date Fair Value
Balance at the beginning of the year (in dollars per shares)	$ 9.86	$ 9.86
Granted (in dollars per share)		24.65
Exercised/vested (in dollars per share)		8.89
Balance at the end of the year (in dollars per shares)		$ 12.57
Performance Stock Options
Stock-Based Compensation
Stock based compensation		$ 1,533	0
Number of Shares
Stock outstanding balance at the beginning of the period (in shares)	100,000	100,000
Vested (in shares)		100,000
Exercised/vested (in shares)		(30,000)
Stock outstanding balance at the end of the period (in shares)		170,000
Weighted Average Exercise Price
Balance at the beginning of the period (in dollars per share)	$ 18.33	$ 18.33
Granted (in dollars per share)		21.45
Exercised/vested (in dollars per share)		18.33
Balance at the end of the period (in dollars per share)		$ 20.17
PSUs
Stock-Based Compensation
Stock based compensation		$ 0	$ 89
Number of Shares
Stock outstanding balance at the beginning of the year (in shares)	132,992	132,992
Cancelled/forfeited (in shares)		(132,992)
Weighted Average Grant Date Fair Value
Balance at the beginning of the year (in dollars per shares)	$ 8.68	$ 8.68
Cancelled/forfeited (in dollars per share)		$ 8.68
2008 Plan
Stock-Based Compensation
Common stock available for grant (in shares)		3,725,477
2008 Plan | Stock options
Stock-Based Compensation
Increase in the number of options available to be granted (in shares)	1,130,460

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Stockholders' Equity - Employee Stock Purchase Plan (Details) - Employee Stock Purchase Plan - USD ($) $ in Thousands	1 Months Ended	3 Months Ended
	Jan. 31, 2016	Mar. 31, 2017
Employee stock purchase plan
Common stock purchased		47,966
Net proceeds from the issuance of shares of common stock (in dollars)		$ 636
Increase in number of shares available for grant	282,615
Number of remaining shares available for purchase		859,825

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Other Charges (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Other Charges
Legal fees	$ 982	$ 1,369
Professional fees	1,160	168
Severance and employee related costs	185	251
Change in contingent consideration	(605)
Other costs	17
Total	$ 1,739	$ 1,788

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Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Income Taxes
Income tax provision (benefit)	$ (866)	$ 14
Deferred tax assets	$ 37,271		$ 36,636

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Segment Information (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2017 USD ($) segment	Mar. 31, 2016 USD ($)
Segment information
Number of operating segments | segment	3
Revenue	$ 55,881	$ 48,640
Income (loss) before income taxes	(670)	4,111
Depreciation and amortization	3,715	3,266
Capital expenditures	2,967	3,513
Healthcare
Segment information
Revenue	42,511	41,149
Research
Segment information
Revenue	9,324	5,393
Technology
Segment information
Revenue	4,046	2,098
Operating segments | Healthcare
Segment information
Income (loss) before income taxes	13,979	14,200
Depreciation and amortization	2,861	2,481
Capital expenditures	2,890	2,690
Operating segments | Research
Segment information
Income (loss) before income taxes	378	18
Depreciation and amortization	1,033	804
Capital expenditures		809
Operating segments | Technology
Segment information
Revenue	4,210	3,392
Income (loss) before income taxes	1,481	946
Depreciation and amortization	243	50
Capital expenditures	77	14
Corporate and Other
Segment information
Revenue	(4,210)	(3,392)
Income (loss) before income taxes	(16,508)	(11,053)
Depreciation and amortization	$ (422)	$ (69)

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United States Department of Health and Human Services Settlement (Details) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2017 USD ($)	Mar. 31, 2016 USD ($)	Dec. 31, 2011 item	Dec. 31, 2016 USD ($)
United States Department of Health and Human Services Settlement
Interest and other loss	$ (2,998)	$ (423)
Accrued liabilities	14,548			$ 13,698
United States Department of Health and Human Services Settlement
United States Department of Health and Human Services Settlement
Number of unencrypted laptop computers theft | item			2
Investigation settlement amount	$ 2,500
Number of corrective action plan (in years)	2 years
United States Department of Health and Human Services Settlement | Interest and other loss, net | Accrued liabilities
United States Department of Health and Human Services Settlement
Non-operating charge	$ 2,500

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Subsequent Events (Details) - Apr. 09, 2017 - Subsequent event $ in Millions	SFr / shares	USD ($) SFr / item
SunTrust Banks, Inc. and KeyBanc Capital Markets Inc. | Term A Loan
Subsequent events
Underwritten commitment amount | $		$ 205
LifeWatch
Subsequent events
Acquisition price ( in CHF per share)	SFr 1.30
LifeWatch | Minimum
Subsequent events
Percentage of shares represent issued and outstanding		67.00%
LifeWatch | CHF 10.00 in cash
Subsequent events
Consideration payable, in shares (per share) | SFr / item		0.1457
Consideration payable, in cash (per share)	10.00
LifeWatch | CHF 8.00 in cash
Subsequent events
Consideration payable, in shares (per share) | SFr / item		0.2185
Consideration payable, in cash (per share)	SFr 8.00