Heartbeam Inc (BEAT) 2015 Q4 法說會逐字稿

Good afternoon. Thank you for joining us for the BioTelemetry Fourth Quarter 2015 Earnings Conference Call. Certain statements during the conference call and question-and-answer period to follow may relate to future events and expectations, and as such, constitute forward-looking statements within the meaning of the Private Securities and Litigation Act of 1995.

Such statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance and achievements of the Company in the future to be materially different from the statements that the Company's executives may make today. These risks are described in detail in our public filings with the Securities and Exchange Commission, including our latest periodic report on Form 10-K and 10-Q. We assume no duty to update these statements.

(Operator Instructions)

It is now my pleasure to turn the floor over to your host, Mr. Joseph Capper. You may begin, sir.

Thank you, Operator. Good afternoon, everyone. I'm Joe Capper, President and CEO of BioTelemetry. Also with me on call today is our Chief Financial Officer, Heather Getz.

I'll start with an overview of our fourth quarter performance. Heather will take you through a more detailed review of our operating results, and we will then open up the call to your questions.

Let's get started. I am extremely pleased to report this afternoon that we capped off 2015 with another record-setting quarter, posting our 14th consecutive growth period in which we improved margins, exceeded expectations and achieved new highs in both revenue and EBITDA, and recorded positive GAAP quarterly and year-to-date EPS for the third consecutive quarter.

At the outset of 2015, we established financial guidance that represented a significant increase over an extremely successful 2014, falling for a 50% increase in EBITDA. Later in the year, we increased that guidance to 60% growth based on the success we were having executing on our key initiatives, and as I just mentioned, we even exceeded that revised higher EBITDA guidance.

This success stems from the continued and disciplined execution of the three-point strategy we have been following for the past few years. As a reminder, the tenets of this plan are to solidify our leadership position in cardiac monitoring, establish a leading research services business around the cardio core platform, and look to identify markets that would benefit from the application of our wireless platform and proprietary technology.

Our adherence to these overarching principles is incorporated into every facet of our decision-making and has been instrumental in generating our strong results in 2015 and a consistent growth we have now had for 3.5 years running.

Let's take a few minutes to review some of the Q4 highlights. During the period, revenue grew by 7.1% to $46.8 million, exceeding the upper-end up our expected range by nearly $1 million. Overall margins continued to improve as quarterly EBITDA grew by 60% to $10.1 million, far exceeding expectations and bringing full-year EBITDA to $33 million, representing an increase of 61% over 2014. We ended the quarter with $19 million in cash, up $3.5 million sequentially; the launch of CardioKey has been an outstanding success story, as we've already serviced an excess of 2,000 patients. Our Research Services team continues to expand backlog and make progress in several critical areas, and we continue to advance our business development activities that will create additional sources of revenue.

Let's review the components of the business which are driving this sustained success. In our healthcare services division, we saw our comprehensive approach continue to generate greater market penetration, with MCT services up over 12%. Organic growth was augmented with a further roll out of CardioKey and the scale we created through earlier acquisitions accelerating our path toward improved profitability and generating EBITDA margins of over 21% in the fourth quarter.

With demand for monitoring solutions on the rise, our healthcare business continues to outperform the market. Throughout the year we dramatically improved our organic growth rate, realized efficiencies of scale, introduce new products, expanded coverage and reimbursement rates and successfully defended our extensive IP portfolio, all of which positions the Company for continued momentum in 2016. I also think it's important to, again, underscore the significance of the steps CMS took this past year by incorporating a rate increase for MCT as part of the 2016 physician fee schedule. This rate increase, coupled with other legislative developments in the field of Telehealth, has largely removed any cloud of reimbursement uncertainty, and highlights the importance of this burgeoning sector of healthcare services.

Turning to research services. During the quarter we continue to see improvement in the outlook for this important division as we made excellent progress in several areas. Our newly established business development presence in Japan, one (inaudible) first significant study - a thorough QT study from a major Japanese pharma company, and is rapidly forming additional channel partners in the region.

We finished with a full-year growth rate of approximately two times the industry average. We continue to evaluate opportunities to broaden our service offerings and we entered 2016 with a record high backlog. In additions to the advancements in our core business, we continue to invest resources toward further diversification, which I have spoken about on previous calls. We are making excellent progress with our at home INR monitoring service, which allows us to leverage our current independent diagnostic testing facility and sales and marketing infrastructure. We ended the quarter with approximately 2,500 active patients on service. In 2016 we will more aggressively resource and promote this business and, as such, expect to achieve significant growth, making INR a meaningful contributor to this year's performance.

Our collaboration with Wellbridge Health, a CHF care management solutions company aimed at reducing unnecessary hospital readmission and emergency room visits, is progressing according to plan and we're spending more time evaluating other opportunities to leverage certain core competencies within the Company. Given the success we have had executing our plan and the trends we saw in the business as we closed out 2015, we anticipate that this will be another record setting year for the Company. With double digit top-line revenue growth to between $195 million to $200 million, and about two times that growth rate on the bottom-line to at least $40 million of EBITDA. We intend to update this outlook on a quarterly basis as we did last year.

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

Thank you, Joe. Good afternoon, everyone. As Joe just announced, Q4 was a record breaking quarter with revenues coming in ahead of our expectations at $46.8 million. Healthcare and research revenue were strong, with an increase of $4.6 million, or 11.5% growth over the prior year, while our technology revenue declined a $1.5 million. The strength in the healthcare and research segments largely resulted from 12% growth in MCTs and a higher number of active studies in the quarter. As we mentioned on our Q3 call, we saw our biggest healthcare revenue month ever in the month of October, and this strength continued into November and December.

In our technology segment, the softness experienced in Q3 continued into Q4 as customers have delayed purchases pending the release of our 3G devices to the market. We expect this situation to reverse in the second half of 2016.

Moving to gross profit; our margin was 60.4%, which was 370 basis points higher than the prior year quarter, this margin improvement comes from favorable pricing dynamics in the healthcare segment as well as operational and volume efficiencies. These positive benefits were partially offset by lower margins in our research segment due to investments made in the business during 2015, and lower technology margins stemming from the lower revenue.

As we have seen throughout the year, our increased gross margin leverage, combined with operating expense discipline, is positively impacting the bottom-line. We generated EBITDA of $10.1 million for the fourth quarter of 2015; a 60% increase as compared to our Q4 2014 adjusted EBITDA of $6.3 million. Since the first quarter of 2014, we have more than doubled our EBITDA margin return to 21.5%.

Now, turning to the balance sheet; we ended the quarter with $19 million in cash compared to $20 million at year end 2014. In the first quarter we paid $6.4 million to the Department of Justice for the negotiated settlement, and during that year we used $13.6 million for capital expenditures, primarily for medical devices for use in our healthcare and research segment. Excluding the payment to the DOJ, we generated free cash flow of $7.2 million for 2015. At the end of December, we had $23.6 million of debt, which is less than one times our trailing 12 month EBITDA. We also have access to a $15 million credit facility, which remains undrawn. As you can see, we have maintained a very healthy balance sheet with our cash balance and low debt levels.

Shifting gears, I would now like to touch on the outlook for 2016. With the expansion of our product and service offerings as well as the Medicare increase on MCT, we are reiterating our previous guidance of $195 million to $200 million in revenue, and at least a 20% EBITDA return for the full-year 2016. More specifically, for the first quarter we expect to see revenue of $46 million to $47 million, and EBITDA of $8 million to $9 million. This represents a 6% to 8% increase and year-over-year quarterly revenue and over a 30% increase in EBITDA.

Please keep in mind, we typically see higher operating expenses in the first quarter relative to the rest of the year, largely due to payroll taxes, sales meetings and trade shows. We have gotten off to a strong start in 2016 and expect the momentum to carry through the first quarter. To summarize, we posted our 14th consecutive quarter of year-over-year growth, and 7th consecutive quarter of EBITDA margin expansion. In addition, we have generated GAAP net income in the quarter and on a year-to-date basis. We have a strong balance sheet with almost $20 million of cash, low leverage, and additional debt capacity if needed. As such, we are confident about the Company's position and our ability to achieve the guidance provided for the first quarter and the full-year of 2016.

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

Thanks, Heather. As you just heard, we have got a highly successful fourth quarter, capping off another record setting year for the Company. In addition to achieving excellent results and improving margins, we completed over 2,000 CardioKey services, expanded the backlog in research and accelerated growth of our INR business. Our strategy is clearly working as designed as the Company continues to build momentum.

To ensure success our in 2016, we will focus on continuing to build on our comprehensive approach by expanding market penetration for CardioKey, followed by our next generation telemetry system. Capitalizing on the increased A-FIB awareness and education and marketplace by focusing on the world-class attributes of our technology, specifically as studies have shown, MCOT incorporates the most sensitive and accurate A-FIB detection capability of any other remote monitoring system available today, including both internally and externally warned system.

We will also focus on further increasing pair coverage for all services, continuing to grow backlog and expanding the capabilities of our research business, at least doubling the size of our INR services business, driving further efficiency throughout the organization to maximize margin opportunity, and assessing acquisition targets that will accelerate our strategic plan. Given all the positive momentum in the business and the improved reimbursement environment, we have set expectations for 2016 at low double digit revenue growth and a remarkable plus-20% EBITDA return.

The Company has come a long way from where it was five years ago when it was a single product business with a 2% EBITDA return and negative earnings. Although we have made tremendous progress, we still have a lot of exciting opportunities to pursue as we continue to expand our business.

Before I close, I would again like to thank those at the Company who helped deliver our 14th consecutive growth quarter and continue to improve all facets of the business to ensure our sustained growth well into the future. You should be very proud that your hard work positively impacts the lives of hundreds of thousands of people who depend on our product.

With that, we will now pause and open the call to questions. Operator, we are ready for our first question.

(Operator Instructions). And our first question comes from the line of Jan Wald with Benchmark Company. Your line is now open.

I have one question, and that is; just looking at the top-line and you're now pointing to double digit growth on the top-line. If I think about it, a significant portion of that growth is going to come for reimbursement alone. So, in that sense, where do you see the rest of the growth coming from; is it going in volume growth in terms of your healthcare services, is it going to be the research services, programs that you have? How do you see that still, or getting you to the double digit? And then, I know this unfair, but, well, let me get you to answer that question.

Where we sit today, Jan, we feel comfortable saying that the business is going to grow kind of double digit top-line, and you nailed it; we'll get $4 million, $5 million from the Medicare rate change. The rest is going to come across the board. We have seen nice volume increase, especially in the fourth quarter. We saw good momentum coming into this year, obviously, we're not reporting on that quarter, but we like what we see so far this year. Research entered the year with a good healthy backlog and the only part of our business that actually underperformed last year, frankly, was our product sales and our technology division, and we feel like that's going to bounce back at least in par.

We feel pretty good about it, Jan, and as you know, we take a relatively conservative approach when we give guidance; we've only been doing it for a few years now. So, we intend to take a conservative approach with that, and then update you as the year progresses. But as we sit here today and we analyze the trends of the business, we feel pretty good about that guidance.

This is, again, for a question I was going to ask; if I look through the year with the new products coming out, the better half of the year in terms of your technology business in the second half that people start buying those products again. Should we look at this sort of as an accelerating growth story so that 2017 you could have predictable double digit growth on the top-line? Is that a way to begin to think about how this year is going to look?

I think that that's probably a good way to put it. Our growth will build throughout the year as that's sort of way we build the forecast for the year, and we do anticipate having fairly predictable growth beyond that. But, Jan, as you know, you never know, right? So, we're looking at all the indicators of our business, and 80% of our business is healthcare services, so we try to analyze that as best we can to predict trends in that market. And what we've seen are all fairly positive trends throughout most of last year, especially in the back half of 2015 into fourth quarter and in the first quarter. So, as we get more time under our belt we anticipate having more predictability in the business. But we will know that as the year progresses.

And our next question comes from the line of Bruce Jackson of Lake Street Capital. Your line is now open.

Getting back to the product revenue guidance for next year. So, I was wondering why I was going to pick up again in the second half of the year. So, if people have been putting off their purchases until next year, are you on some kind of, like, an annual cycle, or is it just kind of take a while for them to come back into the market for the 3G equipment?

Part of it is just timeliness of bringing upgraded part product into our mix, and a lot of this has to do with telecom transitions from 2G to 3G to 4G, things of that nature. So, part of it is how we forecast it to build for the year and what we know based on feedback from our customers when they will be ready to buy.

And then would you expect that the level of revenue would be above 2015 level, or maybe more towards like a 2014 level?

I would expect it to be in between, so it should be higher than our 2015 numbers, but it may not reach quite the 2014 levels.

Then could we get the MCOT percent of the revenue mix?

In the fourth quarter MCOT was about 56%.

And just briefly, is there any update on some of the ongoing litigation, for example, with Scott Care.

Nothing really significant to report, that particular one was sort of delayed because of the judges calendar, it's scheduled for trial now. I think in like the September timeframe. So, it will start picking up a little steam here over the summer time, in the spring and into the summer.

And then last question; you're talking about your WellCare partnership and the congestive heart failure monitoring. I was just generally wondering, given the results of that the BHF trial last November where they didn't really find any benefit for monitoring of the congestive heart failure patients. Are you seeing any benefit in monitoring these patients with your experience?

Absolutely. This is a startup company that we've put a little bit money in and we sort of help the best that we could, but they had one pretty large product study it's nearing it's end and results matter, a nominal saving.

Are they going to be publishing any of those results?

I can't speak to that at this point.

And our next question comes from the line of Marco Rodriguez from Stonegate Capital. Your line is now open.

I was wondering if you can maybe spend a little more time on the guidance. I'm just kind of curious here when looking at it, what sort of the kind of major opportunities do you see for potential upside there, and then also, what are some of the major risks that you see as well?

We typically don't go to pluses and minuses to the forecast. We like to kind of give you a range and in that range we've incorporated those risks to the best of our knowledge. There is always a laundry list of potential upsides and some short-term risk on the downside. I would encourage you to take a look at how we perform relative to guidance over the last couple of years. We were pretty tight in 2015 when we put up the annual forecast. We were off by revenue, I think, by 3%, and we exceeded EBITDA by 10%. And on a quarterly basis, we were - probably follow that trend, and as we indicated, had we not dropped in product sales we would have been spot on from the beginning of the year on, which is pretty remarkable. So, I think - you never going to say that you figured it out, but I think we're getting a better handle on it; how to predict trends in business. So, I wouldn't look at that window as being a whole lot wider than we've already indicated, and as evidence will show, we tend to be a little bit on the conservative side.

The only big swing at some point during the year, I get asked this question on almost every call; what's going on with the last big insurance company, Anthem, nothing to report - hopefully they will get in line with all the other insurance providers and recognize the benefits of the technology. That would provide a bigger opportunity for the Company.

And then in terms of the product revenue delays. I just was wondering, can you kind of quantify the impact that you see on the revenue side there for this last quarter and the prior quarter?

If you look at it, in 2014 we did about $13.5 million of revenue, In 2015 we did $10.7 million; we would have expected that to be about flat to 2014, we don't look at this as a high-growth area of the business. So, I mean, that can give you an indication of what the dollar amount that sell-out in the second part of the year were.

Next quick question; on research services, sounds like things are doing really well there, backlog had some record numbers there. How is that kind of performing versus your expectations?

Pretty much right on; for 2015 I think the numbers were pretty much right on. Full-year 2015 we were right on for healthcare services, spot on for research, and then a little off in product again.

And last quick question is kind of a housekeeping item here; on G&A in the quarter, just a little bit higher than we had actually expected. Just wondering if there are any sort of onetime items in there?

There were; stock comp was a little bit higher than what it was in Q3, and that had to do with just how the options and performance shares is vested, so that number is going to come back down going into 2016.

And our next question comes from the line of Charley Jones from Dougherty Market. Your line is now open.

Maybe you can help us a little bit with your overall volume growth for the quarter. I heard you say MCOT was 12%, can you give us the patient service overall volume growth, is it similar?

The overall patient service was 6%, but really what was pulling that down was Holter, which is our lowest per patient end margin rev product. So, we saw plus-10% growth in both our MCT and event volumes.

And have started to see kind of consistent reimbursement on the CardioKey device? Can you give us an idea of a tight range that you're getting there?

I think it's a little too early to say that, I mean, albeit it's significantly higher than what we're getting on the 48, 24, 48-hour Holter, but I think it's still little bit early to give guidance on that number.

When you look at your adjustments for 2016, is it pretty much just going to be stock comp, or do you expect some onetime items in there and can you kind of - you've been kind of hitting somewhere around [$1.1 million] on your stock comp for quite a while now, it sounds like you're going back down towards there. Are you expecting additional adjustments outside of $4 million to $5 million in stock comp? $4 million to $6 million maybe?

Our stock comp will be about $5 million for 2016, and then the only onetime items we would have would have been around the Scott Care litigation, the patent litigation, that we would foresee right now and that would be a couple million dollars.

Can you talk a little bit about the patch, whether or not you responded to any questions maybe a little bit of an update on timing there?

I really don't have enough an update; we're in FDA now. We haven't gotten any questions back from them as of late. We had one submission, we had questions, took us a while to put together more documentation, they changed mission requirements since our last submission, so it took a little bit more time than we anticipated. We're in now, so we should be here hearing back shortly.

On your research services business, for some reason I was getting the feeling towards the end of the year that you had a nice backlog and that 2015 was coming a little bit below. Did you come in a little bit above for the rest of the year in the fourth quarter on research services? What's your confidence level that business kind of performs as you expected? Maybe you could even talk to is there an area of your business that maybe has a little bit more give to it than others?

I think it came in pretty much as expected in the fourth quarter. All-in, our revenue was above our guidance, and so we did a little bit better, but a little bit better pretty much across the board primarily in the patient or healthcare services division, that's for most of it came in, but everything else was pretty much in line with what we expected. And we have a pretty good ability to see revenue, least in next two or three quarters based on backlog and our ability to convert backlog to revenue. So, given everything that we see all the metrics in the business today, we feel pretty comfortable that business should perform again sort of that double digit growth rate.

I guess a couple quick ones here; on your gross margin line, Heather, can you help us a little bit in the cadence? I've got a pretty big jump, at least in my first quarter from fourth, I think primarily as a result of $4 million to $5 million in pricing. Can you talk a little bit about how your gross margin is going to build throughout the year or give us some sort of target?

Be a little bit careful with that because, as we have mentioned, like one of the big increase - a substantial piece of our increase and expense going into Q1 is related to payroll taxes, and 60% of our payroll is sitting up in cost of sales. So, what you're actually going to see an offset of the increase related to the MCT price increase being offset by the higher payroll taxes that happened in the first quarter. So, you're going to see margin that are about flat in Q1, and then I would expect margins to be in that 60% to 61% range through the year. So, with Q1 being the lowest quarter.

And then, Joe, I guess we've been talking a lot about some of the differentiation in your system and some of the superiority in its ability to identity AF. I'm curious if you could kind of talk a little bit about whether or not you plan to really try differentiate some marketing or put some R&D dollars towards that? Are we going to see R&D shift all this years, is can be pretty flat, and if it is, is there going to be anything extra towards studies or marketing?

Yes, it wouldn't come out of R&D, R&D should be flat. A big portion of it would be refocusing the messaging through your sales and marketing spend and possibly allocating some of that spend towards clinical studies that compare the capability of MCOT versus other modalities, specifically some of the newer devices that we've seen in the marketplace. The nice thing is, though, Charley, is there's been numerous studies published over the last few years that using MCOT for the purposes of measuring A-FIB and using other systems, and none is even close, so people are doing that work for us. Part of it is how do we, then, take that information and communicate it in an effective way to the marketplace at large? That's the challenge; how do you accurately message what you want folks to hear?

We feel pretty good about it, I think that's one of the things that's, frankly, driving some of them kind of growth that we just talked about. That's starting to resonate out there, I think that the sales organization and the marketing team here is doing a really nice job of communicating that message to market, and again, I think some of the studies that have come out recently have been pretty effective.

On your neurology business and the ER business, can you give us an idea of where that business was in 2014 or 2015 and how that business is building? Is that where a lot of the growth is coming from, the congestive heart failure and neurology, or is it just still a pretty tiny base and not really impacting the number as much?

Hard to say, I mean, cryptogenic stroke in the neurology market has been a focus, but often those services are performed by cardiologists or an EP, so you're not going to really be able to segment that per say, but I think that's contributing to it. I would say just overall kind of education awareness about A-FIB in general, there is a couple big drug companies that are promoting A-FIB awareness because they're trying to sell their products. We have other products in our space, bigger companies than us that are promoting of education awareness around A-FIB because they have diagnostic products that they think are applicable to certain patient sites.

I think we're in a pretty good spot to take advantage of all that. One thing's for sure, we haven't seen a product out there that's nearly as accurate or nearly extensive as this thing. Part of it's our algorithm, part of it's product design, but the sensitivity and specificity of this diagnostic product is not comparable to anything else out there. So, if you want to diagnose patient with A-FIB there is nothing better to use.

You get this $4 million to $5 million number you've targeted for 2016 that you're looking to add as a result of pricing. How much of that is related to the insurance companies, and are you surprised at all about any of the insurance companies pricing for 2016?

You typically don't see - the commercial players tend to follow Medicare toward the end of the first quarter into the second, so you don't get the insurance piece of it all upfront. My estimate is that about $4 million is related to Medicare and the rest is related to commercial.

And our next question comes from the line of Chip Saye from AWH Capital. Your line is now open.

A couple of follow-ups if you don't mind; MCOT growth, as you said, MCOT 12%, event plus-10%. How much of your business is Holter, what percentage?

Holter in fourth quarter was about 6% of our revenue.

Okay, so very small.

That's right.

I just didn't know, because I was a little bit - okay let me step back a second. How much is the industry growing? If you guys are growing, so if you take your guidance and you back out the 8% increase in MCOT reimbursement, how much is - I'm getting a 7% to 8% organic growth overall, does that sound like a good number?

Yes, that's about right and we think that's about two times the market average.

That's what I was going to ask you. So, the industry for MCOT and event are the two aspects that are really growing. You're growing at about 2x?

Maybe even more from MCOT, but I think overall volume, it's probably 2x. And that's not a scientific number; I would tell you that's based on a variety of different inputs that we think how we sort of assess market growth, but I would say that that 6% to 7% is probably 2x and that's depending on how MCT grows this year, it could be slightly higher.

So, your growth is - you're taking share from other companies, and if so, how are you doing that? Is that the studies or what?

I would like to say leadership. Look, it's across the board and we have sales forces - is performing at a high level. We have a marketing team that's performing at a high level; it's messaging. Yes, but the scientific papers, they back up your messaging are very important. I think it's awareness in the marketplace and the fact that we've been the leader in the market for quite some time is driving a lot of that and I think we're growing as result of growth in the market and I think we're growing as a result taking share from other people.

As we have talked about, we have been able to enforce our rights under patent law and we've removed a couple of people from the market, one, again, this past year. So, that certainly helps; when you tell people that you know you're the technology leader and you've invested in this technology and you've built a lot of protection around it and you can actually exercise those rights. It tends to validate what you're telling folks. So, I think it's across the board, a lot of different reasons I can't tell you one reason.

Now, as it relates to Q1, I know you give annual guidance and you just gave a little update today on Q1. The revenue growth for Q1, why is it lower than I would have anticipated?

A couple of things. There is a seasonal aspect to this business; typically we see a step down from Q4 to Q1, and some of that has to do with Q1, you roll into what is commonly referred to as deductible season as people cycle through a new insurance year. You have some effect in early January from holidays. As the quarter progresses, our revenue tends to build with March being the biggest month of our three months. That being the case, you tend to forecast this as accurately as you can, and based on all the facts that we know today, that's the forecasts that we're most comfortable with. And when I tell you it's back-end loaded, all quarters are kind of back-end loaded; first quarter is more backend loaded than any of the other three because of the nature of the deductible season starting up in New Year. And then just the way the days roll up; the business days breakdown, I think 20, 21, and 23 in the quarter.

So, we expect to have a good quarter and a chunk of it's going to come in March, so we're comfortable putting those numbers on the table today. So, those numbers actually are flat year-over-year. They do take into account a slight decline, but then that's offset by the reimbursement uptick.

Yes, because the 8% I was expecting it to be higher but, yes, okay, thanks for the explanation on that. Next, and this is something you brought up, you have a business development team; you're still looking for acquisitions in the space, and if so, what are you looking to pay for those acquisitions? I've looked at some of the metrics in the past, but some involved litigation related IP settlements, but what would be a good number for an acquisition?

You can't hold me to those all old metrics. We will average them. I can't tell you what we're willing to pay, whether it be 6, 7, 8-times EBITDA because we look at things differently. Number one, they have to accelerate our plan, and if you look at how the businesses balance today, we talked about growing the remote patient monitoring services business in cardiac. We've talked about building out research, we have talked about adding the third leg [to stole]. The acquisitions we made in 2014 were really in the first bucket. So, logic would be we kind of emphasize research and new products, but it tends to be opportunistic. So, if it accelerates our plan, if it makes sense strategically and financially, we'll look at them; we've been pretty fortunate the way we acquired in the past because we've been able to accrete a decent amount of synergy as we brought them into our operating platform.

That that helps when we talk about putting a value on things. As you know, everybody wants more, everybody thinks their business is worth more than it is, so you have to work those processes, and all of these are, for the most part, competitive processes. So, we will approach it prudently, and if it makes sense for the business strategically and financially, we will think it very seriously, otherwise we won't. We don't need to acquire to grow our business; we're going to grow this business at a very healthy clip for the foreseeable future. We look at acquisitions as a way to accelerate that.

And one last, this is kind of housekeeping for Heather, but I was looking at bad debt expense coming in around the $2.1 million, $2.2 million number and it came in at $1.3 million; why was that lower versus the prior three quarters and will that continue onto next year?

I think that you should look at that the full-year number. Obviously, as we liquidate our revenue that's really how we determine what our bad debt should be and we were reserving probably at a higher rate than what we needed to earlier in the year, so we took a little bit of an adjustment in Q4, so when you look at the bad debt, I would assume about 6.5% of patient services revenue in 2016.

And then you may have an adjustment or true-up at the end of the year like this?

If we liquidate in excess of that. We evaluate it.

And we do have a follow-up from Charley Jones from Dougherty Markets. Your line is now open.

Just a quick one; could you talk to us about your go-to market strategy on the research services side? Are you working with one or two CROs, or are you going directly to companies and can you talk how all that's involved a little bit?

We go-to market using a direct sales force of small compared to patient services, but highly effective. Our customer is typically both the CRO and the pharma sponsor. About half of our work comes through CROs, so we're subbing to them for the cardiac monitoring service portion of a study, and then often we're contracted directly by the pharmaceutical sponsor.

And I'm not showing any further questions. I would now like to turn the call back to Mr. Joseph Capper for any further remarks.

Thanks, Operator, and thanks again, everyone, for your continued support and interest in the Company. We will speak to you next quarter, actually in a few months. Operator, that concludes today's call. Thanks, everybody. Have a great night.

(Operator Instructions) Thank you for participating in today's conference. This concludes the program.