Heartbeam Inc (BEAT) 2016 Q3 法說會逐字稿

Good afternoon. Thank you for joining us for the BioTelemetry third-quarter 2016 earnings conference call. Certain statements during the conference call and question-and-answer period to follow may relate to future events, expectations and as such constitute forward-looking statements within the meaning of the Private Securities and Litigation Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company in the future to be materially different from the statements that the Company's executives may make today.

These risks are described in detail in our public filings with the Securities and Exchange Commission, including our latest periodic report on Form 10-K or 10-Q. We assume no duty to update these statements. (Operator Instructions).

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

Thank you, operator, and good afternoon, everyone. I'm Joe Capper, President and CEO of BioTelemetry. As on our previous calls, I'm joined by Heather Getz, our Chief Financial Officer. I'll start with an overview of our third-quarter performance. Heather will take you through a more detailed review of our operating results. I will make closing comments 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 have delivered another record-setting quarter during which we met or exceeded all expectations hosting our 17th consecutive growth period with new highs in revenue and EBITDA. Our business continues to generate outstanding results and we expect to maintain this momentum for the foreseeable future.

Going forward, we need to continue growing our Healthcare segment at a pace faster than the industry and deliver solid results from the Research segment. We have good reason to be confident in our ability to do just that.

As I have reiterated on numerous calls, there are three core guiding principles that we believe have produced our exceptional results. As a reminder, we focus daily on solidifying our leadership position in cardiac monitoring, establishing a leading research business, and seeking to identify markets that would benefit from the application of our wireless platform and proprietary technology. Our adherence to these principles is unwavering and will continue as it has been instrumental in generating the consistent results we have had for more than four years.

With our strong business momentum and the continued successful execution of our guidance principles, we are well-positioned to achieve our full-year guidance and continue to excel as we transition into 2017.

Let's take a few minutes to review some of the Q3 highlights. During the period, revenue grew by 22% to $53.1 million, within the range of our expectations. Organic revenue grew by 14%. EBITDA grew by 40% to $12.2 million exceeding expectations. Year-over-year quarterly volume was up 9% with MCT volume up 12%. We ended the quarter with $32.3 million in cash, up approximately $7 million sequentially.

The rollout of CardioKey continued to be an outstanding success story as we now service in excess of 13,000 patients. Our research team made excellent progress in integrating VirtualScopics and building the imaging backlog and we continue to advance business development activities that will create additional sources of revenue.

Let's take a closer look at the components of the business which are driving this success. In our Healthcare division, we generated greater market penetration with growth in all three major service types, MCT, Event and Holter. As I mentioned a moment ago, overall volume was up 9% with MCT up 12% in the quarter.

On previous calls, I outlined several contributing factors that drove our excellent organic growth such as market expansion opportunities, our comprehensive product portfolio, improved messaging and our salesforce productivity.

In terms of the potential for market expansion, we recently received excellent news that Anthem has reversed its long-standing position and is now covering MCOT for use with certain patients. Specifically, Anthem has approved MCOT for use within the cryptogenic stroke patient population. The natural question is how big of an opportunity does this present for MCOT? We'd say it has the potential to be quite significant. Anthem is the largest health insurance provider in the country with subsidiaries in 14 different states.

Additionally, using remote cardiac monitoring to detect the possible presence of AFib in cryptogenic stroke patients is a rapidly expanding practice and MCOT is far and away the best product to use in this situation due to its unmatched AFib detection capability. As numerous studies have shown, MCOT consistently picks up more AFib than any other remote monitoring option due to its system design and market-leading suite of algorithms.

The news from Anthem is incredibly positive and represents an opportunity to build a relationship that may lead to increased indications at some point in the future. This development, coupled with the proposed 2017 CMS fee schedule published in July and indicating minimal impact to the MCOT rates gives us greater confidence in an improving payer landscape.

Another factor that continues to positively affect growth is the resounding impact of our comprehensive portfolio approach and how it is providing us with a significant competitive advantage. No other provider in our space can match us in terms of breadth of product offering. Not only do we provide more options, but no other competitor comes close in terms of product performance, an attribute that is becoming increasingly important as more segments of the market demand higher levels of diagnostic accuracy.

Optionality is a strength we are committed to build upon with the continued rollout of CardioKey, our extended wear Holter and the upcoming launch of our recently FDA cleared next generation MCOT.

As a reminder, CardioKey is a 14-day Holter with a single channel and two leads. We introduced this product to the market last year and started making it more widely available earlier this year. While the numbers are still relatively small having recently surpassed 13,000 patients served, there is clearly a niche for CardioKey. In fact, our monthly volume has grown threefold over the last six months.

We also acquired the ePatch device in a delta transaction earlier this year giving us another option for an extended wear Holter in a patch formats.

The new MCOT conversely is a four lead, two channel telemetry device that will be introduced in both a patch and a lead wire form factor. This system incorporates our proprietary algorithm and protection capability which have established MCOT as the gold standard among remote monitoring options.

Think about this. Our customers will have the benefit of the most accurate and sensitive arrhythmia detection technology in the market in a lightweight, easy-to-use patch form factor or a lead wire configuration for those who prefer not to wear a patch. We believe this should improve patient compliance and expand utilization. We are excited about the recent FDA approval for this new system and look forward to full market introduction.

With demand for remote monitoring solutions on the rise, our healthcare services business is incredibly well-positioned to continue to outperform the market. Our high organic growth rate, improved margins, new products and expanded payer coverage are all contributing to the momentum the business is experiencing and we expect that to continue as evidenced by our guidance.

Turning to the Research business. During the quarter, one of the priority objectives was to integrate VirtualScopics, the imaging solutions company we acquired in the second quarter. As a reminder, VirtualScopics focuses on oncology, musculoskeletal and other therapeutic areas requiring centralized imaging services. As we have discussed on numerous occasions, expanding our Research Services offering has been one of our high-priority initiatives aimed at improving the long-term competitiveness of this division. Completing the acquisition of VirtualScopics went a long way in accelerating this strategy.

As I mentioned on our last call, combining imaging with our cardiac services has already made us a far more formidable competitor. The market response to the combination has been overwhelmingly positive providing us with a nice spike in our pipeline and backlog for imaging services.

At this point I will pause and turn the call over to Heather for a detailed financial review of the quarter, then I will close with some comments on how our plans for future growth are taking shape. Heather?

Thank you, Joe, and good afternoon, everyone. As Joe just announced, the third quarter of 2016 marked our 17 consecutive quarter of year-over-year revenue growth. Total revenue was $53.1 million which was in line with our expectations and represents a 22% increase as compared to the third quarter of 2015.

Healthcare revenue was strong with an increase of $4.7 million or 13% over the prior year. The strength in Healthcare resulted from a 9% volume increase across all products with MCOT growing at 12%. Also contributing to the Healthcare revenue was the impact of a favorable product mix as well as the increased Medicare rate, which as expected, added about a million.

Our Research revenue increased $4.9 million due to an increase in imaging revenue with the VirtualScopics acquisition.

Moving to gross profit, our margin for the second quarter was 62% or a 140 basis point improvement over the prior year. 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 the impact of a mix shift due to higher revenue in our Research segment which carry slightly lower margins.

We continue to experience strong operating margins post acquisitions. While as mentioned above, the acquisitions did put some pressure on our gross margin, we saw increased adjusted EBITDA margin both sequentially and compared to the prior year. We generated adjusted EBITDA of $12.2 million for the second quarter, a 40% increase as compared to our Q3 2015 EBITDA of $8.7 million and a 23% return on revenue. This is our 10th quarter of sequential EBITDA margin expansion.

Now turning to the balance sheet. We ended the quarter with $32.3 million in cash compared to $19 million at year-end 2015. We generated $8.9 million in cash from operations and $6.1 million of free cash flow in the quarter. We used $2.8 million for capital expenditures in the quarter, primarily for additional devices in our Healthcare segment.

At the end of the quarter, we had $37 million of indebtedness, which is less than 1 times our trailing 12-month EBITDA. As we mentioned on our last call, we expect to continue generating cash from operations. On a year-to-date basis, we generated $26.4 million of cash from operations which gave us the ability to pay down the revolver by $11.5 million in October. This amount is requested on our Q3 balance sheet in the current portion of long-term debt.

As you can see, we have maintained a very healthy balance sheet with our strong cash balance and low debt levels.

Shifting gears, I will now touch on the outlook for the remainder of 2016 and touch briefly on our preliminary expectations for 2017.

We have exceeded our expectations for the nine months of the year. Our strategy has delivered strong results through September and we expect that momentum to continue into the fourth quarter. That being said, we are seeing some softness on the cardiac core lab portion of the business stemming from the FDA contemplating a change to the cardiac safety testing requirement in clinical trials. This has caused some pharma companies to delay studies as they await guidance from the FDA.

With this in mind, we are expecting revenue to be about $53 million to $54 million for the fourth quarter, or about 15% over the prior year quarter with an adjusted EBITDA return of approximately 22% to 23%.

Given our year-to-date momentum, we are confident about the Company's ability to achieve this guidance.

Looking ahead to 2017, we will have the full market launch of our MCT patch, expanded payer coverage with the recent Anthem decision, additional international offerings with the launch of some redesigned products and increased growth from our newly added imaging business. We expect the growth in these areas to be partially offset by the softness in the cardiac core lab in the earlier part of the year as we await a decision from the FDA.

Also, based on the proposed rates in the physician fee schedule we are anticipating a slight reduction in the MCT Medicare reimbursement for 2017.

Considering these factors at this time, we are expecting 2017 revenue growth of approximately 10% and an EBITDA return of about 23%.

To summarize, we posted our 17th consecutive quarter of year-over-year revenue growth and 10th quarter of sequential EBITDA margin expansion. We have a strong balance sheet with more than $30 million of cash, low leverage and additional debt capacity if needed. The Company has never been in a stronger financial position.

And with that, I'll now turn the call back over to Joe. Joe?

Thanks, Heather. As you have just heard, we had a highly successful third quarter, continuing to track ahead of 2016 expectations. In addition to achieving excellent results, we received good news from Anthem with regard to MCOT coverage. We continue to prepare for the introduction of our next generation MCOT device in both a patch and lead wire form factor. We completed over 13,000 CardioKey services and furthered the integration of VirtualScopics dramatically improving the competitive strength of our research business.

Our strategy is clearly working as designed. To ensure continued success in 2016, we will stay focused on the following items as we close out the year and move into 2017.

We will build on our comprehensive approach with a further market penetration of CardioKey, followed by the launch of our next generation telemetry system; continue to capitalize on the increased AFib awareness and education in the marketplace by showcasing the best-in-class attributes of our technology; leverage the Anthem opportunity and work to further expand payer coverage for all services; complete the integration of VirtualScopics and evaluate additional acquisition targets that will accelerate our strategic plan.

By continuing to execute our plan, we expect to deliver more record-setting results. Our guidance for 35%-plus year-over-year EBITDA growth demonstrates the confidence we have in our business.

Before I close, I would like to spend a few minutes discussing our third guiding principle, which is look for ways to utilize our technology beyond its current applications. As you know, we are one of the only profitable digital health or telehealth companies in the market and we have had a long stated desire to identify or develop new markets that would benefit from the application of our wireless platform and proprietary technology.

More and more we see emerging opportunities for BioTelemetry to provide what we will call digital population health solutions into the employer and payer markets. These are services that are designed to help control the cost of care among certain membership groups, typically those who are living with high-cost chronic conditions.

These population health management solutions become more efficient and affordable when coupled with digital monitoring technologies. An excellent example is the CHF care management solution being developed by Wellbridge Health, a startup which we have helped fund. Some of the care management or population health solutions we have examined show promise and may lead to considerable reductions in healthcare expenditures.

However, today's solutions are fragmented and short on sound clinical and economic outcome data. Given our proven ability to successfully develop cutting edge monitoring technologies and our commercial infrastructure, we believe BioTelemetry is uniquely positioned to take a leadership role in the developing area of digital population health, offering applications that will have a material impact on quality of life and cost of care.

As such, we continue to analyze investment opportunities in a variety of technologies and solutions that fit this theme. Stay tuned.

In closing, I would again like to thank those at the Company who helped deliver our 17th consecutive growth quarter. Your work is extremely important as people depend on us every day to collect and process information that may save their life. We will continue to leverage our technology to identify additional ways to bring down healthcare costs and provide critical information where needed.

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

(Operator Instructions). Bruce Jackson, Lake Street Capital.

Hi; nice quarter.

Hi, Bruce. Thanks.

Thanks, Bruce.

So just a couple of questions. First on the patch devices. Can you tell us about the -- have you done any studies on the diagnostic yield yet for CardioKey or for the new MCOT patch device?

MCOT patch, well, first of all, the MCOT patch device is not on the market yet. So CardioKey, we have not yet -- CardioKey is an extended wear Holter, as you know. And we have not done any real work in that area yet in terms of yield. We would expect the new MCT device to have approximately the same diagnostic yield that we have on MCOT since it has pretty much the same embedded technology, and as you know, there's nothing close to that on the market.

Great. Okay. And then trying to round out the MCOT discussion, I apologize if you already said this, but what was the percent of revenue, total revenue for MCOT in the quarter?

The percent of total was about 52%, Bruce.

52%? Okay, great.

And that got -- just to say that got -- that's weighted a little bit differently because of the increase in research as a result of VirtualScopics relative to other quarters.

Right, right, okay. And then, speaking of research, you haven't really commented on the backlog recently. Can you give us just a general idea of is it bigger than a breadbox or how many quarters of backlog potentially are you looking at and how might that flow into revenue over the next year?

Yes, we haven't put that out, Bruce, and we've made commentary in the past about how it has accelerated and its growth rate. Examining the backlog for the imaging business is slightly different than the metrics applied to the cardiac business. So it's taking us a little bit of time to get used to that.

I will tell you this. When we acquired VirtualScopics, the feedback from the marketplace was incredibly positive, and we did see a nice spike in our backlog. The VirtualScopics team had a full year objective in terms of bookings that was met probably in August or September, so we're tracking ahead of expectations.

Where we're having a few near-term challenges, if you will, with the Research division is really on the cardiac side and, as Heather mentioned in her commentary, the FDA has backed off a little bit from TQT mandates and is moving towards other standards and there's a little bit of a gap in publication of those standards. There was a few meetings over the summer with the FDA and there's one scheduled for December where we expect to get more clarification.

I think the good news is it looks like they will require more testing in early phase studies which plays to our favor because we've been a lot stronger competitor in the early phase studies in cardiac and a little bit less competitive in late phase studies. But it remains to be seen. It's not a dramatic impact but it's a little bit of an impact and that's why we're hedging a little bit on our Q4 number -- our Q4 revenue numbers, you can probably tell.

Okay, okay. Good. And last question, with Wellbridge, can you just remind us, I believe it's an equity investment that you have in them. And can you tell us about how much that is and are there any plans to take the product out development beyond congestive heart failure?

I would -- have we (multiple speakers) --?

It is an equity investment. We don't have it broken out separately. So it can give you an idea of materiality in that. We haven't actually provided the --

So it's not a number that is material to us; it's a small investment, and there is still -- they completed a pilot two months ago. They are moving into the commercial phase so they are still early in their lifecycle, but they now have billing customer or customers, very good outcome from the primary private study showing about 158% ROI.

I do believe that the customers are already asking them to expand beyond congestive heart failure. What we have typically found is with care management or population health management executives, they want more than one solution. So there is a little bit of a pull from the market. So they are challenging the state discipline in early phase around congestive heart failure, add some services were appropriate but get the Company commercial before they do too much other crazy stuff.

Okay. That's very helpful. Thank you.

Jan Wald, Benchmark Company.

Thank you. Good afternoon. And congratulations on another good quarter.

Thanks, Jan.

Thanks, Jan.

I guess I have a couple of questions. First, Joe, you mentioned that data is becoming more important to your customers and I guess I'd just like to -- you are about to have a little bit. Why do you think it is becoming more important? How do you know it's becoming more important and how are you doing relative to the competition with data?

So, here's what we know, and I'm going to probably give you a little bit longer winded answer -- I'm sorry, Jan -- probably a little bit longer winded answer than you were looking for.

But this is one of the challenging things in this industry. Not everybody will test their devices against a standardized database, and as we have discussed in the past, the standardized databases, the MIT database, we test very well against that and we are public about it. Some folks aren't very public about how they test against that database. Some devices -- we have no idea how they perform.

Where we do know and the studies we have participated in, we know that we're better than anybody else that's making their information public. And I'll use -- so you ask, where is it becoming important? Certainly in the cryptogenic stroke patient population, where we just got, as I mentioned, additional coverage from Anthem. There is -- we've done, I think, probably five or six -- or I shouldn't say we've done -- our device has been used in about five or six different studies. Routinely we find atrial fibrillation present in cryptogenic stroke patient populations far and away at rates higher than any other devices we've seen used in that population. In some cases, five times better.

In the case of us versus the implantable loop recorder, we're five times better when you compile the various studies that are out there. And there's a study of studies, if you will, that's been produced using meta-analysis work to show how much better MCOT is in implantable loop recorder quarter in the first 21 days of monitoring for the detection of AFib.

We know that we are 100% accurate down to 30 seconds. we don't know if anybody else can even detect down to 30 seconds let alone be 100% accurate. We routinely detect AFib below that. You can argue what the clinical significance of that is but we have the capability to do it and present it to the Commission. It's not our responsibility to determine clinical significance. It's our responsibility to provide a tool that is the most sensitive and the most specific as possible.

Jan, at the end of the day, this is a diagnostic product. I've been in diagnostics for well over 20 years. It always comes back to two things, how accurately you can diagnose the finding and how fast you can provide that information to the physician at the time the physician thinks they need to know the information. How fast you can take the data point and put it back in their data set so that they can care for the patient. Accuracy and speed.

So with MCOT, you have the most accurate algorithm that we know of and it is far and away the fastest turnaround time that we know of, because as you know, it's a connected product.

So I think you're starting to see more and more demand for accuracy. We've approached regulatory agencies to ask them to get involved in this because we think it's really that important. And I've said this to some clinicians at times where products are 73% accurate at two minutes and I've always said, well, would you use a pregnancy test that is 73% accurate before you operated on somebody? Of course not. So you want a very accurate diagnostic test and you want that information as fast as possible.

Okay, thank you. And I guess another competitor has I guess entered the market in a certain way. I read and I'm thinking of BioRhythm. Would you compare and contrast your product portfolio with this -- with that device, because that one screamed into the market in -- well, screamed onto the investor community in a way that was surprising to me.

Yes, I was happy to see them get out. I was delighted with their valuation because obviously you can look at the company and you can compare it to us. They have a fairly high growth rate over the last few years, but as you know, they don't really compare very favorably to an organization like us by product or certainly by company.

If you narrow your question down a little bit for me, I might be able to help you. I don't want to just go through a litany of areas where we compare to them, but if there's an area that you are thinking about specifically, I can highlight it a little bit for you.

Well, think the way it was sold to investors -- and I may have this wrong -- you may have a better idea -- was that it is a new way to treat -- it's not a Holter, it's not an MCOT but it's all you need in order to do all the work you need to do to diagnose a patient. So you've got a cheaper alternative that's going to be more cost-effective in the healthcare system. Care to comment?

Yes, maybe that's the way some people saw the presentation. I did not see it that way and maybe that's the way they articulated it, but what I saw in some of the announcements was that they aspired to be the primary first-line BCG monitoring product. So let's talk about what it is.

It's a Holter. It's a Holter recorder that is extended beyond 48 hours. It goes up to 14 hours. It does not have connectivity. It's not near real-time monitoring. So in situations where more data is desired, a research setting or maybe some clinicians that want more data than 48 hours, it makes sense to do that.

By going beyond 48 hours, the theory is you will improve diagnostic yield. We certainly saw that was event recorders -- you could still detect more things because, as you know, symptoms for arrhythmia don't always occur on a daily basis. Sometimes they occur less frequently than that. So the longer you monitor, the higher probability that you're going to pick something up.

And going out to 14 days is better than 48 hours. Going out to 30 days is better than 14 days. We know that because we found a much higher yield using events and MCOT than we did against Holters. But it records like a Holter. My understanding is that's what it is. It's a Holter and then it's downloaded at some point and information is then transferred to a server or cloud where they have some analytical tools that they apply to it.

I think it's a decent product. As you know, we have one in the form of CardioKey. That's the same thing. It goes out for 14 days. CardioKey is not currently in a patch form factor but we have another product that will be in a patch form factor and will do the same thing. It will be an extended wear Holter.

So I do think that there is a nice niche for extended wear Holter. I'm not sure yet how big of a niche. The challenge with a product like that is in order to get it to the server and to the cloud you have to send it via the U.S. Postal Service, which is not the fastest way to get information into an analytical engine. So turnaround time is probably the worst of all modalities in the space. So you're looking at it for certain patients. You certainly wouldn't want to use a product like that on a patient where there is a high risk of some sort of a life-threatening arrhythmia.

It's great that it goes past a few days, but on day four or day five when the patient has a life-threatening arrhythmia, what's going to happen? You still got to wait until the end of the service, take it off, mail it in and have it interrogated.

I think it's a cool product. I think the fact that they were the first to get an extended wear product is a good thing. They went for several years without competition in that market. They now have it. I think the fact that they were able to put it in a patch form factor, that was a cool thing.

As you know, when you put a product in a patch form factor you do give up some accuracy because the lead wires are spaced closer together. That's the theory. Lead wires are spaced closer together, so in all likelihood in a 24-hour period, that product detects less than a traditional Holter.

Okay. Thank you very much and again congratulations on the quarter.

Thanks, Jan.

Marco Rodriguez, Stonegate Capital.

Good afternoon, guys. Thanks for taking my questions. Hey, I was wondering if maybe you guys could talk a little bit more about the launch of the MCOT patch just any updates on timing, sales and marketing activities, anything of that nature?

Yes, it's in test phase now, alpha and moving into beta. We've got some live product. We're still collecting information on it. We will roll it out a little bit slow here as we finish out the year and we're starting to build out into the first quarter of next year. So we're finishing final production, finishing live testing with wearable devices and then we'll launch sometime early next year -- full launch, I should say, early next year.

Got you. Is there a need for any incremental spend to launch that product?

Not significant.

Not significant, no.

Got you. Got you. And can you -- I'm sorry?

Think of it more as a shift of resources.

Got you. And can you provide a little bit of an update here on the research services side just any kind of M&A targets, what valuations look like, joint venture type deals that you might be taking a look at?

No. We typically do not comment on that type of activity. Our primary focus really was to integrate -- on Research, to integrate the platform that we acquired in the second quarter. We thought that that was an important acquisition and we have some work to do in order to integrate those two platforms.

Obviously from a sales and marketing perspective, we fully integrated the teams but there is a little back-office work that we think could drive some more efficiency.

We're actually (technical difficulty) were focusing a little bit more on some other areas since we made a big acquisition in Research this year.

Got you. And a couple quick just housekeeping modeling questions. G&A and sales and marketing declined sequentially with revenues up slightly sequentially, just wondering if there are any sort of one-time items that were in those line items?

I mean it was down minimally and I think it mainly was around meetings and trade shows that occurred in Q2 versus Q3. You're going to see that trend back up a little bit in Q4 for the same reason. We talked about adding some resources there as well as you're going to see a few more meetings and trade shows.

Got you. And lastly, D&A in the quarter was about $3.7 million. Is that a good level from which to model from?

Yes, I think that's fair for now.

Got it. Thanks a lot, guys. I appreciate your time.

Bruce Jackson, Lake Street Capital.

Hi. thanks for taking the follow-up question. Just a quick question about the extended wear Holter business model and I believe the reimbursement codes they are using right now are temporary. And my question is a two-part question. Where do you think the reimbursement codes are going?

And the second question is, is it conceivable that you could also sell your existing products using exactly the same reimbursement code?

So let me comment a little bit on the first part. I'm not going to give you much help, to be honest with you, Bruce. I know that there was some talk about rate reduction earlier in the year and that was corrected and the rate was brought back up to its current level. I don't think that there is national pricing for extended wear Holter yet, but we're hopeful that there will be.

Your comment about using current products to bill under that code, we can use CardioKey and we could use ePatch to bill under those codes. So those are Holter-like products that go beyond 48 hours up to 14 days. And as long as we need to -- and there might be some other requirements of the code. There are certainly other requirements of the code but they are unconnected products. So they are not real -- they are not telemetry products; they are Holter recorders that are then interrogated at a later date.

Okay. That's very helpful. Thank you.

Mitra Ramgopal, Sidoti.

Hi. Good afternoon. Thanks for taking the questions. I just wanted to touch -- I know it's very preliminary in terms of your 2017 outlook, but regarding the 10% on the top line, are you factoring any benefit from the Anthem increase or additional coverage?

A little bit, but we're -- look, it's early to be giving too much specific guidance. We're giving directional guidance at this point based on the things that we know about. We're still in the process of negotiating all of our in-network provider agreements with the different subsidiaries. So I'm not sure at what point we will start to see material uptick on that so I'm a little hesitant to build that into numbers that we're putting out for next year. And again, the numbers were meant to be more directional.

Right. No, totally understood. I'm just trying to see how conservative you're being. Thanks.

Also, as we look in terms of -- and I know you don't have any M&A, etc. or anything built in or anything or pricing, etc., but then we look on the cost side as it relates to, for example, like R&D. Obviously, it up this year relative to last year. But given that you're introducing the new MCOT, etc., should we expect that to start coming in a little or you're still going to be investing?

We have a pretty active pipeline of upgrades -- it's not just a new product launch. We're working all the time on our center software. We're making upgrades. We have a team of people that are working on algorithms. We're making various upgrades to different systems, so we'll still have a significant spend in R&D.

As a percentage of revenue, it probably comes down, but total dollars over time it probably comes down a little bit, but total dollars will stay the same or track up a little bit, probably just not as fast as revenue tracks up if that helps.

Sure. Sure.

Long-winded way of saying we will get more leverage out of it over time as revenue grows.

Right, thanks for the color. And, Heather, just slightly on the other charges line, I noticed there was a little of a bump this quarter. Is it fair to assume we should see that resembling more what we saw in the first half for the third quarter?

Yes, no, I think in Q4 you're going to see a similar number to Q3 and that's for two reasons. One was the VirtualScopics acquisition; that's why you're seeing that bump up in Q3. And we have the ongoing patent litigation with ScottCare that will go into Q4 so I would expect Q4 at least to be about the same as Q3.

Okay. Thanks again.

That does conclude our question-and-answer session. I would now like to turn the call back to Mr. Joseph Capper for any further remarks.

Thanks, operator. Thanks again, everybody for your continued support and interest in the Company. We will speak to you next quarter. Have a great night.

And if you joined the conference late today. you may listen to the conference call via digital replay which will be available through the investor information section of the BioTelemetry website at www.gobio.com until Wednesday, November 16.

And that does conclude our program for today. You may all disconnect. Everyone have a wonderful day.