Heartbeam Inc (BEAT) 2017 Q2 法說會逐字稿

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

Certain statements during the conference call and question-and-answer period to follow may relate to future events and expectations, and as such, constitute forward-looking statements within the meaning of the Private Securities 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. I'm joined by Heather Getz, our Chief Financial Officer. I'll start with a recap of our second quarter performance and other key developments. Heather will take you through a more detailed review of our financial results. I will then provide commentary on how we see the business continuing to evolve in the second half of 2017 and beyond, especially in light of our recent acquisition of LifeWatch. After our prepared remarks, we will open up the call for questions. Let's get started.

I am extremely pleased to report this afternoon the successful completion of another record-setting quarter during which, we set all-time highs in revenue and EBITDA, posting our 20th consecutive growth period. This performance is even more noteworthy given the amount of time and resources that were needed to complete the LifeWatch acquisition. This was a large and complex transaction for a company of our size. And if not managed properly, it could have resulted in our core business losing momentum. But as you can tell from the quarter, we did not miss a beat. If we had not completed the acquisition, today, we would be reaffirming our full year revenue guidance and even increasing our EBITDA guidance. This is really quite remarkable and indicative of the quality of our organization. Naturally, the acquisition is a subject of great interest. And now that it has closed, we can dive further into our rationale and highlight several key metrics for the combined company. But before I do that, I'd like to remind you of how we arrived at this point. We did so by adhering to the same 3 principles that have guided our strategy for the past several years, during which, we have made great progress and created significant shareholder value. Every initiative we undertake can be tracked back to one or more of these themes, which are to go deeper and wider in cardiac monitoring in order to expand our leadership position; to continue to build upon our leading Research Services business by expanding our service offerings; and last, we look to identify other markets that would benefit from the application of our wireless platform and proprietary technology. Clearly, the acquisition of LifeWatch is consistent with our intent to solidify our leadership position in cardiac monitoring. Our global cardiac monitoring capabilities and reach are now unmatched, and the power of our vast platform makes us ideally situated for expansion within and beyond the cardiac market. I will discuss our initial progress with market expansion initiatives, targeting large patient populations that would benefit from remote care. But first, let's take a few minutes to review some of the second quarter highlights.

During the period, revenue grew by over 10% to $58 million, in line with our expected range. EBITDA was a remarkable $14 million, up nearly 18%, exceeding our expectations. We ended the quarter with $27 million in cash, up from $23 million at year-end in spite of additional expenditures associated with the diligence process.

The launch of CardioKey continues to be an outstanding success story, as we've already serviced nearly 40,000 patients. We continued the rollout of ePatch, an early introduction of our next-generation MCT system. Our Research Services team continued to expand backlog well ahead of expectations. We made excellent progress, identifying investments critical to building out our digital population health management, or PHM, platform and advancing several business development initiatives for this business. And of course, we spent a considerable amount of time completing the acquisition of LifeWatch given it's immense strategic importance. By combining the companies, we have accelerated our growth plan by several years and transformed our Healthcare Services business to a whole new level.

I want to spend a few minutes to explain why this deal is such a game changer for the company and for the physicians and patients we serve. As previously announced, we closed the acquisition of LifeWatch on July 12. However, we could not take operational control of the company until July 24, at which point, it was my extreme pleasure to welcome the LifeWatch team into the BioTelemetry family. I must stress that the openness and collaborative approach demonstrated by the LifeWatch team has been nothing short of outstanding and has already allowed us to make great strides toward achieving our objectives well ahead of schedule. My compliments and gratitude to that leadership team. When we report third quarter performance, it will be as a combined company for all but the first 11 days of July. Heather will provide more detail about the numbers.

During these first few weeks together, we merged senior management and the entire sales and marketing organization. The new sales team is 120 strong with proportional representation from both of the former sales groups. We have also confirmed that the expected cost synergy of at least $25 million to $30 million will be realized and likely ahead of schedule. As we mentioned on last quarter's call, it will take 12 to 18 months to fully realize all of the synergies. However, our goal is to have a majority of them pull through in 2017. In order to achieve the full potential of the integration, we will incur onetime expenses, which will be highlighted as such in our financials. Again, the objective is to complete most of this work in 2017, which will position the company for a tremendous 2018.

Let's take a moment to think about that. With the acquisition complete, we are now the largest and most profitable connected health company in the world with an extremely powerful market position in the field of remote cardiac monitoring. We have the most extensive product offering, the most clinically accurate systems available and the strongest IP portfolio with 65 patents in the U.S. and 134 internationally. We are extremely well positioned in the payer market, and we have the largest, the most capable sales team in our industry.

In 2018, we will serve in excess of 1 million patients. Our revenue will be in the high 300s with an EBITDA margin in the mid-20s. The company will be generating a significant amount of free cash, allowing for accelerated investments into other connected health solutions, solutions that will improve the quality of care and dramatically reduce the cost to deliver that care.

In all, it is hard to imagine another company as well positioned as BioTelemetry to be a driving force in the burgeoning connected health revolution. This is a really exciting time for our company and for the markets we serve.

Our focus now is to complete the integration process as efficiently as possible with clear guiding principles to minimize customer disruption, ensure continued growth and identify and adopt best practices. We are very confident in our ability to seamlessly integrate LifeWatch given our deep understanding of the cardiac monitoring business.

Also, it's important to note, in mid-July, CMS published the proposed 2018 physician fee schedule, which included minor rate changes to our services, resulting in a small net overall increase and pointing to further reimbursement stability.

While the Healthcare segment has dominated the headlines. The other parts of our business continued to perform well. In our Research Services business, the leadership team has been doing an excellent job executing against their key priorities. Post last year's acquisition of the imaging business, our focus has been on fully integrating the Technology platforms, ensuring speed, data security, flexibility and labor efficiency.

Additionally, the market continues to respond amazingly well to the combined offering. During the second quarter, we once again exceeded our benchmark for booking contracts into backlog, an excellent leading indicator for the business.

Obviously, our market position in remote cardiac monitoring is second to none, and the research division is emerging as a prominent player in the clinical services market. Both of these markets represent attractive, large opportunities with robust growth potential. However, we view population health management with equal importance given it's potential to offer BioTelemetry much larger markets in which to capitalize.

On our last few calls, I discussed our efforts to enter this rapidly evolving market. An overarching objective within the health care system is to identify solutions that lower cost without forgoing quality of care. PHM services are designed to accomplish this among certain patient groups, typically those living with extensive chronic conditions. The objectives of these initiatives is to provide information, education and assistance in an effort to modify the behavior of people living with these challenging disorders. If they can be coached into a healthier lifestyle, it will cost the health care system far less in the long run. Population health management programs need to be high touched while fitting into the lifestyle of the patient in order to be effective. Coupling the latest technology and wireless connectivity with the tools used in traditional PHM programs allows for the continuous transmission of important information, dramatically improving the efficiency and effectiveness of these programs. Again, we see connectivity as the critical missing ingredient necessary to effortlessly integrate PHM initiatives into an individual's daily routine.

Our current PHM offering in the diabetes market is gaining traction, and provides us with an entrée into a large market with estimated direct annual cost in the U.S. of over $245 billion and in desperate need of connected health solutions like the ones we provide. During the quarter, we spent time assessing the resource requirements necessary to accelerate the growth of this business, and we made excellent progress on the business development front. We're in the midst of a few pilots, which could lead to large and exciting partnerships.

So to sum up our highly successful second quarter, while we spent a significant amount of time and resources on a transformational acquisition that has dramatically improved the value of the company, the strength of our underlying business fundamentals continued to advance our key initiatives across the organization.

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

Thank you, Joe, and good afternoon, everyone. As Joe just announced, the second quarter of 2017 marked our 20th consecutive quarter of year-over-year revenue growth with total revenue of $58.1 million, which was in line with our expectations. This represents a 10% increase as compared to the second quarter of 2016. Healthcare revenue was strong, with an increase of $1.9 million, resulting from volume increases, largely in MCOT. Partially offsetting these positive drivers was the lower Medicare rate that became effective January 1, which, as expected, impacted us by about $1 million. Our Research revenue increased $1.6 million, largely due to imaging study volume growth and the full quarter impact of the acquisition of VirtualScopics, partially offset by lower cardiac revenue. Finally, the Technology segment increased by $1.9 million, bolstered by sales of wireless blood glucose monitors through our Telcare division.

Moving to gross profit. Our margin for the second quarter was 62% versus 62.5% in the second quarter of 2016. The decline in margin was primarily due to the impact of the Medicare rate reduction and the 2016 acquisitions, which carry lower margins than our existing businesses. Partially offsetting these declines were volume-driven efficiencies.

Our second quarter adjusted EBITDA of $14 million was our highest quarterly adjusted EBITDA in the company's history and represented a 24% return on revenue. This was above our expectations and reflects the positive impact of targeted investments that we have made in the business.

Before moving on to the balance sheet, I want to touch on our adjustments to our GAAP results and remind you of how we are reporting our income tax on a GAAP and adjusted basis. Our total adjustments to our second quarter results totaled $5.6 million and included $4.5 million for expenses related to the acquisition of LifeWatch, and we also recorded $1.1 million for patent litigation and other restructuring activities related to prior acquisitions.

Next, regarding 2017 taxes. As I mentioned on the first quarter call, you will see some variation from quarter-to-quarter in our GAAP tax rate due to the timing of discrete items with the current expectations that the full year tax rate will be approximately 34%, which does include the acquisition of LifeWatch. However, as we discussed last quarter, due to the utilization of net operating loss carryforward, we expect our 2017 actual cash tax rate to be much lower with total payments in the $1 million to $1.5 million range.

Moving on to the balance sheet. We ended the quarter with $26.9 million in cash and a $24.8 million of indebtedness. Year-to-date, we generated $10.7 million in cash from operations and $4.5 million of free cash flow. The $6.2 million used for capital expenditures was substantially all for additional devices within our Healthcare segment.

Shifting gears, I will now touch on the outlook for the full year and the third quarter of 2017 as well as give you some insight into 2018, all of which will now include the impact of the LifeWatch acquisition, which closed on July 12. Going into the year, we guided to low double-digit revenue growth and an EBITDA return of about 23%. Our strategy has delivered strong results, which enabled us to achieve our first half expectations and complete a significant acquisition. Adding in LifeWatch for the remainder of the year, we would expect our full year reported revenue to be in the $285 million to $290 million range with an EBITDA return of approximately 23% or approximately $65 million to $67 million. This breaks down to about $82 million to $84 million of revenue in Q3 and [$89 million] to $92 million of revenue in Q4. There will be onetime expenses related to the acquisition, including severance, redundant costs and retention, in an amount of approximately $15 million. The majority of these costs will hit in Q3. In addition, our third quarter balance sheet will reflect the $205 million of debt secured in connection with the acquisition and approximately $15 million of cash. When we look toward 2018, another year of 10% growth on our 2017 pro forma numbers would put us north of $380 million of revenue and approaching $100 million in adjusted EBITDA. We will continue to refine this outlook as we progress.

To summarize, postacquisition, the company remains in a strong financial position with modest leverage and additional capacity if needed. We just posted our 20th consecutive quarter of year-over-year revenue growth. This consistent growth has provided and will continue to provide us with the financial strength and flexibility to execute on our key growth initiatives.

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

Thanks, Heather. As you just heard, we had a strong second quarter, building on the momentum we have cultivated over the last 5 years. Our strategy is yielding the results we expected, and we continued to broaden our opportunities. With the recent acquisition of LifeWatch, we have accelerated our growth plan by several years. To ensure our continued success in 2017, we will focus on completing the integration of LifeWatch; expanding our comprehensive approach with the continued rollout of a series of patch products and developing a longer-term product road map that takes full advantage of our unparalleled technology and IP portfolio; contracting with additional payers, including Anthem subsidiaries and ensuring maximum pull-through for those services; continuing to grow our Research Services backlog at the accelerated rate we are now experiencing; and building out a world-class digital population health management business.

In summary, given the success of the business, the stable reimbursement environment and with greater visibility into the synergies created by the acquisition, we are tremendously optimistic about our future prospects. By the time we enter into 2018, most of the costs associated with reorganizing the merged business should be behind us, setting a stage for a spectacular year.

Both Heather and I spoke about how we see 2018 shaping up from a revenue and EBITDA perspective. These numbers are compelling. And when you factor in the amount of free cash, which will be available for additional investments, we can't help but to get pretty darn excited about where this company is going. We are already the largest and most profitable connected health company in the world. As we continue to bring solutions into the larger chronic care markets, our opportunities compound at a tremendous rate. The company has come a long way. But as I have said in the past and continue to believe, our best days are still ahead. Our business is benefiting from trends that favor our strengths, and we are excited about our future prospects.

As I close, I would, again, like to thank those of the company who helped deliver our 20th consecutive growth quarter. By joining forces with the LifeWatch team, we are in an excellent position to tackle numerous business opportunities. More importantly, we will positively impact the lives of over 1 million patients annually. It doesn't get much better than that.

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

(Operator Instructions) Our first question comes from the line of Brooks O'Neil from Lake Street Capital.

So I have a couple of questions. I'm, in particular, curious about your perspective on product and technology leadership. Clearly, you are the revenue and profit leader in remote monitoring, and I'd love for you to give us your perspective on whether you consider yourself, today, the product and technology and innovation leader in the space. And if, for any reason, you don't, maybe you could talk a little bit about the product road map going forward.

Yes. Brooks, no doubt. No doubt about it. Again, I go back to the fact that, first and foremost, we are a diagnostic product, attempting to provide the most accurate information possible for a physician to diagnose a patient and then put that patient down the proper care path. So in the field of diagnostics, the most important things you could do is provide the most accurate information in the most timely fashion. And we do that better than anybody else. I always use the AFib market as an example. The AFib detection capability, associated with the MCT technology that we market, is second to none in the world. It will detect AFib data runs of 30 seconds with 100% sensitivity and positive predictability. No one else can touch that, and that's measured against a standard database. So I think when you look at what's inside of these devices, no one's even close to us. We're developing more friendly -- more patient-friendly form factors or at least giving the patients more alternatives in terms of form factor. That's why we have a couple of patch products that we're in the process of rolling out. But, Brooks, I think you also have to look at moving forward. What organization has the most resources, the most technology bench strength, the most understanding and awareness of the industry. There's no one that's even close to us. So I think I would have to say yes, and I would say that the close second is a pretty long distance away.

That's very, very helpful. And then maybe you could just talk a little bit about the payer situation. Obviously, you have huge opportunities with the Blue Cross organization. But give us a quick update on where you stand with Anthem and with other Blues organizations that are out there.

Yes. We have contracted with Anthem. Let me rephrase that, we have gotten a change in coverage policy for MCOT, and then we started the contracting process with Anthem. There's 14 subsidiaries. Unfortunately, you are required to contract with all subsidiaries. We're in the process of doing that. We're probably about halfway through that process, and I'm hoping to have that completed not later than the end of the year. And again, I think that gives us a pretty strong competitive advantage within the Anthem network. There are still another handful Blues that aren't contracting with MCOT for MCT, unfortunately, so we continue to work with those folks. That means more clinical studies. That means more research. And obviously, we continue to fund those initiatives. But payer expansion is an opportunity for us, Brooks, as you know. And it's created opportunity for us as we've run the company over the last 5 years. It's not the only one. We talked about technology. Because we're the technology leader, that's opened up new use -- indications for use of the product. In prior calls, we talked about using MCT in the neurology market because of its clinical accuracy. A neurologist does not want to use a -- or does not want a product to be ordered unless they're pretty confident that you're going to detect AFib if it's there. We have demographics in our favor, right, the aging population. AFib is more prevalent with the aging population as is some of the other arrhythmias we detect. We haven't even tapped into the international market. One of the nice things about bringing LifeWatch into the fold is they actually have some experience outside the U.S., and they have people who have more experience outside the U.S. So it's incredibly complementary to our organization. So a lot of good stuff happening. Yes, payer expansion is important, but I think those other things in terms of driving revenue within the cardiac monitoring business are just as important.

It's great. I'll just ask one more. I'm particularly excited about your opportunity in diabetes. I know there's a lot of other disease states that are amenable to remote monitoring and the services you offer, but can you just give us a quick update on where you're at in the diabetes space?

Yes. So late December, we acquired -- or in December, we acquired a company called Telcare, which was a company that had the first cellular-enabled blood glucose monitoring system approved through the FDA. So since we've acquired the company, we've concentrated more on partnering with other participants or other stakeholders in that space who could open up distribution channels for us. So it's more of a partnership leverage play right now. Second thing we focused on is investing in the technology necessary to take that business to the next level, right. So we need technology that's going to take it into the out-years. And so we spent a decent amount of time on that in the first 6 or 7 months that we've owned the company. I could tell you I'm incredibly optimistic about some of the products that we have underway. Obviously, you can't speak in too much detail about them, but these could be fairly significant relationships.

That's great. I guess I lied. I have one more question. With the strong cash flows you're going to generate beginning probably -- I mean, now, but leading into 2018, do you think you're done with acquisitions? Or how do you feel about that?

Well, not -- I wouldn't say done. Look, I think the best way to think about it, Brooks, is we just spent an awful lot of money to acquire a company that will transform our business. As Heather and I talked about, when you start getting up and revenue numbers approaching $400 million and EBITDA returns in the mid-20s and you're getting close to $100 million of EBITDA, you can back in to a pretty nice free cash flow number. The main thing we need to do is integrate that business. We just spent an awful lot of money on acquiring that company, and I want to make sure that our objectives are met. So integrate, integrate, integrate are our top 3 objectives for the time being. That being said, we always have a very robust business development, corporate development function within the company to look for those opportunities. The cardiac monitoring business is only so big. We're already the dominant player. But I think we're in such a good position because we have more expertise with regard to moving data from remote locations, centralizing that data, synthesizing it and getting it back to a healthcare provider in a user-friendly format than anyone else on the planet. So now that we can generate some of our -- or fund some of that additional growth with our own internal free cash flow, it gets pretty darn exciting. All that being said, integrate, integrate, integrate.

Our next question comes from the line of Bill Sutherland from Benchmark.

I was curious if you could update us on the launch of the -- the commercial launch of the next-gen MCOT device.

Still in beta phase. So we still have it on a limited -- limit use within the market, so you won't see full market release of that product until later this year, early next year. And obviously, we have a bit more work to do now, Bill, because we have to rationalize 2 product portfolios and 2 product road maps. So main objective there is minimize customer disruption. Customers can continue to use the same products and services that they're used to, then start to move those products and services together over time. And in the context of doing that, we will have a more -- I'd say more robust, commercial launch of those products.

And so as you repeat the 3 Is of what you're going to be up to, what are kind of the most important elements of integration of these 2 companies as you've gotten into it?

Well, the guiding things that I talked about, customer retention. Why do some mergers not meet the stated objectives? Typically, the number one reason is culture clash. So we're working very hard to integrate all aspects of the organization. I think we're blessed in that regard because the leadership team at LifeWatch are a very talented group of people, very cooperative, very collaborative in the way we've been working together. I've done a lot of acquisitions and a lot of mergers in my day. We've been part of a lot of them. I've never seen one go quite this smooth this early on. So customer retention, make sure we adopt best practices. I talked about that in my commentary. We don't do everything right. They don't do everything right. I think there's aspects of their company and our company that are incredibly -- or the 2 companies that are incredibly complementary. It's incumbent of us to make sure that we adopt this. Obviously, we have a redundant product portfolio. We have redundant technology. We have to figure out which technology, which products are best, which services are best. Highly impressed with some of the things I see in their customer service area. So I think there's enough complementary aspects of the 2 organizations that, as we put them together, we have a great opportunity to build something really special.

Great. And then, Heather, just a couple of questions on the guidance. You -- the new revenue guidance for the year, does that imply the same growth rates for legacy BioTelemetry?

Yes. Yes. It does. And just keep in mind, Bill, just to put in there. The 10 less days, 11 less days that we have of LifeWatch in Q3 is impactful. So if you go back and look at last year and compare it to this year, there's just north of $3 million that we don't have in Q3 of this year that they would've had in Q3 of last year because of the timing of the acquisition.

Okay. And then can you give us any kind of range of CapEx to think about next year?

It would be really difficult right now. As Joe mentioned, we're in the process of evaluating both of the portfolios. If you wanted to be conservative, take about 2x what we have this year. I'm guessing it would probably be slightly less than that, but that could account for if we replace any products. But that's really a conservative guess at this point.

And then just last on the model, amortization that we should think about. I mean, I realize you probably haven't got that nailed yet.

Yes. No. That's something as we -- as Joe mentioned, we've had about 2 weeks to start to really get the information from LifeWatch. I do have some estimates. But as we move into Q3, I'll have a better number. Right now, what we used in our estimates was about $10 million annualized. But again, that could change as we do the opening balance sheet and refine that.

Okay. That's incremental, right, just to LifeWatch, $10 million.

That's right.

Our next question comes from the line of Alex Silverman from Special Situation Fund.

So Heather, can you give us a quick pro forma 2017 for the combined companies, what the number would look like?

So what I had guided to in the script was the $285 million. The $285 million.

That's actual. Pro forma, he asked.

Oh, you want pro forma.

Pro forma, what the 2 companies would look like together.

Yes. About $350 million.

$350 million?

Yes.

Okay. And then 2018 is 10% higher is what you're suggesting?

Yes. I mean, that was just to give people an indication because, as we just mentioned, we gave a reported number in the script just to give people an idea of what that could look like. But it's a guideline, and we're...

I just wanted to make sure you weren't suggesting 10% off of $285 million.

No, no, no. The 10% off is the $350 million.

Bill, if we guide to -- I'm sorry, Alex. If we guided to the 10%, it will be off of the $350 million. That's where we came up with those kind of 380ish-plus numbers that we talked about. And I see no indication at this point as to why we won't be guiding off of a number like that. And I have -- see no indication at this point as we -- why we wouldn't be guiding to double digits. Both companies were tracking to that. We slowed down a little bit as we entered into the integration process, frankly because we ran with several open headcounts in our sales organizations as we prepared to merge. It didn't make sense to fill openings as they came up over the last 6 months when we knew we were going to be planning these 2 sales forces together. So we saw a little bit of a taper. But now we've got to merge together. I think you'll see momentum pick up in the second half, and I have no reason to believe we won't be growing at a rate like that. But as Heather said, as we get a little bit closer to the end of the year, we'll kind of refine that for you.

And along those lines, which was going to be my next question, how much overlap was there -- is there between the 2 sales forces in terms of calling on the same accounts?

Yes. More complementary than overlap. There was some overlap. There were some accounts that were shared. We had to go through a process to make decisions on how to allocate our resources and the right number of resources we needed to cover those accounts. If you think about it, actually we still had that team branded as CardioNet in the field. So the CardioNet team was probably somewhere in the 72 to 73 number, down from 80 because of the open headcount. And the LifeWatch group was somewhere in the kind of mid- to high 40s. They were down a bit, too, due to open headcount. So as I indicated, with the new structure, we're probably about 110 reps plus management, so you get about 120 folks. And I think we had wonderful coverage with that number. So clearly, revenue per FTE goes up, right. When you combine the revenues of the 2 companies, you can use your -- again, your resources more intelligently within the same account. More overlap -- more complementary than overlap, though, in regions of the country where one company was strong, the other one was not necessarily as strong.

Okay. Are you going to need to increase CapEx, maybe just a onetime catch-up with the merger of the 2 companies?

Yes. That's what I was just mentioning to Bill. We haven't done a full evaluation yet of the Technology platform and the rollout of the products on a combined basis, so it's possible. But we don't have that number right now.

Okay. That's reasonable. And then Heather, I'm sorry, I missed. Third quarter guidance was $82 to $85. Is that what I heard?

$82 million to $84 million.

$82 million to $84 million. With -- is that with a 23% EBITDA margin?

That's right.

Our next question comes from the line of Marco Rodriguez from Stonegate Capital Markets.

Heather, I wanted to follow up. I didn't catch all the balance sheet items post acquisition here, coming into Q3. Can you review those again?

Yes. I just had mentioned that the Q3 balance sheet will reflect the $205 million of indebtedness that we incurred to finance the acquisition as well as refinance our existing and LifeWatch's existing debt. So that will be about $205 million, and then we will carry about $15 million of cash.

Okay. So that's after integrating everything, $205 million roughly in debt and $15 million in cash on the balance sheet in Q3, roughly?

Right. And that -- yes. And that could fluctuate a little bit if we need to draw on the facility for anything related to onetime-type cost, but I think that's a good estimate right now.

Got you. Okay. And then you've got to talk a little bit about the integration aspects. And obviously, you've got synergies that you're going to try to capture the majority of them here in fiscal '17. When we kind of take a look at your overall operating structure, where should we see most of these synergies coming from?

Different areas. We -- SG&A, obviously, is a big one. Over time, there will be some rationalization and opportunity in R&D, operations, some location rationalization and then a lot of kind of volume-related stuff with vendors. We went through that number pretty carefully, as Heather indicated. Since we had -- since the acquisition, we've had more time to dig in to the data, and we're very comfortable with that number.

Got you. Okay. And maybe if you can talk a little bit about any sort of feedback maybe you've received from end customers now that the acquisition is closed?

Well, I think a lot of customers were -- no, I shouldn't say a lot. Some customers were postponing decisions until the acquisition was close. I think they wanted to see what would happen. And our messaging has been clear. There is no disruption to customer relationships. They continue to use the same products and services that they're used to. In some cases, there may be change of representation, but that's part of the business anyhow. And then over time, we'll decide how to merge the best attributes of both platforms, both services and both technologies, so that we give them something even better. And so feedback has been relatively positive. We're -- it's not over-the-top positive, but we're certainly not getting any negative feedback associated with it.

Got you. And any color -- I know it's still pretty early days in terms of what working capital requirements might look like with the combined company?

You're not going to see big uses of working capital with the combined business. It's going to be similar to what you've seen with us, just maybe on a little bit of a larger scale. So there's -- the cash flow is from an operating expense and a capital -- CapEx requirement, but you're not going to see big changes in either direction.

(Operator Instructions) Our next question comes from the line of Mitra Ramgopal from Sidoti.

Just couple of quick questions. First, I'm just wondering. Again, it's a little early with the acquisition now being in the fold. But do you get a sense as you speak to your peers that have an increased scale will help you in terms of some additional revenue opportunities?

I do not know that I would characterize it that way in the payer market. I think that the scale gives us opportunities from the standpoint of efficiency and improving service level that you could deliver and reinvesting back into the business. The relationship with the payer is more contractual. Obviously, as a larger participant in a competitive, contractual setting, we have an advantage. I think the fact that we have an extensive product portfolio helps us. It is a competitive advantage in a contracting scenario. Nobody else has a line of products like we have. We obviously are dominant in the MCT market. We have a very extensive event in [holster] market. And more recently, we've entered into the extended wear culture market. So it's a pretty extensive product portfolio. That, I think, is probably more important in terms of being able to provide comprehensive solution to entire world.

And again, looking back to when you first announced the transaction and your expectations regarding the synergies and the strategic investments you are making, how do you see it today? Would you say it's exceeding your expectations or pretty much as expected?

Well above expectations.

And at this time, I'm not showing any further questions on the phone lines and would like to turn the call back over to Joseph Capper for any closing remarks.

Thanks, operator. Folks, we're going to go ahead and close up the call. Thanks again for your continued support and interest in the company. And we will speak to you next quarter. Operator, that concludes our call.

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 Tuesday, August 22, 2017.

That concludes our conference today. Everyone, have a great day.