Heartbeam Inc (BEAT) 2017 Q3 法說會逐字稿

Good afternoon. Thank you for joining us for the BioTelemetry Third 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 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. I'm joined by Heather Getz, our Chief Financial Officer. I'll start with a recap of our third 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 as we close out 2017 and move into next year, especially in light of our combination with LifeWatch. After our prepared remarks, we'll open up the call for questions.

Let's get started. I am extremely pleased to report this afternoon the results of another record-setting quarter, in which we set all-time highs in revenue and EBITDA and posted our 21st consecutive growth quarter. This performance is even more noteworthy given the time and resources required to facilitate the integration of LifeWatch and the challenges posed by the hurricanes in 2 of our largest markets, Texas and Florida.

Our focus since the acquisition in July has been and continues to be maintaining continuity of operations. Our Healthcare Services business has been a standout performer due to our strategic focus and our ability to implement its various elements. As such, our goal was to add LifeWatch to the portfolio as seamlessly as possible and continue to execute on our business objectives in the same fashion we did prior to the acquisition.

I am pleased to report that is exactly what is happening. Two areas of vital importance are to maintain a focus on customer retention and provide excellent customer service. Post the acquisition, we immediately began to identify best practices across the enterprise that would maximize our effectiveness in these and other areas and began to take steps to embed these practices into all of our operations. As a result, we are without question an even better company today. We are now in a stronger competitive position due to LifeWatch and better able to execute on our strategic objectives.

For those of you who are new to the company, I would like to share with you the 3 principles, which guide our strategy and have led to the consistent growth we have had for more than 5 years. 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 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.

Let's take a few minutes to review some of the third quarter highlights. During the quarter, revenue grew by 53% to $81 million, slightly below expectations due to the hurricanes. We estimate that revenue impact of the storms on our business was approximately $2 million. One indicator of the disruption caused by the storms was physician office visits in the affected regions, which were down 9% in September versus the prior year and down 26% compared to August. Had we not experienced these weather-related challenges, revenue would have been easily within the range we expected. Despite the headwinds on the top line, EBITDA still met our expectations at $17.5 million, up 43%.

We ended the quarter with $26.2 million in cash, which was better-than-expected, given all the one-time expenses associated with the integration. Our Research Services team continue to expand backlog well ahead of expectations. In our new digital population health management business, we entered into a partnership with Onduo, a startup owned and funded by Sanofi and Verily, Google's healthcare business, and we advanced activities with a few other potentially important partners. And of course, we spent a considerable amount of time working on the integration of LifeWatch into our Healthcare Services business. This acquisition has accelerated our growth plan by several years and is a complete game changer for the company and for the physicians and patients we serve.

As previously announced, we took operational control of LifeWatch on July 21 -- 24. And we have made tremendous strides during the first few months of the integration process. I would like to, again, thank the new team members from LifeWatch for the way they have embraced this combination. Both organizations were quick to align around key objectives from day 1 and are committed to continuing to deliver the most innovative connected health solutions in the world. As a result of this teamwork, we are tracking ahead of schedule for achieving our goal of $30 million in synergies, which will position the company for a tremendous 2018.

As mentioned earlier, 2 of our primary objectives throughout the integration are to maximize customer retention and provide excellent customer service, to ensure continued growth. In order to accomplish these goals, we knew it was important to integrate the sales and marketing organization as quickly and efficiently as possible. Thanks to tremendous cooperation and commitment by all involved. This task was completed within the first few weeks, with proportional representation from both the former sales groups.

We also plan to rebrand the division in the coming months leaving the legacy brands behind. Since it is not uncommon to see some customer churn when 2 similar competitors merge, I thought it would be helpful to share a few key data points in this area. We closely monitor the activity in our largest and most valued account -- accounts. And I'm delighted to report that since the acquisition, we have not lost a single large account, not 1. Within our top 500 customers, which account for 50% of our total Healthcare business, revenue for the 3 months post the acquisition was up slightly as compared to the 3 months directly preceding the acquisition, even with hurricanes.

In terms of continued growth, the story gets even more interesting as we take a close look at MCT patient volume trends. For August and September, the first 2 months post the acquisition, MCT volume was up 10% year-over-year. It also makes sense to look at this number on a daily basis, since this year September had 1 less business day than in September 2016. On a daily basis, MCT volume was up 12.5% for August and September as compared to the prior year, and we continued to see similar trends into October. This is incredibly positive news for our flagship product. Instead of pulling back or flattening out, which will be typical in a merger of this kind, the MCT business is accelerating and it is doing so off of a much larger base of business. The feedback we've been hearing about the transaction has been positive, and the marketplace is clearly confirming those sentiments.

On another note, CardioKey and ePatch are extended -- continue to penetrate the market as complementary offerings to our connected products. We expect this service line to extend quite nicely in 2018 as the former LifeWatch sales representatives begin to detail these products. With the combination 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 advanced technology, powering the best systems, managed by highly talented people, partnered with tens of thousands of physicians all working hard to save lives.

Not to be outdone, the other parts of our business continue to make steady progress against their specific objectives. In our Research Services business, the team has been doing an excellent job building the backlog at a record pace. In the third quarter, we had our highest quarterly bookings in the history of the company.

Year-to-date bookings through the third quarter -- through the first 3 quarters were also the highest ever. The team continues to make excellent progress integrating and streamlining the technology platforms necessary to scale the business. We were also in active discussions with several parties as the potential cardiovascular component in their mHealth initiatives for clinical trials. There is a movement within the industry to find ways to bring clinical trials to the patient rather than bringing the patient into the clinic, which would provide a far more efficient way to conduct studies.

BioTelemetry devices, operations and infrastructure represent a clear best-in-class solution in this endeavor. 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. Additionally, our PHM business continue to make excellent progress. As mentioned, we entered into a partnership with Onduo. Under this arrangement, we will serve as a supplier of wirelessly connected blood glucose systems and the resulting data for Onduo's groundbreaking diabetes management program. This novel approach towards diabetes management brings together technology and medicine to empower people with this disease and those who treat them.

We also continued on work on a few other pilot programs, which could lead to large and exciting partnerships. To sum up our highly successful third quarter, while we spent a significant amount of time and resources on the integration of LifeWatch into our market-leading Healthcare Services platform, we did not lose focus, as evidenced by the excellent quarter just reported. It is also important to note we are ahead of schedule on our key milestones, and our performance metrics look outstanding.

As I mentioned on our last call, in 2018, we will service in excess of 1 million patients. Our revenue will be north of $380 million with an EBITDA margin in the mid-20s. And the company will be generating a significant amount of free cash, allowing for accelerated investments into other connected health solutions, solutions which will improve the quality of care and dramatically reduce the cost to deliver that care. In all, it's hard to find another company as well positioned as BioTelemetry, as we embark on the next big opportunity in health care today, the connected health revolution. Companies which can demonstrate proven solutions in this market will reap enormous benefits.

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 third quarter of 2017 marked our 21st consecutive quarter of year-over-year revenue growth with total revenue of $81 million. This represents a 53% increase as compared to the third quarter of 2016.

Healthcare revenue was strong with an increase of $29.1 million, resulting from volume increases, largely driven by the acquisition of LifeWatch and a 9% increase in pro forma MCOT volume. Partially offsetting these positive volume drivers were the lower Medicare rate that became effective January 1, which as expected impacted us by about $1 million as well as the storms that occurred in Texas and Florida in September, which we estimate impacted us by about $2 million.

On a pro forma basis, the Healthcare segment grew by 7.5%. And if we did not have the Medicare rate reduction, the revenue growth would have been 9%. Our research revenue decreased $1.1 million, largely due to lower cardiac revenue, partially offset by an increase in imaging studies.

Moving to gross profit. Our margin for the third quarter was 61% versus 62% in the third quarter of 2016. The decline in margin was primarily due to the impact of the Medicare rate reduction and the recent acquisitions, which carried slightly lower margins than our existing business. Partially offsetting these declines were volume-driven efficiencies.

Our third quarter adjusted EBITDA of $17.5 million was our highest quarterly adjusted EBITDA in the company's history and represented a 22% return on revenue. This return was what we expected and reflects the positive impact of targeted investments that we have made in the business and synergies realized in the acquisition of LifeWatch. Remember, pre-acquisition on a pro forma basis, the combined company's EBITDA return was approximately 18% and in less than one quarter, we were able to drive a 400 basis point improvement in EBITDA return.

To expand on these synergies resulting from the LifeWatch acquisition, as you know, we committed to the street $25 million to $30 million of synergies, I am pleased to note that we have already specifically identified at least $30 million and have realized approximately $3.5 million in the third quarter. We've incurred $7.2 million of cost in the quarter related to the acquisitions, including investment banking fees, consulting, severance and retention.

In addition, we realized $600,000 of one-time cost for patent-related legal expense. My original guidance was for approximately $15 million in the second half for one-time costs. While this is still an accurate number for cash cost, due to the acceleration of the integration, we may also incur some noncash charges related to asset write-offs for things such as intangibles, equipment and information systems that may not be utilized. We will update you in the future on these numbers.

Next, regarding 2017 taxes. As I mentioned on the first few calls this year, you will see some variation from quarter-to-quarter on our GAAP tax rate due to the timing of discrete items as well as the LifeWatch acquisition, with the current expectation that the full year GAAP tax expense will be approximately $2.5 million to $3 million. However, as we discussed last quarter, due to the utilization of the net operating loss carryforward, we expect our 2017 actual cash taxes to be about $1 million.

Moving to the balance sheet. We ended the quarter with $26.2 million in cash and $204 million of indebtedness, which was used to acquire LifeWatch and refinance existing debt. Year-to-date, we generated $10 million in cash from operations and used $12 million for capital expenditures. The CapEx was for additional devices in our Healthcare segment as well as a refresh of some hardware in our data center to support additional security protocols and the acquisition of LifeWatch.

Shifting gears, I will now touch on the outlook for the full year and the fourth quarter of 2017 as well as update you on 2018. Going into the year, we guided to low double-digit revenue growth with EBITDA return of about 23%. Our strategy has delivered strong results, which enabled us to achieve our year-to-date expectation and complete a significant acquisition.

We expect our full year reported revenue to be in the $283 million to $284 million range with an EBITDA return of close to 23%. For the fourth quarter, this represents about $88 million to $89 million of revenue, an EBITDA of about $21 million or about a 24% return in the fourth quarter. There will be one-time cash expenses related to the acquisition, including severance, redundant costs and retention in the amount of about $5 million to $7 million. This does not include the potential noncash charges I mentioned earlier.

We will end the year with approximately $22 million in cash. This reduction versus Q3 reflects the additional shares that will be acquired during Q4 for the squeeze out of the LifeWatch shareholders as well as increased capital expenditures as we prepare for 2018. We are still comfortable with our directional guidance for 2018 from last quarter of about 10% growth on our 2017 pro forma numbers, which should put us over $380 million of revenue and well over $90 million in adjusted EBITDA. We will continue to refine this outlook as we progress.

To summarize. Post acquisition, the company remains in a strong financial position with modest leverage and additional capacity, if needed. We just posted our 21st consecutive quarter of year-over-year revenue growth. As a reminder, at the end of September, we were less than one quarter into a major acquisition, and we were able to grow pro forma revenue in the Health segment by 7.5%, while driving a 400 basis point improvement in EBITDA. This is really extraordinary. These results and 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 will now turn the call back to Joe.

Thanks, Heather. As you've just heard, we had an excellent third quarter, building on the momentum we have cultivated over the last 5 years. Our strategy is yielding results we expected, and we continue to broaden our opportunities. We are in the early stages of several potentially significant drivers of future growth. The importance of the recent acquisition of LifeWatch should not be underestimated. This transaction has advanced our growth plans by several years and the organization is every bit as exceptional as we had hoped. We complement each other's strength for the benefit of those we serve. To ensure our continued success throughout the rest of the year and as we prepare to enter 2018, 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 roadmap 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 were now experiencing and converting that backlog into revenue; and leveraging various developing relationships to build out a world-class digital population health management business.

In summary, given our solid results, the strong momentum of our business, the stable reimbursement environment and greater visibility into the synergies created by the acquisition, we are tremendously optimistic about our future prospects. All in all, things are tracking better-than-anticipated. Were it not for the adverse weather in the first part of September, revenue would have been right on target and EBITDA slightly better-than-expected.

Heather spoke about what we expect in the fourth quarter and how we see 2018 beginning to take shape. By the time we enter 2018, most of the costs associated with reorganizing the merged business should be behind us, setting the stage for a spectacular year. We're also actively engaged in several negotiations, which we believe will lead to a few significant strategic partnerships, having the potential to increase our expectations for 2018 even further.

With the addition of LifeWatch, we are now the largest and most profitable connected health company in the world. This allows us to bring more scale and provide even better solutions for the larger chronic care markets, which have the potential to be enormous opportunities for BioTelemetry.

The company has come a long way in the past 5 years. As I look at the opportunities before us, I can confidently say our best days are ahead. We currently operate a powerful cardiac monitoring platform from a market-leading position, which has the potential to produce solid growth for years to come. On top of that, we can offer reliable solutions that allow us to capitalize on one of the main challenges in health care today, connecting patients and their data to care providers remotely. We are steadfast in our commitment to innovate and create connected health solutions, and we are confident those companies, who can bridge that divide will be amply rewarded.

As I close, I would, again, like to thank those of you, who helped deliver our 21st consecutive growth quarter, and I look forward to talking about #22 next quarter.

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 or comment comes from the line of Brooks O'Neil from Lake Street Capital.

The first thing I was just a little curious about is, it looked to me like the G&A number that you reported of around $20 million was a little bit less than I was looking for. And obviously, we start off with the presumption that my modeling skills have limitations. But was there anything unexpected in terms of costs in the quarter that you might point to?

So Brooks, you're saying that you modeled a higher G&A number?

I'm sorry. I modeled about $20 million. And if I read the press release correctly, it looked like it was about $25 million.

So one of the things that impacted the quarter was the amortization of intangibles that you may not have accounted for, that would have been about $2.5 million. That's probably the most significant item that I can think of. The other may be geography. My guess would be that margin was probably slightly better than you expected as well. So the other piece of it most likely is geography on the P&L.

Okay. And then I appreciated your comments about expenses related to the merger. I think you did say previously $15 million. I thought -- I recall that you've said you sort of thought 2/3 of it or the majority of it might be in Q3, and it looks now like more like a 50-50 mix, if I'm doing the math right?

Yes. So Brooks, there were some noncash benefits that hit that $7.5 million. So the actual, what will turn into cash expenses are closer to the $9 million number. So that's why you still have a little bit of a range in Q4.

Okay. And then I'm just curious obviously, there's a lot of talk of competition in the marketplace. Would you mind commenting at all about the competitive environment, whether you think you see any impact from new or more aggressive competitors out there?

No. I mean, look, our primary market is the connected health market. We think that's where the action is and that's where we've been focused for the recent past and for the foreseeable future. The competitive landscape -- I mean, there's always fierce competitors out there. I think or I'd like to think that we're holding our own being that we were the largest and the fact that we were able to grow through the first couple of months of this acquisition is actually remarkable. I mean, Brooks when you integrate 2 competitors like this, it is really not uncommon to have some customer churn in the 5% or sometimes 10% range. The fact that we are maintaining all of our customers. We've got revenue growth in there. We have MCT accelerating, that's unheard of. And again, it's only the first couple of quarters here or the first couple of months into the second quarter of the integration, but you just typically don't see that. So I think that is a reflection on how well the organizations have come together. How well the sales leadership team integrated the 2 organizations. Remember, I had to take them out of the -- we had to take them out of the market for the better part of a week in August to cross train them on products, and they still grew their business. So this is a pretty well-received merger and the integration is going much better than we had anticipated.

That's fantastic. I appreciate all that color. Just a couple more quick ones. I want to just confirm. I think I heard Heather say in the range of $385 million of revenue for next year and in the range of 23% EBITDA margin. Is that what you said, Heather?

Yes. So what I had given for the year was about $283 million to $284 million for the full year.

For this year?

For this year. For next year, I said we are comfortable with -- it'll come out with about -- little over $380 million.

$380 million.

Yes.

So Brooks, here's the way I wouldn't think about next. And again, it's going to, obviously, third and fourth quarter this year going to be a little bit noisy till we work through all the aspects of the integration and start to move into next year. Our business will go as MCT goes. And the fact that our MCT volume is already tracking above 10% is really good news for our business in 2018. If you look at what's happened so far this year, Healthcare revenue was up about 7%. If -- on a pro forma basis. If we adjust that for the Medicare rate cut we took, it's actually up closer to 9%, which is about the same rate that MCT volume is up. There was some question as to mix whether or not we were seeing ASP degradation in our MCT business. That's just not happening. So that business grows at 10%, it's a pretty safe bet that the company grows 10% or north of 10%. Our overall revenue was only up 5% adjust that for the Medicare rate about 6%, why? Because we had a drag on revenue this year from the Research business and from the Product business. So what's Research been doing all year? As the cardiac monitoring portion of Research slowed down, imaging has picked up. They have built backlog at a record pace. They have set themselves up for a really nice 2018. So you have 10% growth plus in the Healthcare Services business, you're going to have 10% growth plus in the Research business and our new business, our Telcare business is in its infancy. And we just announced one major partnership, we have couple of other ones that hopefully you'll hear about in the near future. So I got to tell you we're pretty darn optimistic about the way '18 shaping up. Obviously, the risk associated with that would have been, if we had a failed merger. This merger is going better than any merger I've ever been proud of in my entire career.

Fantastic. That's awesome. You mentioned, just quickly, Telcare. I just want to confirm that's the diabetes monitoring business you're beginning to grow?

That's right. We acquired the -- a small company back in late December 2016. And this year, we've sort of been nurturing it, making the kind of infrastructure investments and product investments necessary to grow the business. And -- as I've been working on a couple of pretty unique partnerships, one of which you just heard about.

Our next question or comment comes from the line of Nicholas Jansen from Raymond James and Associates.

First from me. It looks like your cost synergy estimate has gone up within about 3 months of closing the deal. So just wanted to kind of get a sense of where those incremental monies are coming from? And maybe just remind me how you guys are thinking about the revenue synergy opportunity because it doesn't seem like you've lost any customers yet. So I know you are holding that back on the revenue side just because you are fearful of maybe losing some customers as you combined the organization. So any thoughts on synergies would be helpful?

Well, so I mean, the cost synergies are coming in pretty much as we had anticipated, kind of one of the high end of our range. Where we had anticipated? No real big surprises. I think that over time, we'll do even a little bit better, mainly because we've got a pretty strong culture of driving efficiencies throughout the organization. We can put our hands on 30 today, which is kind of remarkable. We've taken actions to implement the majority of those. And note, again, we are not going to be all pulled through Jan 1, but they'll -- we plan to have a good portion of them done by then and then we'll pull them through over the next few quarters. At the outset of this, we said, it would probably take a full 18 months to get them all. No, it's probably not unrealistic. But the good news is we're in -- originally, we thought it would probably come 1/3, 1/3, 1/3 about $10 million in the first 6 months, $10 million in the second, $10 million in third. We were actually getting them at an accelerated rate. So we'll have the majority of this pull through in the first couple of quarters. And that's kind of really good news for us because it helps kind of pave the way for next year. In terms of revenue, look, we don't really know -- when we went into this merger, we didn't really know how the market would respond. We had anticipated it will be positive. We had hoped it will be positive certainly. We didn't think it would be this positive. And you have to remember, we haven't really even fully launched our next-generation MCT product. The nice thing is we'll be able to launch that as our first product as a merged company. We've got about 2,000 patients on it now. Feedback is unbelievable. The product is incredibly well received. We'll start to really launch that into the market coming first quarter with a 100 sales reps, a level we've never been at before selling these products. So I think it's positive. I think you'll probably see more revenue upside, but you just don't know. It's hard to put your finger on that, so we tend not to get out in front of that.

That's great. And then just maybe on that last point, in terms of kind of your technology roadmap. How do you kind of think about that the merging of the portfolios over time? Certainly, there is competitive noise across the marketplace. But just want to get your sense on maybe giving us an updated timelines as we think about that roadmap maturing over the next 2 to 3 years?

So I mean, the -- I think the focus right now is to fully launch our next-generation MCT product, which comes in 2 form factors, a patch form factor and a lead wire form factor, which we know is important to the market because not everybody responds well to wearing a patch for multiple weeks. So it was important for us to do that and do it right and maintain the same accuracy that we have in our current MCT product line, which as you know, no one's even close to that, right, in terms of sensitivity and specificity. So it's really important for us to keep all that and then put it in a form factor that was flexible for the patient base. We'll really -- we're there and that product is starting to roll out, that's a big focus. We've also, over the past year, launched a couple of extended wear products, new market niche, created by one of our competitors, where we can't keep up with it. Frankly, we're -- in the first quarter, we'll make a whole lot more devices to service that product line because we've been taking some business there at an accelerated rate, which is kind of a good sign for us. So what we have done over time is, our customer base appreciates a product portfolio approach, not a one-product approach. Clearly, when you get into the higher clinical end of the market, they want connected health products, they want feedback quickly, they want accuracy, and we can offer that. We have the most accurate systems in the market. We have the fastest turnaround time in the market, and we have the -- certainly the most cost-effective in terms of overall cost of care. Pretty good position to be in. For those who don't want connected products, we have product offerings for them as well, Holters, Events and now extended wear Holters, but the portfolio is really important.

Great. I can just squeeze one more, in terms of for Heather, cash flow expectations. As we think about that normalized adjusted EBITDA margin for next year north of $90 million. How do we think about free cash flow generation and your appetite either delever and/or potentially pursue more tuck-in transactions?

Yes, sure. So we'll continue to pay down our debt on the -- on schedule. We don't anticipate accelerating the repayment. It'll give us some cash in the war chest to be able to continue to evaluate additional opportunities, which we always are. And we'll continue to look for different things. So next year, with $90-plus million of EBITDA, even on a conservative basis, we're going to be well in excess of that $60 million mark in free cash flow, which obviously will provide us with some additional opportunities outside of paying down our debt.

It is important, though, like you mentioned, potential tuck-in acquisitions. And that's always a way to accelerate our strategic plan. Our focus in the near term is integrating LifeWatch and doing this right. And I think the early indicators are that the team is handling it quite nicely. So yes, we're always looking to augment that plan, but focus right now is integrate this platform.

Our next question or comment comes from the line of Matthew Keeler from SunTrust Robinson Humphrey.

Just a clarification on the impact of the storm. I think you said $2 million, does that disproportionally felt in the Healthcare business or was some of that with technology and research as well?

Across the board, we had a little bit of impact, but mostly, Healthcare. I think obviously that's the biggest portion of our business. So yes.

Got it. And so the MCOT volume growth was stronger than we were expecting especially in light of the weather, but it looks like it was more driven by the LifeWatch side than the BioTelemetry side. Is that correct? And can you give us any color around kind of the differential performance of those 2 businesses?

I'm not sure we're getting that, but, no, we saw growth across the board.

Got it.

And look, as we -- look, another thing to remember, I mentioned in my comments, we merged the 2 sales teams within the first 2 weeks of the acquisition. So those 2 sales teams are 1 now, and they represent the entire product portfolio, which means I have former LifeWatch sales reps doing an excellent job selling former CardioNet MCT products and vice versa. So we're not really looking at it that way. We're looking at in our ability to affect -- and we had reassigned reps along the way. The fact that we got through that process and accelerated growth is remarkable.

Got it. Maybe another way to look at it is, you gave I think 12.5% [indiscernible] adjusted MCOT growth in August and September probably mid- to high-teens ex storm impact is what I'm guessing and somewhat slower than that in July. So was there a disruption ahead or as the merger was immediately implemented. indiscernible [of that].

Yes. That's probably a better way to look at it, Matt. So I think if you went back and looked at both companies prior to the acquisition, you saw kind of decelerating growth. Why is that? Because neither side was hiring replacement sales reps, as you were moving into a merger. Merger takes time and resource away from kind of management focus. So we saw like both groups start to slow down a little bit. I can't remember our exact numbers, but they were probably somewhere in the 4% and 6% range in Q1 and Q2, so with kind of mid-single digits. We knew that was going to happen when you're running 10% vacancies in your sales group due to natural attrition that you're not backfilling, you're going to have some impact like that. That's natural. There was some inventory issues as well on kind of both sides. So -- or might -- maybe more on the CardioNet side, but once we kind of got through that, got the deal closed and we can merge 2 groups, you went from now having a group with 70 and another group with 40 people competing with each other in some of the same accounts to have at 100 people with consistent message, selling the product portfolio. I personally did not anticipate seeing that type of a ramp. It usually takes longer to kind of recalibrate the messaging, build relationships in new accounts, get people trained on different products, that all takes time. So I would have anticipated a little bit slower growth in that product line. We thought there would be some growth simply because of our size in the market, but and our positions -- both of our relative positions, but I didn't anticipate it being that strong. And like I said, we saw the same thing in October. So it's a really good 3-month trend. July was slower because we just -- that's when we were sort of integrating the business, and we were training the sales reps, we had them out of the field.

Got it. That's helpful. And then I guess, you commented on your ability to retain share, the cost cuts which you now have, I think you said 70% in [MCOT] share with LifeWatch in hand. I mean, do you think that level of share or around there is sustainable longer term?

I think we'll grow it. There's nobody even close to us in this market. There are some competitors that are formidable, but there's no one that had the technology that's even close to us. Remember, when you get into MCT market, it's not like the Holter market. Now you're talking about doctors who really care about accuracy, sensitivity, specificity, which your clinical research look like. Let me -- who else uses your product. When you can say every major Healthcare center in the country is using one of our products, that's pretty powerful.

Our next question or comment comes from the line of Bill Sutherland from The Benchmark Company.

Joe, did I hear you say the sales -- the combined sales force is around 100?

Yes.

Okay. So you just kind of wondering to what degree you rationalized it?

Well, if you go back and look at headcount. It was in place in 2016, which we tend to benchmark against, there was probably -- I don't remember the exact number, probably somewhere in the 25 to 30 range.

You mean total 125 to 30?

Yes.

We would probably -- we probably took about 25 to 30 heads [out].

Okay, I see. And so that's a key part of the synergies. Is the G&A that's 5 points higher, is that also a place we're going to see a big change as far as realizing the synergies?

Yes. So you're going to see it kind of across the board here, that's where the other large amount will be coming from.

And on Anthem, did you mention -- if you've gotten the subs kind of fully signed up at this point?

We got 7 of the 14 and we're contracting with the other ones, very slow process. We got a few more in the last quarter. So we had hoped to see more ramp out of that. We just haven't seen much yet, but hopefully 2018 will be better in terms of volume out of them.

And as you're getting -- so where are you roughly in terms of contracted revenue for MCT? I mean, for contracted?

You mean across the country?

Yes kind of like the percentage of the volume that's under contract?

I have to come back to you with that because I don't have an exact number. I think one way to think about it, is there's only a handful of payers that don't pay for it now. And we just talked -- once we get Anthem, there's a handful of other blues that still don't pay for it. And then there is some like with Anthem there's kind of relatively restricted coverage. So we're constantly working to improve coverage and to improve, who -- which insurance carriers are reimbursing for it.

The coverage [issues], so it's a whole ROI thing, given the different indications?

I could speak to you for a whole another hour about that, how frustrating it's been. It makes no sense at all. We have proven clinical superiority versus other modalities. We have proven return on investment. I have [indiscernible] guarantee that return and sometimes you got to wonder what they're thinking.

All you can do is take into the water. And then you mentioned roll out of other patch products beyond I guess NexGen, MCT and CardioKey?

That's what I was referencing. As opposed to [indiscernible].

Those 2?

Yes.

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

I just wanted to kind of follow-up on just a few questions. Most of mine have been asked and answered, but the product road map and rationalization, I think the last time you guys on a conference call talked about just kind of integrating everything, taking a look at the different roadmaps. Has that all been finalized as far as what products might be kind of be pushed to the wayside, if you will?

No. It's not been finalized. It's a work in progress.

Okay. Is there some sort of a timeline where that might be fully completed. And I guess, the sales team is pushing those particular products?

Yes. I don't want to go public with that yet just because it is a work in progress, there's a lot that goes into integrating platforms like that. I think we talked about that at the outset that, that would probably come on the latter part of this whole integration process. We have teams working on it. We have outside help with it. It's a fairly sizable undertaking. The good news is, there is a lot of similarity in technology. There is a lot of opportunity, we believe in the rationalization process. So we'll see it over time.

Got you. That's fair enough. And in terms of -- just a clarification on the MCT patch version. Did I hear you say that it was going to be launched out in Q1 of '18?

The MCT patch is already in the market. It's kind of a relatively confined rollout, which is typical with a new product. You want to get feedback from customers. I think we put it on roughly 2,000 patients so far. We're in the build process as we ramp up inventory. It'll be more of a push in the first quarter of next year.

Got you. And last quick question, in terms of the earlier question on the competitive environment. I'm just kind of wondering what you guys thoughts are on some of the, I guess, the wearable device companies that have come out with some little handy-dandy little features to their watches?

Can you be more specific?

Yes, well Fitbit had some details on a diabetes management that, that might be integrated into their wearable as well as Apple with some...?

Yes. So I think it's positive for the marketplace. In cardiac monitoring, we've heard about some of the initiatives from the -- more consumer device-oriented companies. I think it's really a positive thing, I think it's going to build more awareness. You're talking about potentially screening patients that are asymptomatic. If you think about the number of folks that are walking around with silent AFIB that end up in stroke, that's a pretty positive thing. And for us, we think it's a market driver because obviously these are not clinical grade products if you go to your doc and say, "Hey this is flagging on my device". The first thing that's going to do is, what a clinical grade product. And obviously, we have the best clinical grade products in the marketplace. So we kind of see that as a positive, and I think we'll watch it closely. We think there's opportunity for us to partner with some of these companies in the future. So again, I think it's positive across the board.

Got you. And real quick last one here for me, I apologize. Do you have a quantification as far as the headwind from the hurricane. What sort of impact that was on EBITDA and maybe EPS for the quarter?

So I mean, if you apply our standard margin, the 60% margin on the $2 million, that would be about the best guess.

Our next question or comment comes from the line of Mitra Ramgopal from Sidoti.

Just a couple of follow-up questions. First, Joe regarding the MCT growth you saw, I assume most of that was from your existing base or are you continuing to add new customers?

We continued to add new customers. And I could tell you that, I personally think you'll see us add more new customers in an accelerated capacity as we launch this new product.

Okay. And it seems like you're probably ahead of schedule. It sounds like in terms of the synergies and the integration with LifeWatch. I think initially, you had said you expected to get that $30 million of savings, I think in -- over an 18-month period, is that still sort of the goal? Or you think you might get that even earlier now?

We'll get it ahead of schedule.

Okay. And just on the sales force integration. It seems like it's been pretty seamless, no issues in terms of cultures being different or anything like that?

I wouldn't say no issues, but I would say it's going much, much better than anticipated. And again, I think that's attributable to the leadership team, that's in place and the quality of sales professionals that both organizations had recruited and built over time. I watched it come together, I attended some of the training sessions, and I've personally never seen it as well done. So it was really important to do that because obviously that's your face and your primary mechanism for relating with your customers.

Okay. And then just to be clear regarding the hurricane impact, no lingering effects into 4Q, it's pretty much all 3Q event?

Yes. That's correct.

I'm showing no additional questions or comments in the queue at this time. I'd like to turn the conference back over to Mr. Joseph Capper for any closing remarks.

Thanks, operator. Appreciate everyone's time and attention today. I just want to kind of reiterate one thing I talked about and that is, as we entered this integration or this acquisition and into the integration phase, I've consistently tried to focus people on 2018 because I knew that Q3 and Q4 were going to be a little bit noisy as we integrate. I got to tell you we're doing much better than I thought. I mentioned it a couple of times on this call, I certainly didn't anticipate double-digit growth in MCT this soon. That really bodes well for 2018. The record level of backlog that the Research Services team has built really bodes well for 2018. Some of the relationships that we're building in the PHM business really bode well for 2018. The integration is going much, much better-than-anticipated. Whenever you enter into an acquisition/integration like this, risk of culture clash, risk of customer attrition, risk of employee exits. All those things have been addressed and we've kind of passed through them. So we're really feeling comfortable out where the business is today. Talk to you guys next quarter and hopefully it will be an even better one than this one. Thanks.

Ladies and gentlemen, thank you for participating in today's conference. 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, November 21, 2017. This concludes the conference. You may now disconnect. Everyone, have a wonderful day.