Heartbeam Inc (BEAT) 2018 Q1 法說會逐字稿

Good afternoon. Thank you for joining us for the BioTelemetry First Quarter 2018 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 within 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) And it's 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 first 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 throughout 2018.

After our prepared remarks, we will open up the call for questions. I'm incredibly pleased to report on another outstanding quarter, during which we exceeded all of our expectations and again, set all-time highs in revenue, EBITDA and EBITDA margins, marking our 23rd consecutive growth quarter. It comes as no surprise that we are generating such consistent results because we know that our business strategy is well suited for our markets, it's not easily replicated and we're successfully executing on it. As you will hear today, we operate from a position of strength versus the competition.

At the close of Q1, we were the better part of 3 quarters into the integration of our health care business post the acquisition of LifeWatch, and we remain well ahead of schedule on all key milestones. We have the largest and most productive sales force in the industry, a vast network of covered lives, selling the most comprehensive suite of cardiac monitoring solutions. Now, with even more options from which the physicians can choose.

Our research division is also experiencing accelerated growth. Building backlog and converting it to revenue at a record pace. We continue to develop strategic relationships in our digital population health business and support the advancement of the Apple Heart Study, both which have the potential to drive significant future growth.

Given these factors, we expect our positive momentum to continue as we have an abundance of opportunities on which to capitalize.

Before I provide more details on these and other projects, it is important to mention that this type of sustained performance does not happen by accident. It arises from the highly successful execution of a thoughtful plan. The primary themes of which are 2, go deeper and wider in cardiac monitoring in order to expand our leadership position, build upon our leading Research Services business by expanding our service offerings and identify other markets that would benefit from the application of our wireless platform and proprietary technology.

I remind you of these 3 objectives at the outset of every call to provide an understanding of how we are allocating our time and resources. All of our strategic and tactical activities stem from these themes, providing the frame work for the nearly 6 straight years of consecutive quarterly growth, with this last quarter being the most exciting to-date.

Let's review some of the Q1 highlights. During the period, revenue grew by 69% to $94.5 million, exceeding the upper end of our expectations by $2.5 million. Organic revenue growth was an impressive 11%. Overall margins continuing to improve, as quarterly EBITDA grew by 118% to $23.6 million, again, far exceeding our expectations. We ended the quarter with $36 million in cash, up slightly in the quarter in spite of certain front-end loaded expenses. MCT volume was up 10% on a pro forma basis. Our Research Services team continued to expand backlog well ahead of expectations and finished the quarter up an impressive 21% in revenue year-over-year. We continued efforts to build upon our new digital population health management business through key partnerships and internal investments, and we spent more time evaluating additional growth opportunities. Taking a closer look at the Healthcare Services business. We see exceptionally positive trends, especially at this stage of the LifeWatch integration. As a reminder, we took operational control of LifeWatch on July 24 of last year and we have made tremendous strides during the first 3 quarters of the integration process. In addition to a $30 million synergy objective, at the outset of the integration process, I highlighted our intention to adopt best practices and focus on providing superior customer service to ensure maximum customer retention and continued growth. As you can see, these efforts are paying off even better than expected. The $30 million synergy objective is well within reach. Much of the work to achieve this goal has already been completed and the rest is well underway. This will be achieved. As I mentioned on our 2 previous calls, we continue to have tremendous success retaining and growing revenue in our largest and most important accounts. In our top 500 accounts, which represent more than 1/2 of our Healthcare revenue, sales continued to increase. The MCT product line grew by 10% in the quarter, making it our third consecutive quarter of double-digit pro forma MCT growth, a remarkable achievement during a major integration. This is being driven by the continued market release of our latest version of the MCT.

As a reminder, this system incorporates our unparalleled arrhythmia detection capability in a product that can be configured as a patch or use lead wires when patients prefer not to wear a patch. And our extended-wear Holter products, CardioKey and ePatch really started to pick up steam. I will likely refrain from discussing specific metrics in this category for at least a few more quarters given our newness to the category. Suffice it to say, at this juncture, the growth rate is incredibly high. This sustained outperformance is being driven by a sales organization whose capabilities are second to none in our industry.

With productivity of more than $3.2 million of revenue per sales professional, our extensive product portfolio includes the most accurate and advanced technology in the marketplace, which generates the highest yields and the fastest turnaround times for more than 30,000 physicians who prescribe our products each month. Given our innovative products and the team we have assembled, it is a good bet that we will continue to expand our leadership position in the cardiac monitoring market. As I mentioned on the last call, while much of the attention has appropriately been on the transformational acquisition and integration of the LifeWatch business, the other parts of our company continued to make steady progress against their specific objectives.

Our Research Services team built on the momentum established in the second half of 2017. In the first quarter, the Research business had a record high quarterly revenue growing 21% over prior year quarter, the second consecutive quarter of at least 20% growth, which is more than twice that of the industry.

Backlog continued to move upward, growing 50% year-over-year, and again, sits at a new record high, which bodes well for future revenue growth. And we continued to make progress in our efforts to streamline operations and make the necessary investments to ensure scalability. This segment of the company has never been better positioned than it is today. It will be exciting to see this business continue to blossom as we explore investments in complementary services and further geographic expansion outside of the U.S.

The Healthcare and Research Services divisions, which together account for over 95% of the company's revenue, are firing on all cylinders, growing at double digits and far surpassing expectations. As a result, we have the luxury of spending a bit more time and resources developing additional opportunities for revenue growth. As previously discussed, we continue to support the Apple Heart Study, as they attempt to validate the use of their watch as a screening tool for heart rhythm abnormalities in the general population.

Apple has made it clear that the watch is not a diagnostic tool and not on the path to becoming a regulated medical device. However, this initiative does have the potential to expand the cardiac monitoring market by alerting undiagnosed patients of their need for cardiac monitoring and potential treatment. Our participation leverages our gold standard arrhythmia monitoring technology and the world-class project and data management of our research division. Additionally, we continue to nurture our digital population health management initiative in the diabetes market, which is gaining traction and has the potential to become a large business for BioTelemetry.

In recent months, we have concentrated on preparing the business for scale and supporting several key partnerships. These are just a few of the many opportunities that lie ahead for the company. Using a combination of internal and external expertise, we have formalized the process for evaluating the numerous connected health technologies, solutions and markets to understand where we can best leverage our capabilities. It will be exciting to see how this process unfolds, as no other company is as well positioned as BioTelemetry within the rapid -- rapidly expanding connected health space.

To sum up, we are thrilled with our strong start to the year. We are ahead of schedule on all key milestones and our performance metrics look outstanding.

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.

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 first quarter of 2018 marked our 23rd consecutive quarter of year-over-year revenue growth, with total revenue reaching $94.5 million. This represents a 69% increase as compared to the first quarter of 2017. Healthcare revenue was very strong with an increase of $38 million, resulting from volume increases, driven in large part by the acquisition of LifeWatch and a favorable product mix.

On a pro forma basis, the Healthcare segment grew by 12%, with a 10% increase in pro forma MCT volume and significant increases in the extended-wear Holter volumes. Our research revenue increased 21% or $1.9 million, largely due to a higher volume of imaging and cardiac studies resulting from new customers. Other revenue was down $1.3 million due to a large onetime sale made in Q1 of 2017.

Moving to gross profit. Our margin for the first quarter of 2018 was 61.4% versus 58.9% in the first quarter of 2017. The increase in margin was primarily due to synergies and efficiencies from volume increases and the acquisition of LifeWatch, as well as favorable product mix. Our third quarter adjusted EBITDA of $23.6 million was our highest quarterly adjusted EBITDA in the company's history and represented a 25% return on revenue. Typically, the EBITDA margin declined slightly in the first quarter due to certain expenses that occur only in Q1, such as our national sales meeting and the resetting of payroll taxes. The fact that we were able to maintain our margins in Q1 compared to Q4 is a reflection of the positive impact of targeted investments that we have made in the business and the successful integration of LifeWatch. Remember, preacquisition, on a pro forma basis, the combined company's EBITDA return was approximately 18%, and in less than 3 quarters, we have been able to realize a 700 basis point improvement in our return. To expand on the synergies from LifeWatch, as you know, we committed to The Street that we would deliver $25 million to $30 million in synergies. I announced previously that we had already specifically identified $30 million of savings. In the first quarter, we realized approximately $7 million in synergy savings, bringing our total amount realized to-date to $15.5 million.

Looking at the tax rate. As you know, the company is currently utilizing its NOLs, and the only cash taxes that we are paying are for state taxes. Our GAAP tax rate for the quarter was a benefit. But we expect our full year statutory expense to be about 27%, with the actual cash taxes due of about $1 million.

Moving on to the balance sheet. We ended the quarter with $36 million in cash and $204 million of indebtedness, which was used to acquire LifeWatch and refinance our previous debt. Year-to-date, we generated $9.1 million in cash from operations, and during the quarter, we had several onetime cash outlays totaling about $8 million. In addition, we used $3.9 million for capital expenditures, largely for additional devices in our healthcare segment. And free cash flow was $5.2 million.

Before touching on the second quarter 2018 outlook, I wanted to mention the new revenue recognition standard also known as ASC 606. While you will see an expanded disclosure in our 10-Q, the new standard did not have a significant impact on the way we record revenue. Shifting gears, I will now touch on the outlook for the second quarter of 2018. Last quarter, we guided to 2018 full year revenue guidance of over $380 million and EBITDA of over $90 million. This represents a 10% organic growth rate on the top line and an EBITDA return of about 24% to 25%.

We have seen the momentum we experienced in the back half of 2017 continuing. Adding to this momentum is the positive impact from the recent full commercial launches of our MCT and extended-wear Holter patch products, the introduction of our entire suite of products into the legacy LifeWatch account and the positive impact of synergies and operational efficiencies.

Looking at the second quarter, we are expecting revenue to be approximately $95.5 million to $96.5 million, and EBITDA of about $24 million or a 25% return.

To summarize, the company remains in a strong financial position with modest leverage and additional capacity if needed. We just posted our 23rd consecutive quarter of year-over-year revenue growth. We are ahead of schedule on the integration of LifeWatch and are seeing the tangible benefits.

In less than 9 months postacquisition, we grew pro forma revenue by 11% and drove a 700 basis point improvement in our EBITDA return. These results and consistent growth have 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 turn the call back over to Joe.

Thanks, Heather.

As you've just heard, we had an outstanding start to the year, exceeding all expectations while recording our 23rd consecutive quarter of year-over-year revenue growth. We have positioned the company for another record-setting year in 2018. Our strategy is yielding the results we expected, and we continue to broaden our opportunities.

The LifeWatch acquisition has advanced our growth plans by several years and we are now in the early stages of several potentially significant initiatives which could become drivers of future growth. To ensure our continued success throughout 2018, we will focus on; completing the integration of LifeWatch, expanding our comprehensive approach with the ongoing promotion of a series of patch products, both MCT and extended-wear Holter, continuing to grow our Research Services backlog at the accelerated rate we are now experiencing and converting that backlog into revenue, building out our digital population health management business and expanding on key partnerships we have developed.

Given our excellent results, the momentum of our business, the stable reimbursement environment and greater visibility into the synergies created by the acquisition, the company is incredibly well positioned for continued success. With such a strong start to the year, we are comfortable reiterating our revenue guidance of above $380 million, which may prove to be a bit conservative. We still expect an EBITDA margin in the mid-20s. Moreover, we expect the momentum seen in Q1 to continue. And if that's the case, we will adjust our guidance accordingly.

To summarize, we currently operate powerful cardiac monitoring and clinical research businesses, which have the potential to provide solid growth for years to come. With the LifeWatch integration well in hand, our job now is fairly straightforward. We need to execute our plan in an industry we know extremely well. With LifeWatch now onboard, we operate from a position of strength that we have never enjoyed before, and which is unmatched in our space. We have a proven strategy, exceptional products and excellent sales and customer support. We know what needs to be done and we have the organization to carry it out. I welcome any comparison of BioTelemetry to the competition. I know I certainly wouldn't want to compete against us. Furthermore, our powerful services platform gives us the ability to commercialize additional innovative connected health solutions. As mentioned, we plan to be more assertive during 2018 in developing these opportunities. As you have no doubt surmised from our comments today, we have never been more excited about the future of BioTelemetry. I would again like to thank those of you who helped deliver our 23rd consecutive growth quarter. As we continue to build on this success, please remember that more than 1 million people will trust us this year to provide them with the superior service for which we are known.

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 Bruce Nudell with SunTrust.

We recently put together a -- hey, we put together a schematic model describing the pricing method Medicare may use to set a permanent reimbursement level for extended Holter, based on what they did with traditional Holter. Barring an improvement in outcomes, such as stroke reduction, it does seem there could be up to $100 of downside risk to the $300 technical fee. That said, no one seems to think anything will be done over the next 3 or 4 years. Hence, the question is, whether BEAT's likely to get much more aggressive in that segment, given that the profit margin for extended Holter, even at a lower price point, is likely to be attractive relative to that of a traditional Holter.

Yes. So a couple of parts there. One, you talked a little bit about the pricing strategy -- the pricing plan or a process to get permanent pricing, and coding for this new category, as you know, is still under a temporary code. We will participate in that process as much as we can. I think it's a good thing to get it permanently priced sooner rather than later. I don't want to speculate on where that will end up. But I do think it will be better than traditional Holter, right? So the second part of your question is, given that, would we be more aggressive in going after that market. And the clear answer is, yes. In the first quarter of this year, we started to put more emphasis on that. Again, in my comments, I said I was going to refrain from talking about what those specific metrics are in terms of volume and growth, just because it's kind of early on. And to be candid, the growth numbers are obnoxious. They're really high because we're working off of a relatively low base. But the important thing is we have -- the entire sales organization is -- now has access to the product. And is responsible for selling it. As you may recall, LifeWatch did not have an extended-wear Holter. So getting the rest of that sales team up to speed on the product was an important step.

And my follow-up is, you guys have very interesting view of how to segment the market. You kind of put MCOT in the same sort of patient genre as Event recorders and extended Holter in the same sort of patient genre as traditional Holter. And like when you do the math on that, MCOT could grow sustainably for like 10%, with Event recorders kind of being flat, and the whole thing, that whole subsegment growing at the rate of elderly population growth. And you could do the same thing for extended Holter, except grow 20% with just minor declines in traditional Holter, and still have very plausible aggregate growth. So could you just elaborate on how you think about these markets and how you think MCOT will start eating into Event recorders and traditional -- extended Holter into traditional, where -- and still have very nice growth rates in higher-ASP products with overall units kind of residing at a growth rate that's very plausible and defensible?

You just summed it up beautifully. What else do you want me to add to that? You're exactly right. I mean we're -- what we see is, that the extended-wear Holter niche really is cannibalizing a little bit of the traditional 48 hour Holter business and maybe a little bit of the Event business, we see some of that getting pushed downstream. And then, MCOT continues to grow. And maybe -- at somewhat at the cost of Event. But also, new market opportunity. So I think you summed it up pretty well. I mean, when the arrhythmia gets more serious, when the doctor is more focused on accuracy and turnaround time, they go to MCOT. And the only time, in my mind, the only time they wouldn't if they were to -- still the 2 most important drivers as if there wasn't reimbursement coverage for the product. And they would default to a lesser technology like Event or extended-wear Holter.

And our next question comes from Brooks O'Neil with Lake Street Capital.

I have a couple of questions. So would it be reasonable to assume that the strong and relatively quick realization of synergies might suggest to you a potential for greater than $30 million of realized synergies on an annualized basis? Or are you still thinking that $30 million number is in the right ballpark?

At this stage of the game, we're still comfortable with the $30 million number, Brooks. We're 3 quarters into this. As we've talked about, and Heather mentioned, we've identified it. But sometimes you run into dis-synergies along the way that you didn't anticipate. So I think it'll be irresponsible for us to kind of stretch that rubber band publicly any more than we have stated. If we get more, wonderful. But right now, we're comfortable with $30 million to the public.

Great. That makes sense to me. One thing I noticed in your commentary and press release is your comments about strategic relationships. Obviously, we're aware of your partnership with Apple and their Heart Study and the work you're doing with Sanofi and Alphabet. Is it reasonable to assume you are either working on or have some additional strategic relationships that might be significant?

I think it's reasonable to assume that we're working on other projects that could be fairly significant.

Great. And would we assume that's in the area of cardiac monitoring and diabetes or are you beginning to put your toe in the water in other places?

I would say, we are -- we look for opportunities across all of the areas that we participate in today. Look obviously, we just made a huge acquisition in cardiac monitoring. So if you think about developing the business longer term, some of the other categories might be a bit more attractive to us. But we wouldn't say no to good opportunities within the remote cardiac monitoring space either. We know it. No one is better at it. You've seen what we can do with an acquisition in terms of integration and pulling through synergies. So I wouldn't rule it out. But the other one start to become a little bit more attractive to us. Short answer, we're looking across a variety of different areas or opportunities within the connected health space.

Great. That's very helpful. And then last question for me is, based on what you've seen so far, and I detect your enthusiasm for the patch product on the Holter side as well as what you're seeing on the MCOT side, but is there any reason to think your Holter patch product could become bigger than your MCOT business over time?

Oh, I don't envision that, Brooks. You're talking about a lower price point and volumes that are probably, at best, on par or maybe lower. So I -- ask me that in another 4 quarters.

Yes. But for right now, you still think the MCOT business is both growing nicely and will remain the core of your business on the cardiac side?

That's correct.

And our next question comes from Marco Rodriguez with Stonegate Capital Markets.

I was wondering if I could maybe follow-up here on the launch here on the new MCOT and extended Holter. It sounded like you've got your sales team just trained up here. I just want to make sure, that is everybody trained up in terms of their ability to sell those? And if maybe you can kind of talk a little bit about any sort of marketing efforts that you're rolling out for those 2 products?

Yes, everyone is trained up on it. And nothing -- I would say, nothing terribly different in terms of marketing. Most of the marketing is kind of sales support in this space. Doesn't really lend itself to direct to consumer, we'll do industry advertising, trade show advertising, things of that nature. We are in the process of rebranding the business, leaving behind the CardioNet name and the LifeWatch name, and rebranding everything under BioTel Heart. And so, that entails a lot of communication to the marketplace. A lot of systems upgrade, so on and so forth. So I think the important message here is, everybody is trained. And just as importantly, they have access to enough inventory. Remember, when you're in a beta phase, like we've been -- like we were in the second half of 2017, you don't necessarily go into full production. So you have limited product available. Even if demand starts to skyrocket, it takes a little bit of time to meet that demand. By the end of the third quarter, we're where we need to be to meet as much demand as we anticipate for the rest of the year.

Got it. That's helpful. And then in terms of the Research Services, maybe you can talk a little bit about the conversion. It kind of sounds like the conversion of your backlog, the revenue is kind of accelerating at a higher pace than you had normally expected. Can you talk a little bit about that?

Yes. I mean they just got a whole lot better at the way they market the services. Remember, to go -- take you back a bit. In 2016, we acquired a company called VirtualScopics. And the reason for that acquisition was we felt it was important to add additional service lines to our cardiac safety business to make it more competitive, right. Some of the sponsor's feedback was, you're a more attractive vendor to us if you can bring more than one solution to the table. It took a while to get that -- those 2 businesses integrated and start to cross sell in the respective accounts that they had. That started to take off in '17. We started to win more preferred provider physicians, access to more bids and winning more bids. So we see the pipeline accelerate, that feeds in the backlog. Backlog starts to grow quite a bit throughout '17 in the second half. And then, that starts to convert into revenue. The good thing is, it's not like we had a big chunk of backlog that moved into revenue and then we didn't fill the backlog. The backlog continues to grow as well. So this is -- could be a choppy business. But with this kind of backlog and this kind of conversion rate, we're pretty comfortable with how it's growing this year.

Got you. And in the last couple of quarters, you obviously called out you're close to about 20% growth rate year-over-year. Do you think that's kind of sustainable through fiscal '18?

I think we said a little bit lower than that when we put our numbers out. If we get to 20%, we'll exceed the numbers by a little bit. Remember, this is still only about 11% of our total book of business.

Sure. Last quick question here, just coming back on the synergies, so you have roughly, if I remember -- I got the numbers right, $14 million to $15 million left on synergies from LifeWatch acquisition. Is that all going to come in Q2 or should we kind of expect some sort of a spread between Q2 and Q3 of this fiscal?

Yes so, Marco, on an annualized basis, so Q1, we recognize $7 million in savings. So on an annualized basis, we're actually up to that $28 million, [more]. So the incremental amount will come in Q2 to get to that $30 million and yes.

And our next question comes from Mitra Ramgopal with Sidoti.

Just a couple of questions. First, Joe I know you mentioned in terms of the revenue, certainly a little better than what you're expecting. And I was just curious in terms of what might've surprised you?

Surprised me? I don't know that I would use the word, surprise. Look, Heather and I both have a track record of taking a relatively conservative approach when we forecast the quarters in the year. And especially when you're in the middle of an integration where there might be some things that you just don't know. So we put our best foot forward at the time. We had hoped to do better. And the performance was there. So maybe we were a little bit too conservative in our forecast. I don't think that, that's a bad thing. But I wouldn't characterize it as being surprised. I would say we were very pleased with the execution of the team. I think things are happening as we had anticipated. We're not running into any of the real big adverse or dis-synergies that tend to happen. So the things are kind of trucking along at a very nice clip. If we were surprised -- if we were kind of pleasantly surprised at all, it was the quick uptick of the extended-wear Holter business once we had product and a fully-trained sales organization. And so, during the quarter, we saw really nice growth and we will see if that continues into the second and third quarter. I anticipate that it will. We'll see what kind of impact that can have on the business.

Right. Okay. I guess, from a LifeWatch's perspective, that's tracking as much as you would expect. And obviously, organic side remains very strong. So I guess all in, you're right. Maybe just a little conservative on the guidance. The other thing I was going to just touch on was, I know something you've been working on is obviously expanding reimbursement agreements or payer coverage. I was wondering if you have any updates on that front.

No. I mean the big one for us last year was Anthem. And then once we got a contract with them, it took a long time to get the individual Anthem subs contracted. And we just kind of finished that up late last year into this year. So I think we have them all contracted as we speak. The next step is really making sure that, as we grow this extended-wear Holter product line, we have that added on to all of our existing contracts. The good news is we have existing contracts, not like you're going in and starting a new relationship. It's you modify the current contract to add additional product.

Great. Okay. And I'll ask final question. It seems like you also got some favorable pricing in the quarter. Is that fair to assume or?

Yes, it was largely as a result of mix. So just, better payers and products.

And our next question comes from Gene Mannheimer with Dougherty & Company.

Did you talk at all about non-MCT volumes, what the growth looks like outside of MCT?

We didn't break it out, right? So we said, most of the growth is coming from MCT and extended-wear Holter. The other category is a traditional Holter category and Event are giving up a little bit to those 2. Maybe down a little bit. But overall, the 2 categories that we're focused on are growing quite nicely. I did not talk about the specific growth rate of extended-wear Holter. My point was it's kind of early on and the numbers are kind of gaudy at this point in terms of percent growth. So I want to wait on that for a little bit.

Right, Joe. So I respect that. So when do you think it might be appropriate to start giving those metrics around that extended Holter in next-gen MCT business?

As soon as I can. I don't want to commit yet. Let me just see how the business develops a little bit more. If I tell you 200% to 300% growth in the first quarter, you're going to be like, okay, then what's the second quarter? I don't know, but it's probably not 200% to 300%. So let it sort of set -- let it settle in a little bit for a couple of quarters and then we'll start giving you numbers that you can model off of.

That make sense. And when you talk about extended Holter, are you including both CardioKey and the ePatch in that category?

Yes.

Yes, yes. Anything we can bill under the extended code.

Right, right. Very good. And just switching gears to Research Services. It sounds like the outperformance there was coming from mostly the cardiac safety side, how about the performance on the imaging side of the business? Is that pretty steady?

I'm sorry if we communicated that, Gene. Most of the growth is coming from the imaging side. The cardiac side is actually been kind of flattish maybe up a smidge but most of that growth is coming from imaging.

Okay, okay. Well -- and -- but correct me if I'm wrong, but don't you have a record backlog in cardiac safety too or is that not the case?

We don't break it out. We would say we have a record backlog in the business.

Okay, okay. Very good. And is there any monetization potential from the Apple Heart Study that you can share with us at this time?

No, not really at this time.

And our next question is from Bill Sutherland with The Benchmark Company.

On gross margin, Heather, how should we think directionally since it was so much -- well, it was better than my model in the first quarter?

Yes, for the rest of the year, Bill?

Yes just kind of in general. I know you have some seasonality to think about, particularly third quarter but...

Yes, so it was slightly higher as we were able to pull in some synergies that we weren't expecting into Q1. And we were able to get them a little bit earlier. So we had guided kind of to that 61%, 62% range for the year. And I still think that's an appropriate range right now, as we get into the year and see what we are able to do from an efficiency standpoint. We'll keep you updated on that. But I think that 62% number is a pretty good number.

And that's -- it has more to do with that than the product mix? The efficiencies?

Yes. So the product mix helped in the quarter but we expect that product, that favorable product mix to continue throughout the year. Whether or not it increases or not, I can't speak to, but at least from a stabilization standpoint. So I wouldn't expect the gross margins to decline at all.

Okay. And are there going to be discreet rebranding costs this year or -- I'm sure it's all embedded in your guidance, but kind of curious what they come to.

Yes. No, so there's nothing of note. It's all been either -- it was either taken care of last year or already included in what we talked about.

Okay. And Joe you mentioned expanding the patch product or the technology across more products. Do you want to elaborate on that at all?

Give me more detail what you're looking for?

Well, you said in your summary, some things that you're going to continue to push on and I thought 1 was additional ePatch applications. Maybe I misheard.

Yes. So I think the point we were trying to get across is that we're getting a little bit more -- because of the position the business is in and because of the opportunities across, what we'll call, connected health spectrum. We think that we should spend a bit more time and resources on developing new opportunities. So some of that may fall within the cardiac monitoring space, some of it may fall within research, some of it may fall within the PHM business that we've already invested in. Some of it may be other connected health opportunities. Where we can use our technology, like ePatch, to develop other applications, other means of use we will do that. I didn't specifically break that out, nor am I prepared to comment on any specific opportunities there. I think the point is in general, we'll get a bit more aggressive now that we feel like we've got a good handle and control over the LifeWatch integration. Obviously, completing the integration is of upmost importance to us, that's why I said it was our #1 priority as we finish out the second half of the year. We don't want to get complacent with that, because there still is a lot more opportunity to squeeze out of it. But we're at that point where we are starting to look at what else do we do with this platform.

Got it, and then on Anthem, I know you got all the subs in now for the cryptogenic stroke indications. Are you going to try to expand indications with them or any other major [peers]?

Yes, that's a continuous effort wherever we see opportunities to do so. That's an ongoing effort within the company.

Yes but nothing kind of underway at this point the way you nailed down cryptogenic last year?

Nothing to report, no.

Thank you. And this does conclude our Q&A session for today. I'd like to turn the call back over to Joseph Capper for any final remarks.

Terrific. Thanks, everybody. Thanks, for your continued support and interest in the company and we will speak to you next quarter. Operator, that concludes today's 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 Wednesday, May 9, 2018. This does conclude your program, and you may all disconnect. Everyone, have a great day.