Heartbeam Inc (BEAT) 2018 Q2 法說會逐字稿

Good afternoon. Thank you for joining us for the BioTelemetry Second 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 Litigation Reform Act of 1995.

Such statements involve known and unknown risks, uncertainties and other factors, which may cause 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 throughout 2018. After our prepared remarks, we will open up the call for questions.

We have an abundance of good news to share on today's call. As you will hear, BioTelemetry is performing exceedingly well, with superb progress in all areas of focus. Since I joined the company in 2010, we have concentrated on increasing market share, advancing our product technology, strengthening our intellectual property and developing additional opportunities for growth. Those of you who have followed the company know we've made great strides in each of these categories. We have also added key components along the way, making us a far more formidable competitor. And now, with LifeWatch on board, we operate from a position of even greater strength. I can say without hesitation that we are unmatched in the field of remote cardiac monitoring and we are enjoying tremendous success as a result. In fact, we have just recorded our 24th consecutive growth quarter, during which we exceeded all expectations and again, set new highs in revenue, EBITDA and EBITDA margin, that's 6 straight years of strong performance.

In the second quarter, we achieved a notable milestone much sooner than anticipated as we crossed over the $100 million quarterly revenue mark for the first time. We are achieving these growth objectives well ahead of schedule for several reasons, not the least of which is the continued successful execution of our strategic plan. Specifically, over the past several years, we have put greater distance between BioTelemetry and the competition by going deeper and wider within the remote cardiac monitoring market. Our success has been bolstered by multiple well-conceived product introductions and enhancements, adding to the most expansive portfolio in our industry, and by completing a series of key strategic acquisitions, the most recent being LifeWatch.

Furthermore, as we expected, our research division continues to benefit from our focus on expanding service offerings. The addition of an imaging capability a few years back has dramatically improved the growth of this market-leading business, which is building backlog and converting it to revenue at a record pace. And more recently, we have been leveraging our wireless platform and proprietary technology to develop new opportunities for future growth in digital population health and other areas.

While it is still too early to make bold predictions about the developing population health business, the size of this market and its clear unmet needs create a scenario whereby we could envision this business becoming the company's largest revenue contributor at some point in the future. Each segment plays an important role in our overall growth plan. A cornerstone of our strategy is having the largest and most productive sales force in the remote cardiac monitoring industry, connecting a portfolio of technologically advanced products to a vast network of covered lives. This combination has fueled our growth and allowed us to invest in the other segments of our business.

Given our exceptional first half results and our confidence about the future, we are increasing our guidance for the remainder of the year, which Heather will cover in more detail. But first, I want to share more information about our performance in the second quarter.

During the period, revenue grew by 74% to $101.4 million, exceeding the upper end of our expectations by $5 million. Pro forma organic revenue growth was an impressive 14.5%. Overall margins continued to improve as quarterly EBITDA grew by 108% to $29.1 million, again, far exceeding our expectations. We ended the quarter with $39.4 million in cash, up slightly in the quarter in spite of certain onetime cash outlays. MCT volume was up 11% on a pro forma basis. Our Research Services team continued to expand backlog well ahead of expectations and finished the quarter with a stunning 31% year-over-year revenue growth rate.

We continued efforts to build upon our new digital population health management business through key partnerships and internal investments. And with most of the integration of LifeWatch behind us, we had more time to map out future growth opportunities.

As we take a deeper dive into our Healthcare Services business, we see exceptionally positive trends, especially at this stage of the LifeWatch integration. Yesterday marked the one-year anniversary from the time BioTelemetry took operational control of LifeWatch and began the integration process. At that time, we committed to an aggressive $30 million synergy objective, a target we have now surpassed.

Another important focus has been on retaining and growing revenue in our largest and most important accounts. We continue to have success achieving this objective as well. In our top 500 accounts, which represent more than half of our Healthcare business, revenue continues to increase. In fact, the overall Healthcare segment pro forma revenue grew by 16% in the quarter, fueled by the tremendously successful launches of our latest generation MCT and our extended-wear Holter both in patch-form factors. We are highly encouraged by the acceptance these products have received.

The new MCT system helped this product category grow by 11%, making Q2 our fourth consecutive quarter of double-digit pro forma MCT growth, a remarkable achievement during the first year of major integration.

As a reminder, this new system incorporates our unparalleled arrhythmia detection capability in a product that can be configured as a patch, or use lead wires on patients who prefer not to wear a patch. although, early in its release, we have seen an interesting development with the new MCT product. As we convert accounts to the new system, they are showing accelerated same-store growth.

Obviously, this could be a very exciting opportunity for the business if this trend continues. And our extended-wear Holter products continue to gain share, with incredibly high market penetration rates. Since it is relatively early in the full market release phase for these products, it is premature to provide detailed growth information. However, it is interesting to note that we are seeing very little cannibalization of other product lines.

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 the more than 30,000 physicians who prescribe our products each month. And it's fitting that the most advanced technology is supported by the most capable sales organization in the remote cardiac monitoring market, which boasts productivity per sales professional in excess of $3.2 million in annual sales.

Given the team we have in place and our tremendous technology advantage, we expect to further expand our leadership position in the remote cardiac monitoring market. As mentioned, the Research Services team also posted another remarkable quarter with year-over-year revenue growth of 31%. This is their third consecutive record-setting period with at least 20% growth, which is more than twice that of the industry.

Additionally, the pipeline for future bookings sits at an all-time high, bolstered by a 75% increase in dual service studies, since the start of the year. This rapid increase in the studies that include both cardiac and imaging requirements, reinforces our desire to expand service offerings as a key element of our strategic growth plan.

The Research segment of the company has never been better positioned than it is today. It will be exciting to watch this business continue to thrive, as we explore investments in complementary services and push our expansion outside of the U.S.

With the Healthcare and Research Services divisions, which account for over 95% of the company's revenue, firing on all cylinders and growing at double digits, we have the luxury of spending a bit more time and resources developing additional opportunities for revenue growth.

To that end, a short time ago, we announced the commercial introduction of our latest generation cell-enabled blood glucose monitor, powering our digital population health service. As you may recall, our Bio Telcare division developed the first FDA-cleared cellular-enabled glucometer, which supports real-time transmission and consolidation of patient data in an FDA-cleared cloud. This latest system includes an innovative touchscreen user interface, enabling patients to easily test blood glucose levels while capturing additional personal health data. Clinicians can access and track their patients data through the Bio Telcare cloud and can provide immediate feedback directly to their patients via the new monitors messaging feature. This system design emphasizes usability, encouraging greater compliance and improved patient engagement. The new Bio Telcare meter also features the ability to consolidate data from other connected health devices, uniquely positioning us to move beyond diabetes and into the management of other chronic conditions, at some point in the future.

This latest product introduction demonstrates our continued commitment to develop innovative connected health solutions suited for today's rapidly evolving healthcare market. In addition to making the investments necessary to prepare our emerging PHM business for scale, we are developing opportunities through current and potential partnerships. As an example, we continue our support of the Apple study, as they attempt to validate the use of their watch as a screen tool for heart rhythm abnormalities in a general population. This initiative has the potential to expand the cardiac monitoring market, by alerting undiagnosed patients of their need for cardiac monitoring and potential treatment. Again, our participation leverages our gold standard arrhythmia monitoring technology and the world-class project and data management of our research division.

These are just a few of the many exciting prospects that lie ahead for the company. Using a combination of internal and external expertise, we spent more time in the quarter evaluating numerous connected health technologies and solutions to better understand where we can best leverage our capabilities. It will be exciting to develop these new markets, as no other company is as well-positioned to pursue and capitalize on such connected health opportunities.

To sum up, the LifeWatch integration is well ahead of schedule and delivering more synergy than anticipated. The wide market acceptance of our latest MCT and extended-wear Holter continues to outpace expectations. We are experiencing acceleration in the already record-high growth rate of our research division. And we are making further strides with our digital PHM business. These are the forces driving our highly exceptional performance, which we expect will continue for the foreseeable future.

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

Thank you, Joe. Good afternoon, everyone. As Joe just announced, the second quarter of 2018 marked our 24th consecutive quarter of year-over-year revenue growth, with total revenue reaching $101.4 million. This represents a 74% increase as compared to the second quarter of 2017.

Healthcare revenue was very strong with an increase of $42.7 million, resulting from the acquisition of LifeWatch, organic volume growth and a favorable payer mix. On a pro forma basis, the Healthcare segment grew by 16%, with an 11% increase in pro forma MCT volume and significant increases in extended Holter volumes.

Our Research revenue increased 31% or $3 million, largely due to a higher volume of imaging and cardiac studies, resulting from new customers. Other revenue was down $2.4 million due to several large product sales made in Q2 of 2017.

Moving to gross profit. Our margin for the second quarter of 2018 was 64.9% versus 61.9% in the second quarter of 2017. The increase in margin was primarily due to synergies from the acquisition of LifeWatch. Our second quarter adjusted EBITDA was $29.1 million, was our highest quarterly adjusted EBITDA in the company's history and represented a 28.7% return on revenue. This return is being driven by the over 14% organic growth on the top line, along with the synergies realized from the integration of LifeWatch.

Even with this impact, we expect the full year margin to be approximately 26%, which is an 800 basis point improvement over the preacquisition pro forma EBITDA return of 18%.

To expand on the synergies from LifeWatch, as you know, we committed to deliver $25 million to $30 million of synergies. I announced previously that we have already specifically identified $30 million of savings. I am pleased to announce that we have met the target in the second quarter with $7.5 million of realized synergies, getting us to $30 million on an annualized basis.

As for our tax rate, as you know, the company is currently utilizing its NOLs and the only cash taxes we are paying are for state taxes. Our GAAP tax rate for the quarter was a benefit, which resulted from certain discrete deductions taken during the second quarter, and not spread over the year. We expect our full year GAAP tax rate to be about 10% with actual cash taxes due of about $1.3 million.

Moving on to the balance sheet. We ended the quarter with $39.4 million in cash and $202.4 million of indebtedness, which was used to acquire LifeWatch and refinance our previous debt. Year-to-date, we generated $15 million in cash from operations. We did have several onetime cash outlays, totaling approximately $15 million, largely for integration-related activities. In addition, we used $10 million for capital expenditures, largely for additional devices in our Healthcare segment. Free cash flow was $6.2 million.

Shifting gears, I will now touch on the outlook for the third quarter of 2018 and the full year. Last quarter, we guided to 2018 full year revenue of over $380 million and EBITDA of over $90 million. This represented a 10% organic growth rate on the top line and EBITDA return of about 24% to 25%. I am pleased to announce that we are raising our guidance to $392 million to $395 million of revenue and an adjusted EBITDA margin of approximately 26%. This represents a 13% organic growth rate over full year 2017 and a 300 basis point improvement in EBITDA margin return. This increase in guidance is a result of the positive impact from the recent commercial launches of our MCT and extended-wear Holter patch products.

The introduction of our products into the legacy LifeWatch accounts and the positive impact of synergies as well as operational efficiency.

Looking at the third quarter specifically, we are expecting revenue to be approximately $97 million to $99 million, or about a 16% pro forma growth rate. Please keep in mind, our Healthcare business always experiences some seasonal softness in Q3. Also, since our growth rate has been so exceptional, we were unable to hire staff fast enough in the second quarter, but we are continuing to fill numerous positions. As a result, we expect our gross margin and EBITDA margin to go down slightly in Q3 and Q4, as we add staff to support our rapid growth. With this seasonality as well as planned targeted spending, we expect Q3 EBITDA margin of about 25%.

To summarize, the company remains in a strong financial position with modest leverage and additional capacity, if needed. We just posted our 24th consecutive quarter of year-over-year revenue growth and realized our highest quarterly revenue, adjusted EBITDA and EBITDA margin in the company's history. We achieved the high-end of our synergy target of $30 million ahead of schedule. And in less than 1 year post acquisition, we grew pro forma revenue by over 14%, while driving a 1000 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'll turn the call back over to Joe.

Thanks, Heather. As you have just heard, we had another outstanding quarter, exceeding all expectations while recording our 24th consecutive quarter of year-over-year revenue growth.

We entered the second half with excellent momentum as the company is on track for another record-setting year. 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 some really interesting initiatives, which could become additional drivers of future growth.

To ensure our continued success throughout the remainder of the year, we will focus on: completing the integration of LifeWatch; expanding our comprehensive approach with the ongoing promotion of our new patch products, both MCT and extended-wear Holter; continuing to grow our Research 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. Our consistent performance over the past several years has positioned BioTelemetry as one of the most exciting connected health platforms in the market. Our powerful cardiac monitoring and clinical research businesses have the potential to provide solid growth for years to come, while at the same time, affording us the flexibility to advance a variety of additional connected health solutions.

We operate from a position of strength that is unmatched in our industry. We know what we need to accomplish to take the company to the next level and we have the organization in place to get the job done. As satisfying as it has been to experience the numerous advancements our company has made over recent years, we believe we have just scratched the surface. What lies ahead has the potential to far surpass that which we have achieved to date.

I would again like to thank those of you who helped deliver our 24th consecutive growth quarter. You are working wonderfully as a team, delivering on our commitments to all stakeholders. The most important being, the more than 1 million people depending on us to deliver the superior services for which we are known. I couldn't be more proud of all that we are accomplishing together.

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 Brooks O'Neil with Lake Street Capital.

So I guess, my first question is a two-parter, I guess. Could you talk a little bit about what's left in LifeWatch integration? And perhaps more importantly, can you talk about whether you see additional synergy opportunities that you might realize as we go forward, over and above your $30 million target?

Yes, Brooks, so most of the work that's been done is what you would expect. Sales force, G&A, a lot of operations. What's left is really product rationalization and some system consolidation and as you know, that takes a bit longer.

As far as additional synergies, I wouldn't be comfortable putting a number out there. I would just characterize it more in line with what we've done over the years in terms of getting efficiency out of the company as we scale. There's got to be more there, but we're at the point now where frankly, I'd like to invest back in the business at a faster pace than we have been. And so I'm a little hesitant to say, yes, we expect x more in synergy, if that makes sense to you.

It definitely makes sense to me, especially given the opportunities you have across your business. I personally think that's the right thing to do. So second question, can you just talk a little bit about sort of the cadence to pace activities related to the rollout of the patch products? Is there anything specific you are doing to try to drive the rapid acceptance of those new products?

Yes, hire people to handle the demand. It's there -- both the MCT product, as you know, is more of a product line extension, or next-generation product of an existing business. Incredibly high acceptance rate in the marketplace. We are seeing some same-store growth as we move accounts over to that product and then with the extended-wear Holters, a lot of that is new business. We had anticipated more cannibalization of our traditional Holter business, and we are seeing a little bit of it, Brooks, but just not a lot. I mean, that product is really taking off.

That's tremendous. So I'll just ask one more. Could you just talk a little bit about what you are seeing in the competitive environment? Obviously, we know you are the leader in the arrhythmia monitoring business. I'd love your perspective on what you're seeing on that side as well as any activity you are picking up from any potential new or different competitors in the spaces in which you're playing?

We always take our competition seriously. In the MCT market, we probably have 3 or 4, 5 formidable competitors. None of them have been able to achieve the scale that we've been able to achieve. But we take them very seriously. And yes, there are occasionally new entrants into the market. I've characterized this business in the past, as having not the largest barriers to entry, but certainly, a lot of barriers to scale. You may have remembered a time in the past when Medtronic decided to get in the business and they acquired a small company and there was some fear amongst some of our shareholder base that it was doomsday for us. Well, during the quarter, they got out of the business, out of the MCT business, specifically.

And my understanding is to concentrate more on their implantable devices, which they are doing quite well with. But you win some business, you lose some business. Overall, we are able to grow our business and expand our footprint.

And our next question comes from Bruce Nudell with SunTrust.

I have 2 questions on extended Holter and one on MCT. With regards to the extended Holters, specifically the patch product. Are you receiving any pushback with regards to 7 days versus 14 days and/or the potential accuracy of your algorithm versus Zio? And also with regards to extended Holter, I know you guys had reticence based on your experience with MCT as to an ultimate retrenchment in extended Holter pricing and compression of the Medicare and commercial -- the spread between Medicare and commercial, is it still on the table? And when do you think there might be final pricing decisions?

Let me see if I can unwrap that. So extended-wear Holter was there some pushback on length of service? We can extend that to 14 days with a recharge or something that can use a CardioKey. And what we found is most folks aren't wearing it for that full period of time. So to answer your question, very little pushback, but we will have -- we will and do have the capability to cover that period of time. As far -- expand on your question a little bit on what you're talking about the difference between?...

Yes, any pushback on accuracy and then the reimbursement question is, when do you think there will be a final reimbursement decision on extended Holter? And do you expect a decent sized compression?

We don't know when there will be a decision on moving that to a permanent code and pricing it nationally. So it's hard to say what could happen. The only thing we can do is disclose the risk, and we think that there is some risk there. As far as your other question, as far as pushback on accuracy, absolutely 0.

And my MCT question is, is there was some -- the Zio Telemtrize version goes 2 weeks, the MCT code is up to 30 days. Have you guys resolved whether or not 2 weeks is enough to get paid at MCT rates?

That's a question for counsel, to be candid, I'm not going to wade into that. Our opinion is that the code requires the ability to cover the patient for up to 30 days. As you know, our technology does that, whether or not you can put a hard stop on that at some point forward and not offer it, I don't know -- I don't know the viability of that, so I think I would advise people to just check with council.

And our next question comes from Bill Sutherland with Benchmark Company.

I was curious at this point if you could give us a breakdown roughly in the Research segment between devices, MCT, the Holter implantable?

You mean as far as the revenue in Research?

Yes, percent of research revenue, Joe, by those technologies?

Yes, so think about the Research as more a cardiac safety study...

No, no, I'm sorry, Joe. I meant monitor it, Healthcare, my bad.

All right, Heather, you've got this.

Yes. Yes, so of the Healthcare revenue we are about 73% MCOT, 16% in Event and then about 11% Holter.

Okay. And that includes extended Holter?

Yes.

Okay. Heather, net debt was up a bit. Any color there?

Yes, we had a specific reserve on a customer in our other segment that had filed for bankruptcy, and we put a reserve up on what they owed us. So that basically accounts for the entire increase.

CapEx was up, what are you thinking for the year, on CapEx?

We are going to be pushing probably $20 million. We've been buying a lot of devices to meet demand and we are making sure that we are staying ahead of the demand. So I think $20 million is probably a safe assumption for the year.

Okay. And then last, Joe, I wonder if you could give us a little insight a -- you are evaluating a lot of things in both digital population health area. Maybe one or two technologies that you think hold potentially a lot of promise for you guys?

Yes, I'm not going to share too much, which probably frustrates you, but we made an initial investment in diabetes market, given its size and its clear and need for something better than what was happening in the marketplace. So we think that there is a lot yet to do there.

We'd like to potentially bolster our current service offerings with a few more capabilities and then add more business development resources to that group. So what we did in this current year was obviously focused a lot on the LifeWatch integration and we used time to make investments in that business. I talked about the new device and we've also done some investing in our monitoring platform as well -- our cloud-based platform. So it was more infrastructure and system-related this year, and then as we kind of moved through the close of the year and into '19, we'll focus more on business development. So again, we like that, we've looked at some other things in that space. There is other chronic areas that also lend themselves to connected health solutions like the ones we are bringing to bear. So I know it's a frustrating answer, but I'm not telling you.

That's all right, you said before that the Telcare model, particularly the revenue model, you wanted to move into more of the PMPM, how is the progress there going?

Yes, I think it's going well. I think you are starting to see that take hold in the marketplace. It's slow, but -- because you know things don't change that fast in that world. But I think you'll see more subscription models, kind of like the PMPM models and I do think to the extent your ability to share risk, you will be well positioned from a competitive perspective and that's really kind of what we are gearing ourselves for. A lot of movement in the market to move more to value-based pricing and I think that all makes good sense, we have to be prepared for that and this is just some of the things we are doing to make sure that we can demonstrate savings necessary to win those contracts.

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

I was wondering if you can circle back a little bit on the new MCOT. I think Joe, you mentioned you started to see some accelerated same-store sales. Can you maybe talk a little bit more about what you saw that might have been driving that?

Just acceptance of the product and more use of the product within the practice, more comfort putting it on more patients. Again, it could be an early euphoria about the product, so we'll wait and see, Marco, before we talk a whole lot more about it. I thought it was an interesting tidbit to share today, because, number 1, it reinforces it was the right investment to make, it was the right thing to do to change the form factor to that make it a little bit more patient-friendly. So and, number 2, it could be nice from a growth perspective, because obviously, we have a huge installed base already. If we can get that installed base to grow a couple points faster than we have been growing, that's great for our business.

Got you. And in terms of the organic growth rates that you guys have been posting up here in the last few quarters, I mean you had some accelerating growth, even post the LifeWatch acquisition. Just trying to get a little bit better of a sense, as far as, what are some of the drivers you're kind of looking at there? Is it -- do you think you guys are taking additional share? Is it the new product launches? If you could kind of maybe kind of rank them, if you will?

Very difficult to rank. I will say, I believe it's all the above. I think since the acquisition of LifeWatch, we were able to take the 2 largest sales organizations that frankly went head-to-head against one another. Aligned them to form one sales organization that was larger than either company's prior organizations, give them a clean message, extend their reach and frequency throughout the U.S, equip them with new products, as you mentioned, support them with as much support as we can possibly provide and I think all of that has had an impact on our growth rate. So I thought we would grow.

Frankly, the double-digit growth rate over the course of the year has been a little bit of a pleasant surprise for us. We thought we'd just get there, we didn't think we'd be putting up the kind of numbers that we're putting up. And I think a lot of it has to do with getting the sales organization organized quickly, getting a clean message, supporting them with new products, we've got excellent leadership in place running that organization, we've got some very experienced tenured people as part of that organization. It's -- a lot of it is just sales execution and I think we are benefiting as a result.

Understood. And then in terms of the gross margins for the quarter Q2, what a fantastic number there in terms of some historical numbers. I think Heather, you mentioned that it was primarily just synergies that drove that results? Were there any other sort of onetime items that maybe kind of goose that up a little bit?

Yes, no. Other than what I mentioned about being able to hire, we ramped our sales so quickly, it's tough to hire, especially in a service industry and get people up to speed quickly to be able to address that volume. So you're going to see that come down a little bit, so if you want to call that a onetime kind of pickup because we didn't have those people you can. So that's part of why I mentioned that. I think you're going to see some compression in Q3 as well as Q4, relative to Q2.

Got you. And last quick question, just kind of bigger picture question, Joe, on the new initiatives for like the diabetes and what have you -- not actually trying to pin you down to a timeline, but if maybe you can kind of help us understand or frame your comment where you thought that it could become a much larger revenue-generating pie -- or piece, than the healthcare side. I mean, we are talking like a 3-year window, a 5-year, 10-year window?

I think you'll see impact inside of 3 years. I think you'll see impact inside of 2 years. And the reason I make that comment is because the markets are so big. These are just really big markets. The cardiac monitoring space is large but nowhere near as large as the chronics. As you know $0.80 of every $1 spent in healthcare is being spent on the chronics. So as we start to wade into those, we're seeing just tremendous opportunities for growth. I apologize if it sounds like background noise, folks. We are in the middle of another torrential downpour. So we are getting some -- a lot of -- I apologize if there is background noise.

And our next question comes from Jayson Bedford with Raymond James.

So I apologize if I missed this, but if healthcare grew 16% on a pro forma basis and MCT volume was up 11%. What else grew so quickly? And can you maybe comment on price as well?

Really, it was the extended-wear Holter category that pulled it up. And I don't think there was much more -- there's not really much to say in terms of pricing.

It's a little bit a favorable mix.

Yes, a little bit of favorable mix. It wasn't driving it much.

Okay, so kind of the outside contributor to the growth here, sounds like it was extended towards -- extended Holter?

Correct.

Okay. I too was intrigued by your comment around accelerating growth in those centers that have a new MCT system here. How many or maybe what percent of your base have you introduced this to?

Probably about 50%.

Okay. And the rest, will that occur this quarter or during the back half of this year?

Haven't put a timeline on it. It's kind of where appropriate, where the opportunities are, as needed.

Okay. And then just to follow on the last line of questioning, Heather, gross margin near 65%, it's a pretty big change in trend. I know you've mentioned it'll dip a little bit here in near term. But is kind of 63%-plus kind of the new starting point going forward? I'd hate to pin you down, but there was such a big difference between what you've been doing over the last few quarters.

I think that 63% is a reasonable expectation.

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

Yes, I have a similar question to the others, but, I mean, the revenue beat $5 million above the top end of your guidance. If you had to sort of single out an area that surprised you the most, disproportionate strength, would it be that extended Holter area? Was it across the board? How would you sort of bifurcate that top line acceleration?

Adoption rate of MCT -- the new MCT, adoption rate of extended-wear Holter and the Research guys blew the number out.

Okay. Very good. And I know it's early days on this, but Joe, are you able to share with us say the number of patients that you've equipped with extended Holter, year-to-date? And perhaps separate out CardioKey from ePatch, are you be able to share that with us? And I know there's not a lot of cannibalization you're seeing, maybe you can sort of talk about, is it 80/20 new customers versus existing, how should we look at that?

Gene, I really don't want to get into those details yet, because we're a couple of quarters into this and it's kind of silly growth at this point. I want to wait till we see more stabilized growth rate and I started picking it apart for you a little bit to give you to better understand where it's coming from. It's coming from new business, is it coming from converting our traditional Holters, is it coming from converting somebody else's traditional Holters, is it coming from taking share from other extended-wear Holter companies. I'd rather kind of wait and see. I think -- I do want to share 1 point with you and it kind of circles back to the previous question where I said the research guys kind of blew out their number. I always feel like I'm short changing these guys. Other things that they started doing recently is using the ePatch, our extended-wear Holter in some of their studies and as recently as yesterday, they won an incredibly large study from one of the biggest Pharma companies in the country, a multimillion-dollar, multiyear study that has ePatch as an integral part of that study. So not only do they have to win the study against other contract Research Services companies, but they that we had to position ePatch as a superior product relative to other potential extended-wear Holters.

So those 2 divisions worked unbelievably well in that regard and the research guys really did a great job pulling that piece of business across the finish line and that's something we haven't realized dollar one from yet.

That's terrific, and a good segue to my other question around the research business. 30% plus growth, what -- are there any drivers either at the regulatory level or otherwise that are driving that increase in demand on the imaging side or the cardiac safety side specifically?

Nothing terribly new from a regulatory standpoint. I think we are seeing more oncology drugs move into the pipeline. So the imaging business is growing at an accelerated rate as a result. I mentioned that we saw a nice spike in the number of studies that include both cardiac and imaging. So that validates the strategy. Our plan was to, remember, when we bought the imaging business back in what '16, we did it because we thought very strongly that with multiple service lines, we would put ourselves in a more favorable position to win bids, right? So that's coming to roost. We are starting to see that more and more now.

That's fantastic and last question on the sort of the other growth initiatives you're talking about in digital population health. How would you expect to fund some of those growth initiatives?

Well, I think we are going to have a lot of cash flow, right? The business is very healthy. We are sort of at the back end of integration. Or I should say, we are more than halfway through integration. We still have some expenses in some R&D and infrastructures stuff that we're going to need to invest in. But you heard about the capital expenses we made for, product introductions. The businesses is doing fairly well. So I anticipate a lot of free cash in the second half of the year and obviously, if an opportunity presents itself it's larger than what we can fund with the cash on hand, we have a balance sheet that's pretty darn healthy, right? If you look at what we are projecting now for EBITDA, we'll be north of $100 million in 2018 and our debt is a little over $200 million. So we are -- and if you net out our cash, we are less than 1x leverage. So I think we have some flexibility there.

(Operator Instructions) Our next question comes from Mitra Ramgopal with Sidoti.

Joe, I just wanted to follow up, I know you mentioned you plan on making some investments sort of meet the better-than-expected growth you're seeing with the extended hold on the MCOT. If you can give us a sense of, if you pretty much plan on making those of the rest of this year? Or is it going to be a much longer timeframe?

Well, for sure we'll be making investments in infrastructure, in system consolidation, product consolidation this year. If you're talking M&A, I'm really not going to put timelines on that. I would say that as always, we have a fairly active Corporate Development funnel and we look to -- when we do those deals as you know they're to accelerate our strategic plan. So we would never talk specifically about timeframe. I will say that near-term we are still more concerned, if you're putting are waiting on this. We are still more concerned with completing the integration and making sure that we make the proper investments to support the business for scale. We think there is a lot of room to grow this business.

Okay, and actually more specifically in terms of the salesforce or adding headcount, is that something we are looking?

Yes, we are constantly evaluating that as well and I think there's opportunity to expand that as we close out this year, and moving to '19.

And it's also given, sorry.

That's clearly more of a kind of a surgical approach to where it makes the most sense to allocate additional resources. But we have found that as we've extended our reach and frequency, supported that group with the proper product that we are able to grow this business at an accelerated rate.

Right. And given the strength you're seeing on the research side, do you think you also need to bolster sales efforts there too?

No, they have too many people. That's just in case they're listening to me. They probably do, especially, we added a resource outside the U.S. I think you'll see us probably look to do a bit more with that group as well.

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

Thanks again everybody for your continued support and interest in the company. We will speak to you next quarter. Operator, that conclude today's call.

If you join the conference later today, you may listen to the conference call we our digital replay, which will be available through the investor information section of the BioTelemetry website at www.gobio.com, until August 8, 2018. Thank you for persuading into this conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.

Thanks.