Heartbeam Inc (BEAT) 2018 Q3 法說會逐字稿

Good afternoon. Thank you for joining us for the BioTelemetry Third 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 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 progressing as we close out the year and transition into 2019. After our prepared remarks, we will open up the call for questions.

I am extremely excited to share details with you this afternoon on another record-setting quarter for BioTelemetry, during which we once again exceeded all of our expectations.

During the quarter, we achieved 18% organic revenue growth, surpassing the $100 million mark for the second consecutive quarter. We also achieved new all-time highs in EBITDA, hitting $30 million for the first time, and EBITDA margin. This performance is particularly noteworthy given that the third quarter is seasonally our most challenging of the year and considering that our markets have not been growing anywhere near 18%.

Our business is really firing on all cylinders. Since I've been with the company, we've had an unwavering commitment to being at the forefront of advancing connected solutions capable of meeting today's health care challenges. That focus has enabled us to achieve our 25th consecutive quarter of sustained year-over-year revenue growth, with excellent performance across the entire company.

In the remote cardiac monitoring segment, we have brought a steady stream of customer-focused products and enhancements to the market. Over the years, our commitment to innovation has produced the most technologically advanced and expansive portfolio in the industry. As a result, BioTelemetry is the far and away leader in this market as our results indicate.

In our research division, we had -- we made a determination that expanding service offerings would result in accelerated growth. Since adding imaging capabilities a few years ago, that thesis has been resoundingly validated. In addition to dramatically improved growth, we now compete for business that was previously out of reach. As a result, our backlog is building, and we are converting it to revenue at a record pace. Our research business has tremendous momentum, and we are highly encouraged by its opportunities for growth.

And as many of you know, we are busy leveraging our wireless platform and proprietary technology to develop new opportunities for future growth in digital population health and other areas. The field is wide open for companies like us who possess the experience and technology to remotely monitor and transmit data. We are extremely optimistic about the future of population health given the magnitude of the market and the need for the health care industry to migrate to such solutions.

As a result of our exceptional year-to-date performance and our confidence about the future, we are once again increasing guidance for the remainder of the year, which Heather will detail in her upcoming comments. But first, I want to share with you some key metrics and thoughts about our performance in the third quarter.

During the period, revenue grew by 23% to $100 million, exceeding the upper end of our expectations by $2 million. As mentioned, organic revenue growth was an impressive 18%. Overall margins continued to improve as quarterly EBITDA grew by 72% to $30 million, again, far exceeding our expectations. We ended the quarter with $63 million in cash, up nearly $24 million in the quarter. MCT volume was up 13% organically. Our Research Services team continued to expand backlog and finished the quarter with a remarkable 45% year-over-year revenue growth rate.

We continued efforts to expand our digital population health management business through key partnerships and internal investments. And with most of the LifeWatch integration behind us, we were able to devote more time to exploring future growth initiatives where we can leverage BioTelemetry's core capabilities. We believe there will be massive opportunity for companies that can reliably deliver data from remote locations in a timely and cost-efficient manner.

Taking a closer look at the Healthcare Services business, we continue to see exceptionally positive trends. In early Q3, we've annualized the LifeWatch acquisition. At the outset, we committed $30 million in synergies, and it's been our intent to maximize customer retention. After a full year of integration, it is clear the process has been a resounding success, having met or exceeded all expectations. Not only did we achieve our synergy objective, we had continued growth in our largest and most important accounts. It was extremely gratifying to get this stamp of approval from our customers, which helped push pro forma Healthcare revenue growth to 15% in the quarter. This growth continues to be fueled by the tremendously successful launches of our latest generation MCT and extended-wear Holter. In fact, MCT volume growth accelerated in the quarter to 13%, driven by the further release and wide market acceptance of this new system. This marks the fifth consecutive quarter of double-digit pro forma MCT growth, a remarkable achievement during a major integration.

As a reminder, not all MCTs have been same. Our new 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. As I mentioned on our last call, we are seeing increased same-store growth in accounts that convert to this new system.

And our extended-wear Holter product continued to gain share as well with incredibly high market penetration rates. This product is shaping up to be a nice complement to the new MCT system in accounts that prefer more than 1 monitoring option at their disposal.

As is well established, our extensive product portfolio includes the most accurate and advanced technology in the marketplace, generating the highest yields and the fastest turnaround times for the more than 30,000 physicians who prescribe our product each month. It's fitting that the most advanced technology is supported by the most capable sales organization in the remote cardiac monitoring market. We field by a wide margin the most productive sales team in the market. We are also in the process of adding additional sales personnel to augment this team. As I have stated in the past, given our market strength and clear technology advantage, I would not want to compete against this team.

As mentioned, the Research Services team also posted another remarkable quarter, with year-over-year revenue growth of 45%. This is their fourth consecutive record-setting period with at least 20% growth, which is more than twice that of the industry. Additionally, team continues to build pipeline and convert it to revenue at a record pace.

There are 2 other recent trends involving the Research segment that are worth mentioning. First, we continue to experience an increase in dual service studies. As I mentioned on our last call, these awards are up 75% since the start of the year. This rapid increase in studies that include both cardiac and imaging requirements reinforces our intention to expand service offerings as a key element of our strategic growth plan.

Also, we are starting to have success incorporating our proprietary ePatch monitor as a critical element of new cardiac studies, creating cross-segment top line synergy. These trends bode extremely well for the future of this important division.

With the Healthcare and Research Services division, which account for over 95% of company's revenue, growing at double digits, we have the luxury of spending a bit more time and resources developing additional opportunities for revenue growth. Last quarter, we announced the commercial introduction of our latest-generation cell-enabled blood glucose monitor powering our digital population health service. 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 BioTel Care cloud and can provide immediate feedback directly to their patients via the new monitor's messaging feature. The new BioTel Care 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.

More recently, we acquired certain assets of a commercial partner which was having financial difficulties. This addition will expand our reach into several key customers. As we move into 2019, we will allocate more business development resources into this segment and expect it to become a meaningful contributor later next year.

Using a combination of internal and external expertise, we continue to evaluate numerous connected health technologies and solutions to better understand where we can best leverage our capabilities. We are also developing other opportunities through current and potential partnerships, with the Apple Heart Study being a prime example. These are just a few of the many exciting prospects that lie ahead for the company. Expect BioTelemetry to continue to lead these market development efforts as no other company is as well positioned to capitalize on such opportunities.

To sum up, we are obviously very pleased with the company's exceptional performance this quarter. The benefits of acquiring LifeWatch are readily apparent. Having done a number of transactions, I learned a long time ago that the success of any acquisition can be largely attributed to the work that is done before the deal was even announced. Our senior leadership team did an exceptional job identifying the enormous value of combining BioTelemetry and LifeWatch and then seamlessly integrating the 2 organizations to a better-than-expected outcome. Not surprisingly, that same team is the driving force behind our strong organic growth.

We really do have all the key elements for continued success: a proven and experienced management team, market leading products, exceptional sales and service and a solid financial foundation. A broad market acceptance of our latest MCT and extended-wear Holter continues to surpass expectations. Our research segment growth rate is outpacing the market by a tremendous margin, and we are making further strides with our digital population health management business. Our future is filled with an abundance of opportunity.

With that, I'll 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 2018 marked our 25th consecutive quarter of year-over-year revenue growth, with total revenue reaching $100 million. This represents a 23% increase as compared to the third quarter of 2017 and resulted from robust overall organic growth of 18%, the full period impact of the acquisition of LifeWatch, which occurred in early July 2017, as well as higher research revenue. Healthcare revenue was remarkable, with an increase of $14.7 million or 21%.

On a pro forma basis, the Healthcare segment grew by 15%, with significant increases in both MCT and extended-wear Holter. Our Research revenue increased 45% or $4.2 million, largely due to a higher volume of studies in both imaging and cardiac with both new and existing customers. Other revenue was up 8%.

Moving to gross profit margin and adjusted EBITDA. Our gross profit margin for the third quarter of 2018 was 62.7% versus 60.6% in the prior year period. Our third quarter adjusted EBITDA was $30.1 million, our highest quarterly adjusted EBITDA in the company's history, and represented a 30% return on revenue. The increases in our margins were primarily due to volume-related efficiencies, largely driven by the higher patient volume, synergies from the acquisition of LifeWatch, as well as favorable product and payer mix.

To expand on the synergy from LifeWatch, we announced previously that we have specifically identified $30 million of savings. And as of last quarter, we had met that target with $7.5 million of realized synergies in Q2, getting us to the $30 million on an annualized basis. Going forward, now that we have reached our synergy target and have passed the 1-year anniversary of the acquisition, to the extent there are additional benefits achieved through further enhancements to our processes, we will talk about these benefits and efficiencies as opposed to additional synergies.

As for our tax rate, as you may remember, last year, the only cash taxes that the company paid were for state taxes because of the use of federal NOLs. This year, the company continued to pay only state taxes, again, due to the use of NOLs as well as income tax benefits resulting from certain large discrete deductions taken during the first 3 quarters of this year. As a result of these factors, we now expect our full year GAAP tax rate to be about 2%, with actual cash taxes of about $1.2 million.

Moving to the balance sheet. We ended the quarter with $63 million in cash and $201 million of indebtedness. Year-to-date, we generated $44 million in cash from operations. As previously mentioned, during 2018, we did several onetime cash outlays totaling approximately $10 million for integration-related activities. In addition, we used $17.5 million for capital expenditures, driven by the additional devices placed in the service for our Healthcare business. Free cash flow was $27 million.

Shifting gears, I will now touch on the outlook for the full year of 2018. To review, we initially 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%. Then at the end of Q2, we raised this guidance to $392 million to $395 million of revenue and adjusted EBITDA margin of approximately 26%.

I am pleased to announce that we are raising our guidance for a second time this year. As such, we are now projecting annual revenue to be in the range of $397 million to $400 million, with an adjusted EBITDA return of approximately 28%. This represents approximately 14% organic revenue growth over 2017 and a 500 basis point improvement in EBITDA margin. This increase in guidance is a result of the strong revenue growth from the recent commercial launches of our MCT and extended-wear Holter patch products; the introduction of our products into the legacy LifeWatch accounts; the positive impact of synergies as well as strength in our Research business.

To summarize, the company remains in a strong financial position with modest leverage and additional capacity, if needed. We just posted our 25th consecutive quarter of year-over-year revenue growth and realized our highest quarterly adjusted EBITDA and EBITDA margin in the history of the company. 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 18% while driving a 1,200 basis point improvement in our EBITDA return. These results and consistent growth have provided and will continue to provide 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 have just heard, we had another outstanding quarter in which we exceeded all of our expectations. As we close out this record-setting year and prepare for 2019, the company is benefiting from excellent momentum across the enterprise, our strategy is yielding results better-than-expected and we continue to broaden our opportunities.

The LifeWatch acquisition has advanced our growth plans by several years, allowing for the allocation of more time and resources toward new initiatives, which will be powerful growth drivers for the future.

To ensure our continued success throughout the remainder of the year, we will focus on completing the remaining elements of the LifeWatch integration; 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 and convert it to revenue at the accelerated rate we are now experiencing; building on our digital population health management business and expand on key partnerships we have developed. Our consistent performance has positioned BioTelemetry as one of the most influential connected health platforms in today's market. Our dominant cardiac monitoring and clinical research businesses have the potential to provide solid growth for years to come while affording us the flexibility to commercialize additional innovative connected health solutions. We expect a strong finish to 2018 as evidenced by our increased full year guidance. More importantly, we anticipate continued above-market performance well into the future. While we are pleased with how far the company has evolved, I firmly believe our best days are still ahead.

When we close out 2018, we will have monitored in excess of 1 million patients in the year, providing thousands of doctors with life-saving information with which to treat their patients. We must never lose sight of the fact that people's lives literally depend on the work that we do every day. I would again like to thank those of you who helped deliver our 25th consecutive growth quarter, and I look forward to discussing #26 next quarter.

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

(Operator Instructions) And our first question comes from the line of Bruce Nudell of SunTrust.

Heather or Joe, last quarter, you helped break up the Healthcare business into chunks, and I was wondering, now that you're disclosing the growth rate in extended Holter, if you could just kind of give us an approximation for the quarter in terms of the percent of Healthcare, this MCT, Event, extended Holter and traditional Holter.

So, Bruce, at this point in time, we're not breaking out the extended versus traditional, but I can tell you that MCT was about 73% of Healthcare, with Event being about 16%, and both extended and traditional Holter at about 11%.

Okay. And, Joe, you guys are very buttoned down in the cardiac monitoring realm. You've extended that capability into research. And I was just wondering from your perspective, are there kind of bite-sized digital population health opportunities that can be secured and exploited without dilution of management effort and perhaps very, very large investment?

Yes. It's a very good question, Bruce. I think that there are some smaller capabilities that we can acquire that would really complement our current service offering. As you know, up until maybe 3 weeks ago, valuations were a little bit in outer space. But we think that people would like to join a company like us. And we think that acquiring these capabilities will become more plausible over time. I don't know that there is a big giant one in the space that we've discovered yet that makes a whole lot of sense for us. But I do think that there are some smaller ones that would be very complementary to the service offering we're currently providing.

And, I guess, my follow-up on that is, should we be thinking about kind of regional or payer-specific initiatives, not the whole country, just something more circumspect. And just on a broader level, why won't the, in your view, the Googles, the Apples enter into the medical grade space as opposed to be consumer space?

Yes. I don't know that we would restrict ourselves to thinking about additional capabilities regionally. I think it would really depend on the opportunity. Obviously, when you're small, you don't have the reach to expand in all the geographic zones you'd like to. So you do that kind of on an organized growth fashion. The second part of your question about the consumer and consumer device-oriented companies entering into the space in terms of offering medical grade products, I don't know that I would say it would never happen but, obviously, they don't have those core competencies within their organizations. And so I think the more probable path would be to look for folks like us to partner with. I can't get inside their heads in terms of what they're thinking strategically to get into how they will approach the market. But clearly, I think we're an interesting partner for anyone looking to get into this space.

Our next question comes from the line of Brooks O'Neil of Lake Street Capital.

I was hoping, guys, you might be willing to describe your sense of your market share, your penetration in the cardiac services space. You mentioned that your 14%, 15% organic growth rate exceeded what you perceived to be the growth rate of the overall market, but maybe you can just say sort of how much more room you see for yourselves in cardiac services as we think about the future of the core business.

Yes. I would -- it depends on how you're defining the remote cardiac monitoring business. If you're including all the service lines, which we typically do, meaning Holter -- extended-wear Holter, Event and MCT, we're probably somewhere in that 25% market share range. Estimating, obviously, we're at a little bit disadvantage in terms of not having great market data. But I would say based on the market data we do have, we can probably back into around a 25% share. If you looked at MCT, we're probably 2x plus that. We're probably in that 50% to 60% range, is my guess.

So you'd say you still see significant room for growth in the core business?

Absolutely. For several reasons. One, I think the market is growing at a pretty decent rate. Number two, we have plenty of opportunity to grow our market share within that space, take our unfair share of the growth or unfair share of the market. Why do I think that? For all the reasons we've talked about. We have the best technology by a long shot. We have the most capable sales organization by a long shot. We have a great financial position. We have probably more insurance contracts than any other participant in the marketplace. So when you look at all of those elements that go into making a formidable competitor, there's nobody that's really close to us. We -- the ones that are behind us are really just the second and third. So I think, yes, we can take more market share. And I think as the market grows, we're going to benefit from that. We've done very little outside the U.S., but there's opportunities for us to look beyond our own borders. So I think -- I do think there's going to be a lot of opportunity. We're starting to see, and I think I've mentioned this on previous calls, utilization of our MCT technology in new areas of Healthcare. We used to not -- they used to not use our technology in places like neurology market. They're starting to use it now in emergency department discharges. They're starting to see more uses of the product there. So all of those things, I think, bode well for our potential growth in the future.

That's great, Joe. Secondly, I was reading somewhere about increased use of a remote patient monitoring in the Research Services sphere, specifically I think, in home testing. Have you seen that? And do you see that as an opportunity for BioTelemetry during the short term and the longer term?

We do. In fact, obviously, we're restricted by naming who the partners are, but a very large pharmaceutical partner launched the study, using us as their partner and using our ePatch product in that study. So I mentioned that in my talking points that we're starting to see those opportunities, which are driving potential for top line kind of cross-segment revenue synergy. But yes, we are starting to see it. And within the research market, you're hearing people talk more and more about virtual studies where people are able to participate from home and provide information from home and not necessarily bound to center-based studies.

That's great. Would you say you need to add any capabilities to take advantage of that opportunity? Or are you pretty well positioned today?

I think we are well positioned in terms of our ability to grow within -- with the services we have today. I do think that there are other services that make a lot of sense for us to add to the portfolio or partner with other companies who have those services, could make us a more attractive competitor or a more attractive partner to the sponsors that we currently serve.

Great. And then I know you mentioned the diabetes situation and your opportunity there, but could you elaborate just a little bit more about where you think you are in terms of pursuing a real business in diabetes monitoring and what you see in the marketplace today?

I think we're at very early stage, and I talked about that this past year. We've focused -- we had -- obviously, we focused a lot of our time and attention on the LifeWatch integration. And in terms of what we did with the pop health business was really investing in new technology and building that platform so it's scalable for future growth. As we move into '19, we'll start to allocate more business development resources. And then I believe we'll start to see more -- or greater market penetration. We know there's demand for the service. It's just a matter of getting our -- getting out in the market and getting our voice heard.

That's great. As you know, I've been involved with you since 2013, and I share your enthusiasm. I think you're just getting going, so keep it up.

Thank, Brooks.

Thanks, Brooks. I appreciate the continued support. There's times when we call you our good luck charm and there's other times when you're a bad penny on those bad days and blame it all on you.

And our next question comes from the line of Marco Rodriguez of Stonegate Capital.

I was wondering, Joe, if maybe you could talk a little bit more in regard to the PHM market and the particular opportunities you might be looking at and how you're thinking about the allocation of capital as we move into fiscal '19.

Yes. So let's talk about pop health kind of just in general, what does it all mean, right? We're talking about using a technology to enable a service where you can effect some change typically in the larger chronic market. So we selected diabetes given its size, epidemic proportions in the U.S. and its growth and because it's one disease state where individuals, patients, participants are conditioned to taking information from their body on a daily basis. So the challenge for us would be how do you collect that information remotely, centralize it and then use that information in a behavior modification program to improve the disease state of those individuals and ultimately improve outcome and drive down a little cost of care. That's it in a nutshell. That's what pop health is all about. And in that market makes -- that makes a lot of sense. Again, I can tell you, there is tremendous demand for these types of services, not just in diabetes, but in hypertension and CHF and respiratory, sleep, there's a lot of different opportunities here. So our challenge would be not to go too crazy right out of the gate and collect a bunch of assets that are unrelated and we can't market them in a coherent fashion. We wanted to get good at diabetes and build out technology that expands from there and make sure that we're proven along the way that we can effect outcomes, we can drive down A1Cs, and we can drive down total cost of care. We've had some excellent studies that have validated that thesis. And again, it's just a matter of getting the biz dev resources in place and getting our voice heard in the marketplace.

Understood. And in terms of the movement, I guess -- I believe you said in your prepared remarks that you were thinking that there might be some significant movement from that segment, if you will, in the latter part of fiscal '19. First off, did I hear that correctly? And then second -- I'm sorry. Go ahead.

Yes. I do think that we'll start to see some meaningful contribution in the second half of year, at least that's what we're sort of planning for. It's going to take a while to really build it up to the point where we're going to start seeing something that matters.

Got you. And will that flow through your Patient Services revenue area?

Right now, it does not -- we'll determine whether or not it needs to be broken out or rolled up into a different segment at some point in the future.

It's sitting over in other right now.

Got you. Next quarter here, just kind of focusing on the operating expenses here in the quarter. Came in a little bit lower than we were anticipating. Just kind of wondering if there were some onetime items that positively impacted G&A and sales and marketing. Or how should we think about that kind of trending going forward?

Yes. The only real onetime item in the quarter that we had was the adoption of the stock comp for nonemployees, which was about $500,000 in the quarter with a catch-up for the year. But other than that, we just had some higher items in Q2, as it relates to sales and marketing. But I think that this is a pretty reasonable run rate as far as G&A and sales and marketing are concerned. We do still have a fair number of open positions throughout the company. As we've grown, we talked about that last quarter, that we have not been able to keep pace with our hiring, with our growth. So we will be adding some heads as we progress, but we will also be gaining efficiency at the same time.

Got you. And just to confirm, those additional positions, those were at the cost of service line item? Or are they going to be spread also into maybe sales and marketing?

You're going to see most of them up in cost of sales, but we are, as Joe indicated in his remarks, adding additional sales and marketing resources as well.

Right. And then in terms of the sales and marketing additions, I mean, how should we think about that progression as we look into fiscal '19? Should it be maybe just a onetime event or you're going to be layering in additional heads throughout the whole year?

Yes. You're going to see it come in throughout the year. As we talked about, we don't have a specific number, like we're not saying we're going to hire 25 people. We look at each territory strategically and determine whether or not it makes sense to add additional heads there, combine territories or split them.

And our next question comes from the line of Dennis Ding of Raymond James.

This is Dennis on for Jayson Bedford. I had a couple of questions on extended Holter. Last quarter, you mentioned that you rolled out your extended Holter products to around 50% of your installed base. I was wondering if that rollout continued, if you rolled that out to 100% of your base yet. And my follow-up to that would be the impact on -- the impact of extended Holter on the rest of your business, meaning, have you seen any cannibalization of Holters or Event monitors?

So just to clarify, I don't believe we -- if we did say 50% of our accounts now had access -- or we had penetrated 50% of our accounts with extended-wear Holter, that was misinformation. What I think we said was -- or what we intended to say was about 50% of our MCT accounts had been -- had the new MCT introduced to them. So we really haven't put out a number of accounts or a percentage of our accounts where extended-wear Holter has penetrated or been introduced and is currently being utilized. So what we have said is we're seeing really rapid market uptick. And because it's so fast and because it's so early, it didn't make a lot of sense for us to start putting those numbers out and then projecting what that growth is going to look like in the coming quarters. So for us, we just want -- we were just trying to buy a little bit more time. Overall, the Holter segment is growing. What we have seen is rapid growth in extended-wear and low -- or flat, maybe even a slight decline in what we'll call the traditional Holters, meaning, the 24- or 48-hour services. So we're seeing flat to declining traditional Holter, flat to declining Event. We're seeing growth in extended-wear Holter and growth in MCT. So one can assume that we have some cannibalization. You probably have Event business migrating to MCT, you probably have traditional Holter business migrating to extended-wear Holter, if that makes sense to you. And then we're seeing, obviously, growth above and beyond our own account base as we bring in new customers.

And our next question comes from the line of Gene Mannheimer of Dougherty & Company.

Question on pricing. Can you comment at all about how pricing might have impacted some of those strength you saw this quarter and for your outlook and maybe what CMS might be thinking about with respect to their next fee schedule adjustment?

Yes. So in the quarter, Gene, we saw some favorable payer mix. So I wouldn't necessarily consider that pricing favorability as much as it was just favorable payers in the quarter. That was not a huge number, but it did benefit us. As far as the CMS rates, they have not been finalized yet for this year. We expect that to come out at some point in early November. But the proposed rate has a slight decline in the MCT rate, and we would expect -- if that were to go into effect in 2019, it would impact us by about 2%. That being said, we don't expect it to be implemented.

So let's comment on that just a little bit. We -- you never know, right, when final rates come out. They'll be out in November. We were able to kind of unbundle the proposed rate and found that the consultants that were hired by CMS were using information that really wasn't relevant to the code, and we were able to meet with them and explain our position. And it seemed like it was understood and accepted. That doesn't mean that we had any direction from the group. It was just -- I thought it was very positive dialogue. So Heather's comment that we're -- we don't expect it to be implemented, I would side with her on that, but I want to be careful that we're not forecasting that.

Sure. Makes sense. And with respect to the -- cash flow in the quarter was very strong. I think you said $27 million free cash flow. So that probably you -- that's year-to-date, okay. So how are you with respect to your -- sort of your $50 million full year free cash flow target?

So we are pretty much on track for that. We may come in slightly under. We actually have a higher investment in CapEx than we expected going into the year because of the higher growth rate. So that's actually a good thing. But we're looking pretty close to that $50 million.

That's terrific.

They start at (inaudible) 45%.

Okay. 45% you said?

Yes.

Okay. Great. And then last thing. Just in terms of the strength you're seeing overall, is it -- are you seeing more momentum across large hospital networks versus independent practices? And how -- maybe you can share with us how your business -- on your Healthcare business breaks out across those 2 categories.

I cannot do that. Cannot do the latter. I would tell you that we would -- we are seeing growth across the board in our Healthcare segment. I do think it's natural to conclude that we're seeing more growth in the larger systems and larger accounts. We are -- we're very good at positioning ourselves within those large accounts from an EMR integration standpoint. Once you're integrated, you tend to have a stronger position relative to your competition. And so that seems to help us. And obviously, it's the larger systems that tend to do those first, and we have a number of those integrations completed across the U.S. So I would say that we're probably getting more growth there as a result of that focus.

(Operator Instructions) Our next question comes from the line of Bill Sutherland of Benchmark Company.

So the remarkable lift here in EBITDA margin, how should we think about this as -- I mean, how should we think about your sustainable margin at this point just based on what you've got in place going forward?

Sure. So for the full year, Bill, we guided to 28% EBITDA return, and that would imply about a 28% EBITDA return for Q4. As I mentioned, we did have some benefits in the quarter, having some open positions and things like that, that did flow through to the bottom line as well as some favorable mix. So for the year, we're looking at about 28%. We have not yet guided into 2019. But as we've mentioned in the past, that we are looking to make additional investments but also looking to continue to expand our EBITDA return. So stay tuned. We'll give some additional guidance in -- on that number as we go.

And I would say, too, Bill, we've been kind of pleasantly surprised by margin accretion with scale in this business. And obviously, it's not always easy to see that until you get there. So while we anticipate resourcing the business at higher levels as we move forward, we don't know what kind of operational efficiencies we'll get as the company continues to grow. And in fact, they've seemed to come a bit faster than our incremental spend has grown.

Right. I know you can't anticipate some of the investments you're going to be making, but it just feels like the model's kind of just shifted up, absent anything dramatic like that. And then the other thing I'm kind of wondering how to think about is research revenue growth, which is -- had such a lift. Is there any way to frame like what you believe is reasonable or sort of stable there?

Yes. I think I would just kind of guide you back to our overall guidance and not focus on breaking it out. And we're comfortable with kind of double-digit growth as we move forward, and we'll talk more about that on successive quarters. But they had tremendous growth in the quarter. And as you know, we've talked about these business as being kind of choppy in the past. We had guided towards like 15% to 20% when we came into the year. We had a 20% quarter, a 30% quarter and a 45% quarter. That's a result of a team doing excellent work in '17 and into '18, building up your pipeline, building up your backlog, converting that backlog to revenue, with cancellation rates. So that's how you got there. That's way, way above market growth. I would think it's safe to say that we're not going to grow at 45% in that division every quarter for the foreseeable future, but I think we're comfortable with sort of the overall guidance for the company being around the double-digit range.

A couple of specifics, Heather. What is the CapEx do you think you're going to have for the year?

So we'll end up just north of $20 million, in the $20 million to $22 million range.

Okay. And remind me what Holter as a percent of revenue was last year for you guys.

So last year, it was around 8%.

8%.

I'm sorry. Last year third quarter was about 8% there.

But there was -- that's kind of level it's been at, right, for...

Yes. I mean, it has been moving up a little bit, but -- yes.

And I'm showing no further questions at this time. I would now like to turn the call back to Mr. Joseph Capper for any further remarks.

Thank you, operator. Thanks again, everyone, for your continued support and interest in the company. We will speak to you after our next quarter. Operator, that concludes today's call. Thank you.

If you joined the conference late today, you may listen to the conference call via a digital replay, which will be available through the Investor Information section of the BioTelemetry website at www.gobio.com, until November 13, 2018.