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Edited Transcript of BEAT earnings conference call or presentation 30-Jul-19 9:00pm GMT

Q2 2019 BioTelemetry Inc Earnings Call

CONSHOHOCKEN Aug 2, 2019 (Thomson StreetEvents) -- Edited Transcript of BioTelemetry Inc earnings conference call or presentation Tuesday, July 30, 2019 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Heather C. Getz

BioTelemetry, Inc. - Executive VP & CFO

* Joseph H. Capper

BioTelemetry, Inc. - CEO, President & Director

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Conference Call Participants

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* Brooks Gregory O'Neil

Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst

* Eugene Mark Mannheimer

Dougherty & Company LLC, Research Division - Senior Research Analyst of Healthcare

* Jayson Tyler Bedford

Raymond James & Associates, Inc., Research Division - Senior Medical Supplies and Devices Analyst

* Lalishwar Mitra Ramgopal

Sidoti & Company, LLC - Healthcare Sell Side Analyst

* William Sutherland

The Benchmark Company, LLC, Research Division - Equity Analyst

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Presentation

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Operator [1]

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Good afternoon. Thank you for joining us for the BioTelemetry Second Quarter 2019 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 meanings of the Private Securities and Litigation Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the company in the future to be materially different from the statements that the company's executives may make today. These risks are described in detail in our public filings with the Securities and Exchange Commission, including our latest periodic report on Form 10-K or 10-Q. We assume no duty to update these statements.

During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release, which is distributed and available to the public through the Investor Information section on the BioTelemetry website at gobio.com. (Operator Instructions) Please note, that today's call is being recorded.

It is now my pleasure to turn the floor over to your host, Mr. Joseph Capper, President and CEO of BioTelemetry. Sir, you may begin.

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Joseph H. Capper, BioTelemetry, Inc. - CEO, President & Director [2]

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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 highlights about 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 2019. After our prepared remarks, we will open up the call for questions.

I am pleased to report on another excellent quarter, during which we again met or exceeded all of our expectations, setting new all-time highs in quarterly revenue and EBITDA. Moreover, despite a strong comparison from the prior year period, we still grew the top line by 10%, marking our 28th consecutive quarter with year-over-year revenue growth. This remarkable consistency is a result of several factors, which we have spent years developing and are very difficult to replicate. Specifically, we possess a multi-faceted product portfolio encompassing gold standard technology. Our deep understanding of the cardiac monitoring market has allowed us to forge an effective strategy and grow market share. As you will hear today, we are implementing our plan with great discipline, and the results speak for themselves.

Another important part of our success is our industry-leading sales and service infrastructure, which supports an ever-growing physician network. These and other competitive advantages have fueled this 7-year run, over which time our business has grown fourfold. We are clearly not resting on this success. In fact, we are using our position of strength to chart a course of dynamic growth for many more years to come.

As is my custom on these calls, let me again remind you of the 3 primary tenets of the plan that dictate our resource allocation and continue to drive our unparalleled performance.

First, we have been and remain committed to investing in our core cardiac monitoring business to expand our capabilities, most recently evidenced by the acquisition of Geneva Healthcare. This acquisition alone has increased our addressable market by $1 billion, and that estimate may very well prove conservative. Additionally, this expansion of our data management and aggregation solutions may provide new sources of revenue at some point down the road. We have strong IP and an impressive internal R&D capability, which has allowed us to introduce several new products and service enhancements. In addition to product R&D, we continued to invest in ways to apply AI and system automation to improve performance and gain efficiencies. We've recently expanded our sales and marketing organizations to accelerate the growth of our product monitoring and Geneva data management and workflow solutions. As you know, prior to Geneva, we completed several other highly beneficial acquisitions, providing scale and additional capabilities. You can expect us to continue funding a myriad of investments designed to further expand our addressable market within and beyond traditional cardiac monitoring. We see vast opportunities that are well suited to the core strength of this company. BioTelemetry's technology is extremely well tailored to address the current, and importantly, the future needs of payers and providers.

The second pillar of our strategy is to look for ways to expand the capabilities of our leading research services business. This focus led to key acquisitions, providing us with revenue diversification and impressive growth. We have also invested in numerous system enhancements to improve service performance, and we have continued to evaluate additional capabilities to further strengthen our research services offering and competitive position.

Third, we have allocated time and resources exploring new ways to leverage our platform and connected technology in adjacent markets. Among other projects, these efforts have led to the incubation of our digital population health management solution. As I have said before, this segment has the potential to, one day, far exceed our patient monitoring business. We believe population health will play a critical role in the way health care is managed and delivered, employing technology to more effectively manage large numbers of people living with chronic conditions.

As you will recall, our initial pop health focus is in the multibillion dollar diabetes market, whereby we use a cellular-enabled blood glucose monitor and a cloud-based analytical platform to power a care management program designed to modify behavior and ultimately improve the health of people living with diabetes.

Over the past few years, we have focused primarily on upgrading our technology with minimal resources allocated to expanding our go-to-market efforts. The more we learn about the population health business, the more convinced we are that the demand for these services is real and sustainable, and Wall Street seems to agree. The huge market potential for these solutions became quite evident last week with the IPO of a company that commercializes a similar diabetes care management solution. The initial offer was well received by the market and the company was rewarded with an extremely high valuation. While we are not professing an equivalent capability at this time, this development certainly further validates that our efforts in this field are warranted. We will continue to assess the most appropriate way for us to invest in and grow this business.

I reiterate these 3 things quarterly to provide you an understanding of how we allocate our time and resources. It's also important to stress our comprehensive approach to grow in this connected health platform versus a focus on any single product. Further, we think it's worthwhile to understand the framework that drove the 7 years of consecutive quarterly growth. Some may call 7 years of growth a heck of a run. We consider it a pretty good start. As you've heard, we have more opportunities for growth today than ever before. Our challenge is how to address them effectively, using both our human and financial capital. We are confident we will continue to find the right balance.

Let's take a look at some of the quarterly highlights. During the period, revenue grew by 10% to nearly $112 million, at the higher end of expectations and a new high for the company. Adjusted for the Medicare rate reduction, this represents 12% growth. Overall margins were above expectations as quarterly EBITDA grew to $31.6 million, again, setting a new all-time high. We ended the quarter with $51.7 million in cash, up $6.2 million in the period. We spent time integrating Geneva into the Healthcare business. We completed the recently announced acquisition of ADEA, an early-stage Swedish medical technology company that delivers remote health services in the Nordics. Our research services team continued to outperform the market with revenue up 11%, and we continued efforts to build upon our new digital population health management business through key partnerships and internal investments.

Taking a closer look at the Healthcare Services business, you will see why we remain extremely optimistic about the prospects for this sector, especially in light of recent developments. During the quarter, we remained focused on expanding the market penetration for the new MCT and extended wear Holter patch products and the Geneva application. The Healthcare sales team continued to execute incredibly well, posting impressive growth in new and existing accounts, with Healthcare revenue up approximately 10% in the quarter.

As I mentioned on previous calls, we're in the process of growing the Healthcare Services sales team by approximately 20%. We have completed most of this expansion, which we anticipate will begin to contribute in the second half of 2019 and beyond. Expanding the size of the sales organization, which is by far the most productive in our industry, will support continued growth in patient monitoring and a more rapid penetration for the Geneva platform.

Speaking of Geneva. We are delighted to have added this capability to our cardiac solutions portfolio, and trust we are beginning to appreciate the massive potential this asset adds to the business. As a reminder, Geneva is an innovative, proprietary cloud-based platform that aggregates data from the leading cardiac devices, enabling the company to remotely monitor all the physicians' patients with implanted devices such as pacemakers, defibrillators and loop recorders. The Geneva platform provides physicians a single portal to order patient monitoring, view monitoring results and request routine device checks, helping drive significant in-office efficiencies and patient compliance. This solution is transforming the way physician offices consolidate and manage data from implantable cardiac devices, giving precious time back to the staff to focus on patient care. The acquisition of Geneva repositions BioTelemetry as a much more progressive data consolidation and solutions-oriented company and hedges against any potential shift in favor of implanted monitoring devices.

We are initially focused on the rapid introduction of Geneva into the thousands of accounts for which we currently provide cardiac monitoring services. Our Healthcare Services sales team, nearing 125 strong, has been trained on the Geneva solution and armed with appropriate marketing materials. They have been instructed to target our largest accounts, where early receptivity has been nothing short of amazing. We are, obviously, very pleased with the wide acceptance of the Geneva solution. Based on our current pipeline activity, we expect its impressive performance to continue throughout 2019 and beyond. With such strong demand, our challenge is to quickly add support staff adequate to maintain a high level of service to the many new customers coming on board.

In addition to the sales push and resource allocation, we have our software technical team working on further enhancements to the platform's capabilities. We are close to having the BioTel Heart user interface merged into the Geneva portal, providing even greater workflow and data management efficiencies. This will radically change the way we relate to customers in the cardiology market, and it will further solidify our leadership position in remote cardiac monitoring. We have also begun to evaluate other applications for potential interface into the Geneva platform. These applications will build more value into the solution and may create additional sources of revenue.

Switching to Research Services. We are happy to report on another excellent quarter, during which research grew by 11%, hitting new all-time highs in both revenue and pipeline. As mentioned on previous calls, we are having more success incorporating our proprietary ePatch monitor as a critical element of new cardiac studies, creating cross-segment, top line synergy and a distinct competitive advantage. We have a few large-scale ePatch studies now underway and several more in the pipeline.

During the quarter, we invested in a new, faster and more efficient image analysis software system, which will create greater efficiency and scalability. BioTelemetry has also been working with innovative consumer tech companies as they seek to integrate heart health trackers into their popular wearable devices. As reported in the media, these screening tools are designed to notify consumers of potential cardiac risks that may require medical monitoring, diagnosis and possible treatment. The good news for us is that these devices do not replace what we provide, but rather increase the number of patients who will need monitoring services.

During the quarter, the research team continued our support of a few of these studies, which have the potential to substantially expand our market and closely align with our mission to improve human health. In studies like these, BioTelemetry is uniquely positioned to leverage the strengths of our Research and Healthcare divisions.

In terms of new business opportunities, we continued to work during the quarter on our digital population health initiative. This project has taken on a whole new level of excitement given the recent IPO mentioned earlier. We have excellent technology and a comprehensive cloud-based analytical platform, providing a foundation from which to build upon. This gives us a potential fast follower opportunity in a very large and growing market.

As we moved into 2019, we've began allocating more business development resources to the payer and at-risk segment and are starting to see positive results. On our last call, I spoke about the potential for developing an additional physician-driven sales channel through the use of a new remote patient monitoring CPT codes, which CMS activated at the beginning of the year. We now have several pilots underway testing the application of these codes, and are optimistic that this may develop into a viable alternative to bring this care management service to market. While we are making good headway with our pop health initiative, I don't want to leave you thinking we are where we need to be in order to compete effectively on a large scale at this point. However, we are currently analyzing our options for moving more aggressively in that direction in order to take advantage of this sizable opportunity.

We are also developing additional opportunities for unique partnerships with companies looking to enter the health care space, the Apple Heart Study being a prime example. These are just a few of the many exciting prospects 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 extremely pleased with the company's second quarter performance. More important -- more importantly, we expect that the investments we are making across the company will support our continued growth well into the future.

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

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Heather C. Getz, BioTelemetry, Inc. - Executive VP & CFO [3]

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Thank you, Joe, and good afternoon, everyone. As Joe just announced, we continued our record-setting performance in the second quarter with our 28th consecutive quarter of year-over-year revenue growth. Total revenue grew 10% year-over-year, reaching $112 million and exceeding our expectations. This growth resulted from revenue increases in all of our business lines.

Healthcare revenue increased $8.3 million or 10% to $95 million once again driven by patient volume growth in both our MCT and extended wear Holter service lines as well as the addition of Geneva's revenue from the monitoring of implantable cardiac devices. These increases were partially offset by the $1.5 million impact from a slight reduction in the Medicare pricing, which went into effect January 1.

Excluding this reduction, our Healthcare revenue growth would have been over 11%. Our Research revenue also increased, up 11% or $1.3 million to $13.9 million, benefiting from new studies utilizing our ePatch extended wear Holter service. And our other revenue increased 40% to $2.9 million, resulting from new partnerships in our digital population health business.

Moving to gross profit. Our margin for the second quarter of 2019 was 62.8% versus 64.9% in the prior year period. The decrease in our margin was primarily due to an above average margin in Q2 of 2018 when our patient volume was growing rapidly, but our hiring did not keep pace. Also impacting the margin comparison is the lower MCT Medicare price. We view 62% to 63% as a more normal range for our gross margin at this point. Our second quarter adjusted EBITDA was $31.6 million, a new high for us and representing a 28.4% return on revenue. This increase in our adjusted EBITDA was primarily due to the increased revenue, partially offset by the impact of the investments we are making in our sales and technology areas.

As for our tax rate, for 2019, while we expect our GAAP tax rate to be approximately 21%, we anticipate that we will continue to be able to utilize our $160 million of federal net operating loss carryforwards. And as a result, we believe that we will pay approximately $2 million in cash for taxes in 2019.

Moving to our balance sheet. We ended the quarter with $51.7 million in cash and $198 million of indebtedness, putting our debt-to-EBITDA ratio lower than 1.5x. Year-to-date, we generated $36 million in cash from operations and used about $16 million for capital expenditures. These expenditures were driven by purchases of our MCT and extended wear Holter patch devices as well as for capitalized software and hardware as we invest in our IT environment and infrastructure. Free cash flow was $20 million, and we used $45 million of our cash in the first quarter for the upfront payment for the Geneva acquisition.

Shifting gears, I will now touch on the outlook for the third quarter. We are projecting revenue of approximately $111 million or about 11% growth, with an adjusted EBITDA return of about 28%. As many on the call may know, we typically experience a slowdown in volume during the summer months, mainly in the Healthcare segment, which we have reflected in this guidance. That being said, with the continued penetration in the extended wear Holter market as well as increased contribution from the monitoring of implantable devices, we believe there is a potential upside to this number.

To summarize, the company remains in a strong financial position with modest leverage and additional capacity if needed. We are pleased to have delivered another great quarter with our highest quarterly revenue and EBITDA in the history of the company. 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 now turn the call back over to Joe.

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Joseph H. Capper, BioTelemetry, Inc. - CEO, President & Director [4]

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Thanks, Heather. As you have just heard, we had another great quarter, continuing to build upon our long-standing momentum. Our forward-thinking strategy is yielding the results we had envisioned when we developed it, and it has positioned us well to compete within today's evolving health care market. We continue to develop new opportunities and are in the early stages of several potentially significant drivers of future growth. The addition of Geneva will further broaden our cardiac offering, strengthen our leadership position and significantly accelerate our growth plan.

To ensure our continued success throughout 2019, we will focus on: completing the Healthcare sales force expansion to help drive further market penetration of our MCT and extended wear Holter services; integrating and resourcing Geneva as rapidly as possible to take advantage of its wide market demand; continuing to grow our Research business by making additional business development and infrastructure-related investments; building out our digital population health management business by continuing our current market development efforts; and expanding on key partnerships we have developed.

Given our consistently strong performance and business momentum, we remain bullish on our prospects for the remainder of 2019 and beyond. Based on Heather's comments about how we anticipate things taking shape for the second half of 2019, it is clear we are in store for another great year. We have all the key elements for continued success: a proven and experienced management team; market-leading products; exceptional sales and service; a solid financial foundation; and large market opportunities, many of which are still in early stages. For the full year 2019, we will monitor over 1.3 million people. Our revenue will grow by double digits with an EBITDA margin in the high 20s. And the company will generate a significant amount of free cash, allowing for accelerated investments into other connected health solutions.

As I close, I would again like to thank those of you who helped deliver our 28th consecutive growth quarter. Your efforts continue to improve our ability to help save more and more lives every day. With that, we'll now pause and open the call to your questions. Operator, we are ready for our first question.

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Questions and Answers

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Operator [1]

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

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Brooks Gregory O'Neil, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [2]

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Congratulations on the terrific quarter. I personally appreciated the expanded commentary today, guys. So thank you very much. I have a couple of questions. First, I think there has been some commentary in recent weeks about the reimbursement outlook, particularly related to Medicare. Would you guys just summarize what you have seen and then give us your perspective on the impact, any reimbursement changes you might have on BioTelemetry?

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Joseph H. Capper, BioTelemetry, Inc. - CEO, President & Director [3]

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So Brooks, what products are you referring to? All of them? MCT in particular?

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Brooks Gregory O'Neil, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [4]

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I'm thinking mostly about Holter and MCT.

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Joseph H. Capper, BioTelemetry, Inc. - CEO, President & Director [5]

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So MCT, as you know, we're in a fairly stable position. We had some ups and downs over the years. Part of the physician fee schedule, the preliminary physician fee schedule was published literally yesterday. Upon initial review, it looks like there's no real movement in one direction or another. And that will cover all products, Event, Holter and MCT, they sort of net out neutral from what we can tell, which only leaves extended wear Holter, as you know, is still under a temporary code. There has been movement in that area. We believe ACC made a recommendation to AMA to move into a permanent code status, so that has to go through the approval process with AMA and eventually pricing with the rock. So that process is unfolding as we speak.

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Brooks Gregory O'Neil, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [6]

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And would you say if there was a change of the temporary code to a permanent code on the extended wear Holter, would it have much impact on BioTelemetry and the revenue you would expect in 2020 or beyond?

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Joseph H. Capper, BioTelemetry, Inc. - CEO, President & Director [7]

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My understanding is that the impact would likely not -- if any impact, will likely not happen until 2021 at the earliest. So nothing in 2020. That's a product category that, as you know, is growing rapidly for us.

So fingers crossed that as we move into a permanent code status, they take in a cost information from all the players in the industry and we can make a good case that we're driving a favorable result with that product and it gets adequate coverage.

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Brooks Gregory O'Neil, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [8]

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Okay. That makes sense to me. Second question I have is you talked a little bit more today than you have recently about the potential of the population health business, obviously, potentially stimulated by the recent IPO. But do you think that business has the potential to impact the company's results, I mean, specifically, revenue and earnings in the next year or 2? Or do you think that's more something that's likely to potentially have an impact further out in the future?

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Joseph H. Capper, BioTelemetry, Inc. - CEO, President & Director [9]

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I think it depends on how much we're willing to invest in the development of the business. And as you know, we're a publicly traded company, whose shareholders have become accustomed to us generating a decent return on our revenue. So we don't have the luxury of doing it in a start-up capacity. But I do think there's a lot we can do. And that we could do it in a reasonable way. So we're going through kind of an assessment phase, and we would like to be more aggressive in that area. I don't want to put a time frame, I'm going to punt that in terms of when we expect significant impact because we've really just incubated it. We've picked up some assets late '16, early '17 and then, as you know, we did the LifeWatch acquisition integration in '17, '18 and Geneva this year. So we've had some great opportunities to expand our footprint in cardiac monitoring. We would like to pivot back and spend a little more time on this and some other opportunities that we're looking at. But we do think it's a big market potential and it's wide open space right now. So I think we should be spending more time on it. Just we have to be prudent about the way we approach it.

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Brooks Gregory O'Neil, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [10]

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I'm particularly excited about the opportunities in that area myself. So I applaud you for looking at it and I understand the pressures you face as a public company. Let me ask just one more. Obviously, we're all excited about the addition of Geneva to the mix and your comments were well taken. But there again, do you think Geneva is the kind of an asset and the business opportunity that might drive accelerated, what we might call, organic growth from BioTelemetry in the relatively near term? Or how do you think about that, the impact of Geneva going forward?

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Joseph H. Capper, BioTelemetry, Inc. - CEO, President & Director [11]

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I do think it will drive organic growth. I think it's going to be a big part of our growth as we move into 2020 and beyond. We're shifting more to kind of a data aggregation and solutions provider. Obviously, our core remote cardiac monitoring business will be a big part of that. But now we're able to bring a wider array of solutions into the cardiology practice, and it is a really solid solution. It's a great product, and it's a -- it's one that really drives workflow efficiency, a lot of benefits within the cardiology practice. So it's incredibly well received. It is a tech-enabled service. And as you know, tech-enabled services require infrastructure, support, people. So our challenge is let's not overheat it. Let's make sure we're grabbing as much of that market as we can, but at the same time, resourcing the property. So people keep asking me, how much margin will it contribute? And right now, I'm saying, I think it could pay its own freight and I don't expect a lot of margin contribution from it. In the near term, I'd rather it fuel growth and drive that top line. So I think it's going to be a big contributor.

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Operator [12]

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Our next question comes from the line of Jayson Bedford with Raymond James.

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Jayson Tyler Bedford, Raymond James & Associates, Inc., Research Division - Senior Medical Supplies and Devices Analyst [13]

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Just a few. You called out the strength in MCT and extended Holter. Do you care to put numbers on it in terms of the growth contribution here in the quarter?

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Heather C. Getz, BioTelemetry, Inc. - Executive VP & CFO [14]

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So on the MCT side, the volume growth was about 7% in the quarter over last year.

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Joseph H. Capper, BioTelemetry, Inc. - CEO, President & Director [15]

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Last 2 quarters, we've been averaging at 7% to 8% range in MCT, and extended wear Holter is much higher. I don't think we've put that number...

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Heather C. Getz, BioTelemetry, Inc. - Executive VP & CFO [16]

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Yes, yes, we haven't put the actual growth number on that.

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Joseph H. Capper, BioTelemetry, Inc. - CEO, President & Director [17]

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It's a smaller base. You can imagine it's a much higher growth number. And revenue on a combined basis for that plus an EBITDA of 10%.

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Jayson Tyler Bedford, Raymond James & Associates, Inc., Research Division - Senior Medical Supplies and Devices Analyst [18]

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Okay. And I'm sorry if I missed this, but did you give the Geneva contribution in the quarter?

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Joseph H. Capper, BioTelemetry, Inc. - CEO, President & Director [19]

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We did. We didn't break it out. It's rolled up into our Healthcare revenue.

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Heather C. Getz, BioTelemetry, Inc. - Executive VP & CFO [20]

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Yes. So if you look at overall Healthcare revenue, MCT was about 69%, Event was 14%, Holter was just north of 11% and Geneva was about 6% of Healthcare revenue.

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Jayson Tyler Bedford, Raymond James & Associates, Inc., Research Division - Senior Medical Supplies and Devices Analyst [21]

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Okay. Great. And then, Joe, I think you mentioned a more aggressive move into population health. I was a little unclear as to whether that was internally driven or externally in terms of M&A.

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Joseph H. Capper, BioTelemetry, Inc. - CEO, President & Director [22]

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Right now, we're focused on our capabilities and our options to internal investment. Obviously, Jayson, if we can find ways to accelerate that plan with partnerships or some M&A activity, we would look at it. But really what we're focused on is what -- we already have a big part of the puzzle solved. We already have the technology developed. We already have the cloud-based platform in place. We have customers. We have distribution. We have growth. So for us, it's kind of like how do we develop a more all-encompassing, robust, go-to-market strategy? And then how do we resource that effort so that we could start to grab more market share?

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Jayson Tyler Bedford, Raymond James & Associates, Inc., Research Division - Senior Medical Supplies and Devices Analyst [23]

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Okay. And maybe just the last one for me. As you put your core cardiac monitoring software and technology on the Geneva platform, what does that do to the business? Is that a loan or a revenue generator? Or is it just facilitate more accelerated access to new accounts?

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Joseph H. Capper, BioTelemetry, Inc. - CEO, President & Director [24]

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So first, it's going to provide far more workflow efficiency within the cardiology practice. So imagine combining 5 user interfaces into 1. So that is tremendous workflow efficiency, which means greater patient compliance, which means better outcomes within the practice. It also makes you a lot stickier within the practice, right? So that's -- part of it is a more comprehensive software solution. And the next phase, obviously, would be integrate with EMRs where appropriate. So it just makes you a whole lot stickier.

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Operator [25]

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Our next question comes from the line of Gene Mannheimer with Dougherty & Company.

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Eugene Mark Mannheimer, Dougherty & Company LLC, Research Division - Senior Research Analyst of Healthcare [26]

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Nice quarter. Just a few from me. If you could just discuss your rationale for buying ADEA, I think it is, your Nordic partner, looks like they use your product overseas. You seem to be struggling a bit. I'm just wondering why exercise your right to buy them and what type of revenue and EBITDA contribution could we expect from that this year.

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Joseph H. Capper, BioTelemetry, Inc. - CEO, President & Director [27]

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So we already have an investment in the company. They were a partner of ours that we made investment in some time ago. We had rights under that agreement to acquire the rest of it. We thought it was the best way to realize the potential within the regions they're in and give them opportunity to expand into other regions. Really good sales and marketing focus and a really good sales and marketing effort in the regions that they're in. We started to see growth. But we really want to free them up to focus on just that. In terms of revenue and EBITDA contribution, it's immaterial at this point, so we're not breaking that out.

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Eugene Mark Mannheimer, Dougherty & Company LLC, Research Division - Senior Research Analyst of Healthcare [28]

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Okay. And Joe, regarding the change to the CPT code on the temporary patches. What does your gut or intuition tell you about how that might -- how the rate might change on that and when would be the time frame?

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Joseph H. Capper, BioTelemetry, Inc. - CEO, President & Director [29]

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You're out of your mind. You think I'm going to give you my gut response? That's an over-a-beer conversation. The only thing I can tell you is we're doing everything we can to support the movement from -- into a permanent code, into proper category, that's step number one. And then everything we can do is to help support, keeping that reimbursement as appropriately priced as possible.

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Eugene Mark Mannheimer, Dougherty & Company LLC, Research Division - Senior Research Analyst of Healthcare [30]

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Okay. Fair assessment. And Joe, last for me then. Your expectations for MCT this year, certainly -- I think it's natural that growth would decline some following a 14% year last year in that segment. But is that -- is it tough comps that just are challenging here? Or is there any new competition that you would characterize around the slowing of this segment?

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Joseph H. Capper, BioTelemetry, Inc. - CEO, President & Director [31]

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Eugene, always hard to tell, right, exactly what's happening. I think you hit on a couple of them. Number one, tough comps, high growth last year coming out of the acquisition and integration of the LifeWatch business. The -- if you look the -- since we don't really have market growth data, I think we've mentioned in the past, we use doctor office visits as a proxy for market size and market growth. Doctor office visits this time versus last year are actually flat, right? So there's no real growth in the market itself. We suspect there might be a little bit of movement back and forth because the site service for the implantable loop, recorder loop from the hospital into the physician office. Short term, we believe that will be the case as it kind of cycles through. But again, I think it's important for us to -- first of all, it is a strong growth, the high single digits, right? And I think it's really important for us to stress that we don't go to market saying, "Hey, buy MCT from us." What we do is we say, "We have the most comprehensive cardiac monitoring data management solutions portfolio in the marketplace. Here's what we can do for you."

If you have a practice whose patients are more appropriate for an extended wear Holter or an Event because of insurance reasons, we provide that. And again, we don't push one product. So you're going to see ups and downs from year-to-year in the portfolio. And what we have communicated continually is, we still think we can grow our share of this at an above-market rate, and we use a number approximately 10%. Geneva will feed into that. It will help us. Geneva is a nice hedge against potential movement from one product category to another. So I do want to stress the fact that think of it as a portfolio of products, not just a product, and hold us accountable to hit those high double-digit, low -- or high single digits, low double-digit numbers, and we think we can manage the business in that way. And then obviously, where we can, we'll augment that with acquisition.

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Operator [32]

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

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Lalishwar Mitra Ramgopal, Sidoti & Company, LLC - Healthcare Sell Side Analyst [33]

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Heather, just wondering given your guidance for 3Q, it seems like it will require quite a bit of a step-up in the fourth quarter to get to even the midpoint of the annual range. I'm just wondering what you're looking for in terms of getting that step-up from 3Q to 4Q, if it's the investments being made in sales or anything else.

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Heather C. Getz, BioTelemetry, Inc. - Executive VP & CFO [34]

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Yes, so we would expect a step-up from Q3 to Q4. We normally do get that. But as you know, in my guidance, I also mentioned the fact that there is some upside in Q3. So I think that you kind of have to look at the 2 quarters together, the $111 million that we guided to, along with the full year guidance, and give us a little bit of leeway there from a standpoint of what Q4 is going to look like based on what we ultimately are able to achieve in Q3.

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Lalishwar Mitra Ramgopal, Sidoti & Company, LLC - Healthcare Sell Side Analyst [35]

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Okay, now that's great. And were there any onetime expenses, aside from the one I think you'd pointed out in the release, the integration expense with Geneva?

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Heather C. Getz, BioTelemetry, Inc. - Executive VP & CFO [36]

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So are there any...

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Joseph H. Capper, BioTelemetry, Inc. - CEO, President & Director [37]

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Any other onetime...

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Heather C. Getz, BioTelemetry, Inc. - Executive VP & CFO [38]

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Any other onetime...

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Lalishwar Mitra Ramgopal, Sidoti & Company, LLC - Healthcare Sell Side Analyst [39]

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Other onetime, yes.

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Heather C. Getz, BioTelemetry, Inc. - Executive VP & CFO [40]

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So -- yes, there's Geneva-related onetime, but then there's also some FX related to the LifeWatch acquisition as well that's being pulled out. It's also being offset by a pension reversal. But it's all related to LifeWatch, Geneva and then, obviously, the income tax effect of those adjustments.

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Lalishwar Mitra Ramgopal, Sidoti & Company, LLC - Healthcare Sell Side Analyst [41]

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Okay. And I believe you said the normalized tax rate would have been closer to like 20%, 21%.

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Heather C. Getz, BioTelemetry, Inc. - Executive VP & CFO [42]

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No, to the GAAP tax rate. Yes, if you look at the year, we're expecting a GAAP tax rate of about 20%, 21%. But that's being -- we're actually utilizing our NOLs to offset that. So we're looking at more like $2 million in cash taxes.

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Lalishwar Mitra Ramgopal, Sidoti & Company, LLC - Healthcare Sell Side Analyst [43]

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Okay. That's great. And then finally, Joe, you did talk about the expansion of the sales force, 20%, and then I'm just wondering how far along you are there or if you're almost done.

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Joseph H. Capper, BioTelemetry, Inc. - CEO, President & Director [44]

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Almost finished.

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Operator [45]

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

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William Sutherland, The Benchmark Company, LLC, Research Division - Equity Analyst [46]

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Heather, you ran through the percentage of revenue pretty quick, at least I didn't keep up. You said Geneva was what percent?

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Heather C. Getz, BioTelemetry, Inc. - Executive VP & CFO [47]

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It was about 6% of Healthcare.

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William Sutherland, The Benchmark Company, LLC, Research Division - Equity Analyst [48]

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Healthcare, okay.

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Heather C. Getz, BioTelemetry, Inc. - Executive VP & CFO [49]

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Yes. So you're looking at about $4 million in the quarter.

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William Sutherland, The Benchmark Company, LLC, Research Division - Equity Analyst [50]

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So it's growing very nicely.

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Heather C. Getz, BioTelemetry, Inc. - Executive VP & CFO [51]

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Yes.

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William Sutherland, The Benchmark Company, LLC, Research Division - Equity Analyst [52]

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And total Holter was 11%, including extended?

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Heather C. Getz, BioTelemetry, Inc. - Executive VP & CFO [53]

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So if you pro forma it for the Medicare reduction, it was north of 11%.

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William Sutherland, The Benchmark Company, LLC, Research Division - Equity Analyst [54]

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With the extended? Or is that...

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Heather C. Getz, BioTelemetry, Inc. - Executive VP & CFO [55]

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No, no, no, overall. I'm sorry, I thought you said for Healthcare. Extended, we didn't give a number.

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William Sutherland, The Benchmark Company, LLC, Research Division - Equity Analyst [56]

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Okay. No, I know you did. You said Holter was 11% of Healthcare.

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Heather C. Getz, BioTelemetry, Inc. - Executive VP & CFO [57]

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Total Holter. Yes, total Holter, which includes extended wear.

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William Sutherland, The Benchmark Company, LLC, Research Division - Equity Analyst [58]

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Including in that -- that total Holter includes extended.

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Heather C. Getz, BioTelemetry, Inc. - Executive VP & CFO [59]

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Correct.

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William Sutherland, The Benchmark Company, LLC, Research Division - Equity Analyst [60]

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Okay. That's all I was trying to get straight on. In the research revenue area, you guys have talked about -- just because of the project cycles, ends and starts, just timing, that there might be a slowdown there. Is that part of what's going on in third quarter?

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Joseph H. Capper, BioTelemetry, Inc. - CEO, President & Director [61]

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It could be. I mean look, third quarter was a tough quarter to forecast because you don't know how long the summer is going to last. The summer months do slow down, and in years past, we've had a decent slowdown that kind of pushed late in the third quarter. So we're using -- we're trying to be a little bit conservative there, and then compounding that is cycling some of these research studies.

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William Sutherland, The Benchmark Company, LLC, Research Division - Equity Analyst [62]

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Okay. And last one for me is on, Joe, you had mentioned in the early comments about some investments you're making in the research service area that would yield some potential. Any color you want to get into there? Or is it all skunk works at this point?

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Joseph H. Capper, BioTelemetry, Inc. - CEO, President & Director [63]

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No, no. We're actually investing a decent amount of money in infrastructure, system enhancements, trying to drive more efficiency, and its opening will provide more margin down the road. But it's important for us to do that from a capability's perspective. And then, obviously, we're constantly looking for potential add-ons for that business to round out the service offering.

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William Sutherland, The Benchmark Company, LLC, Research Division - Equity Analyst [64]

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I see, expand the testing areas?

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Joseph H. Capper, BioTelemetry, Inc. - CEO, President & Director [65]

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Yes.

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Operator [66]

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This concludes today's question-and-answer session. I would now like to turn the call back to Mr. Joseph Capper for any further remarks.

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Joseph H. Capper, BioTelemetry, Inc. - CEO, President & Director [67]

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Thanks, operator, and thank you, everybody, for your continued support and interest in the company. We will speak to you next quarter. Operator, that concludes today's call. Thank you very much.

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Operator [68]

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If you joined today's conference late, you may listen to the conference call via digital replay, which will be available through the Investor Information section of the BioTelemetry website at gobio.com until August 13, 2019. Thank you, and have a good day.