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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________
FORM 10-Q
________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number: 000-55039
https://cdn.kscope.io/11ac6c516baba497f4cec915c1422fe9-logo1a13.jpg
BioTelemetry, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware
 
46-2568498
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
1000 Cedar Hollow Road
 
 
Malvern,
Pennsylvania
 
19355
(Address of principal executive offices)
 
(Zip Code)
(610) 729-7000
(Registrant’s Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.001 per share
BEAT
NASDAQ Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes    No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes    No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Emerging growth company
Non-accelerated filer
Smaller reporting company
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    No  
As of July 24, 2020, 34,185,494 shares of the registrant’s common stock were outstanding.
 




BioTelemetry, Inc.
Quarterly Report on Form 10-Q
For the Period Ended June 30, 2020

TABLE OF CONTENTS
 
 
Page
PART I
 
Financial Statements (unaudited)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
PART II
 
 
 
 
Unless the context otherwise indicates or requires, the terms “we,” “our,” “us,” “BioTelemetry” and the “Company,” as used in this Quarterly Report on Form 10-Q, refer to BioTelemetry, Inc. and its directly and indirectly owned subsidiaries as a combined entity, except where otherwise stated or where it is clear that the terms mean only BioTelemetry, Inc. exclusive of its subsidiaries. We do not use the ® or ™ symbol in each instance in which one of our registered or common law trademarks appears in this Quarterly Report on Form 10-Q, but this should not be construed as any indication that we will not assert our rights thereto to the fullest extent permissible under applicable law.

2



CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document includes certain forward-looking statements within the meaning of the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995 regarding, among other things, our growth prospects, the prospects for our products and our confidence in our future. These statements may be identified by words such as “expect,” “anticipate,” “estimate,” “intend,” “plan,” “believe,” “promises” and other words and terms of similar meaning. Examples of forward-looking statements include statements we make regarding our ability to increase demand for our products and services, to leverage our Mobile Cardiac Outpatient Telemetry platform, to expand into new markets, to grow our market share, our expectations regarding revenue trends in our segments and the achievement of cost efficiencies through process improvement. Such forward-looking statements are based on current expectations and involve inherent risks and uncertainties, including important factors that could delay, divert or change any of these expectations, and could cause actual outcomes and results to differ materially from current expectations. These factors include, among other things:
our ability to identify acquisition candidates, acquire them on attractive terms and integrate their operations into our business;
our ability to educate physicians and continue to obtain prescriptions for our products and services;
changes to insurance coverage and reimbursement levels by Medicare and commercial payors for our products and services;
our ability to attract and retain talented executive management and sales personnel;
the commercialization of new competitive products;
acceptance of our new products and services, such as our mobile cardiac telemetry (“MCT”) patch;
the impact of the COVID-19 pandemic;
the impact of the October 2019 information technology incident;
our ability to obtain and maintain required regulatory approvals for our products, services and manufacturing facilities;
changes in governmental regulations and legislation;
adverse regulatory action;
our ability to obtain and maintain adequate protection of our intellectual property;
interruptions or delays in the telecommunications systems and/or information technology systems that we use;
our ability to successfully resolve outstanding legal proceedings; and
the other factors that are described in “Part I; Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019, as well as the factors that are described in “Part II; Item 1A. Risk Factors” of our Quarterly Report on Form 10-Q for the period ended March 31, 2020.

3



We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise, except as may be required by law.


4

PART I — FINANCIAL INFORMATION


Item 1.  Financial Statements
BIOTELEMETRY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and par value data)
(Unaudited)
June 30,
2020
 
December 31,
2019
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
84,003

 
$
68,614

Healthcare accounts receivable, net of allowance for credit losses of $37,530 and $31,780, at June 30, 2020 and December 31, 2019, respectively
65,525

 
71,851

Other accounts receivable, net of allowance for credit losses of $542 and $201, at June 30, 2020 and December 31, 2019, respectively
15,088

 
15,625

Inventory
6,929

 
5,738

Prepaid expenses and other current assets
4,371

 
6,505

Total current assets
175,916

 
168,333

Property and equipment, net of accumulated depreciation of $78,066 and $76,095, at June 30, 2020 and December 31, 2019, respectively
60,275

 
56,380

Intangible assets, net
128,324

 
129,596

Goodwill
301,333

 
301,321

Deferred tax assets
7,156

 
12,626

Other assets
36,653

 
17,464

Total assets
$
709,657

 
$
685,720

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
21,491

 
$
24,198

Accrued liabilities
48,006

 
27,318

Current portion of finance lease obligations
255

 
394

Current portion of long-term debt

 
3,844

Total current liabilities
69,752

 
55,754

Long-term portion of finance lease obligations
224

 
289

Long-term debt
157,655

 
190,823

Other long-term liabilities
98,198

 
71,937

Total liabilities
325,829

 
318,803

Stockholders’ equity:
 
 
 
Common stock—$0.001 par value as of June 30, 2020 and December 31, 2019; 200,000,000 shares authorized as of June 30, 2020 and December 31, 2019; 34,185,144 and 34,023,053 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively
34

 
34

Paid-in capital
461,279

 
453,366

Accumulated other comprehensive loss
(514
)
 
(469
)
Accumulated deficit
(76,971
)
 
(86,014
)
Total stockholders’ equity
383,828

 
366,917

Total liabilities and stockholders’ equity
$
709,657

 
$
685,720

See accompanying Notes to Consolidated Financial Statements.

5

BIOTELEMETRY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(in thousands, except per share data)
2020
 
2019
 
2020
 
2019
Revenue
$
89,407


$
111,803

 
$
202,438

 
$
215,782

Other revenue
9,702

 

 
9,702

 

Total revenue
99,109

 
111,803

 
212,140

 
215,782

Cost of revenue
37,582

 
41,563

 
80,105

 
80,764

Gross profit
61,527

 
70,240

 
132,035

 
135,018

Operating expenses:
 
 
 
 
 
 
 
General and administrative
31,099

 
30,587

 
62,980

 
58,194

Sales and marketing
10,521

 
12,795

 
23,967

 
25,235

Credit loss expense
6,166

 
5,379

 
12,186

 
10,527

Research and development
2,699

 
3,532

 
6,267

 
6,865

Other charges
5,003

 
2,234

 
7,087

 
5,304

Total operating expenses
55,488

 
54,527

 
112,487

 
106,125

Income from operations
6,039

 
15,713

 
19,548

 
28,893

Other expense:
 
 
 
 
 
 
 
Interest expense
(1,702
)
 
(2,538
)
 
(3,809
)
 
(5,020
)
Loss on equity method investments

 
(154
)
 

 
(186
)
Other non-operating income/(expense), net
(1,400
)
 
86

 
(469
)
 
(968
)
Total other expense, net
(3,102
)
 
(2,606
)
 
(4,278
)
 
(6,174
)
Income before income taxes
2,937

 
13,107

 
15,270

 
22,719

Provision for income taxes
(656
)
 
(4,807
)
 
(5,880
)
 
(2,734
)
Net income
$
2,281

 
$
8,300

 
$
9,390

 
$
19,985

 
 
 
 
 
 
 
 
Net income per common share:
 
 
 
 
 
 
 
Basic
$
0.07

 
$
0.25

 
$
0.27

 
$
0.59

Diluted
$
0.06

 
$
0.23

 
$
0.26

 
$
0.55

Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
Basic
34,290

 
33,825

 
34,238

 
33,806

Dilutive common stock equivalents
2,319

 
2,493

 
2,431

 
2,638

Diluted
36,609

 
36,318

 
36,669

 
36,444

See accompanying Notes to Consolidated Financial Statements.

6

BIOTELEMETRY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(in thousands)
2020
 
2019
 
2020
 
2019
Net income
$
2,281

 
$
8,300

 
$
9,390

 
$
19,985

Other comprehensive income/(loss):
 
 
 
 
 
 
 
Foreign currency translation gain/(loss)
270

 
(711
)
 
(45
)
 
(713
)
Comprehensive income
$
2,551

 
$
7,589

 
$
9,345

 
$
19,272

See accompanying Notes to Consolidated Financial Statements.


7

BIOTELEMETRY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


 
Six Months Ended
 
June 30,
(in thousands)
2020
 
2019
OPERATING ACTIVITIES
 
 
 
Net income
$
9,390

 
$
19,985

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Credit loss expense
12,186

 
10,527

Depreciation and amortization
21,364

 
20,213

Stock-based compensation
7,060

 
6,026

Accretion of debt discount
498

 
621

Deferred income taxes
4,100

 
1,980

Change in fair value of acquisition-related contingent consideration
1,850

 
(1,810
)
Other non-cash items
909

 
(398
)
Changes in operating assets and liabilities:
 
 
 
Healthcare and other accounts receivable
(5,670
)
 
(19,643
)
Inventory
(1,191
)
 
1,286

Prepaid expenses and other assets
(520
)
 
(3,366
)
Accounts payable
(2,707
)
 
3,837

Accrued and other liabilities
22,276

 
(3,128
)
Net cash provided by operating activities
69,545

 
36,130

INVESTING ACTIVITIES
 
 
 
Acquisition of business, net of cash acquired

 
(44,766
)
Purchases of property and equipment and investment in internally developed software
(17,110
)
 
(16,092
)
Net cash used in investing activities
(17,110
)
 
(60,858
)
FINANCING ACTIVITIES
 
 
 
Proceeds related to the exercising of stock options and employee stock purchase plan
2,508

 
4,729

Payments of tax withholdings related to vesting of share-based awards
(1,655
)
 
(4,955
)
Principal payments on long-term debt
(197,825
)
 
(2,563
)
Principal payments on revolving credit facility
(70,000
)
 

Proceeds from borrowings on revolving credit facility
232,000

 

Payment of debt issuance costs
(1,684
)
 

Principal payments on finance lease obligations
(332
)
 
(1,659
)
Net cash used in financing activities
(36,988
)
 
(4,448
)
Effect of exchange rate changes on cash
(58
)
 
(1
)
Net increase/(decrease) in cash and cash equivalents
15,389

 
(29,177
)
Cash and cash equivalents - beginning of period
68,614

 
80,889

Cash and cash equivalents - end of period
$
84,003

 
$
51,712

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
 
 
 
Non-cash purchases of property and equipment
$
4,761

 
$
1,645

Non-cash fair value of equity issued for acquisition of business

 
2,142

Non-cash fair value of customer lists acquired
5,470

 

Cash paid for interest
3,065

 
4,327

Cash paid for taxes
$
636

 
$
312

See accompanying Notes to Consolidated Financial Statements.

8

BIOTELEMETRY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)




 
Common Stock
 
Paid-in Capital
 
Accumulated
Other
Comprehensive
Loss
 
Accumulated Deficit
 
Total Stockholders’ Equity
(in thousands, except shares)
Shares
 
Amount
 
 
 
 
Balance at March 31, 2020
34,138,516

 
$
34

 
$
457,000

 
$
(784
)
 
$
(79,252
)
 
$
376,998

Share issuances related to stock compensation plans
51,949

 

 
789

 

 

 
789

Stock-based compensation

 

 
3,678

 

 

 
3,678

Shares withheld to cover taxes on vesting of share-based awards
(5,321
)
 

 
(188
)
 

 

 
(188
)
Currency translation adjustment

 

 

 
270

 

 
270

Net income

 

 

 

 
2,281

 
2,281

Balance at June 30, 2020
34,185,144

 
$
34

 
$
461,279

 
$
(514
)
 
$
(76,971
)
 
$
383,828



 
Common Stock
 
Paid-in Capital
 
Accumulated
Other
Comprehensive
Income/(Loss)
 
Accumulated Deficit
 
Total Stockholders’ Equity
(in thousands, except shares)
Shares
 
Amount
 
 
 
 
Balance at March 31, 2019
33,803,736

 
$
34

 
$
436,892

 
$
254

 
$
(104,173
)
 
$
333,007

Share issuances related to stock compensation plans
36,022

 

 
418

 

 

 
418

Stock-based compensation

 

 
3,477

 

 

 
3,477

Shares withheld to cover taxes on vesting of share-based awards
(838
)
 

 
(44
)
 

 

 
(44
)
Issuance of stock related to business combination
50,000

 

 
2,142

 

 

 
2,142

Deferred purchase price consideration - equity portion

 

 
250

 

 

 
250

Currency translation adjustment

 

 

 
(711
)
 

 
(711
)
Net income

 

 

 

 
8,300

 
8,300

Balance at June 30, 2019
33,888,920

 
$
34

 
$
443,135

 
$
(457
)
 
$
(95,873
)
 
$
346,839




See accompanying Notes to Consolidated Financial Statements.

9

BIOTELEMETRY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)




 
Common Stock
 
Paid-in Capital
 
Accumulated
Other
Comprehensive
Loss
 
Accumulated Deficit
 
Total Stockholders’ Equity
(in thousands, except shares)
Shares
 
Amount
 
 
 
 
Balance at December 31, 2019
34,023,053

 
$
34

 
$
453,366

 
$
(469
)
 
$
(86,014
)
 
$
366,917

Cumulative effect of change in accounting principle

 

 

 

 
(347
)
 
(347
)
Share issuances related to stock compensation plans
195,129

 

 
2,508

 

 

 
2,508

Stock-based compensation

 

 
7,060

 

 

 
7,060

Shares withheld to cover taxes on vesting of share-based awards
(33,038
)
 

 
(1,655
)
 

 

 
(1,655
)
Currency translation adjustment

 

 

 
(45
)
 

 
(45
)
Net income

 

 

 

 
9,390

 
9,390

Balance at June 30, 2020
34,185,144

 
$
34

 
$
461,279

 
$
(514
)
 
$
(76,971
)
 
$
383,828



 
Common Stock
 
Paid-in Capital
 
Accumulated
Other
Comprehensive
Income/(Loss)
 
Accumulated Deficit
 
Total Stockholders’ Equity
(in thousands, except shares)
Shares
 
Amount
 
 
 
 
Balance at December 31, 2018
33,406,364

 
$
33

 
$
426,054

 
$
256

 
$
(115,858
)
 
$
310,485

Share issuances related to stock compensation plans
496,974

 
1

 
4,728

 

 

 
4,729

Stock-based compensation

 

 
6,026

 

 

 
6,026

Shares withheld to cover taxes on vesting of share-based awards
(64,418
)
 

 
(4,955
)
 

 

 
(4,955
)
Issuance of stock related to business combination
50,000

 

 
2,142

 

 

 
2,142

Deferred purchase price consideration - equity portion

 

 
9,140

 

 

 
9,140

Currency translation adjustment

 

 

 
(713
)
 

 
(713
)
Net income

 

 

 

 
19,985

 
19,985

Balance at June 30, 2019
33,888,920

 
$
34

 
$
443,135

 
$
(457
)
 
$
(95,873
)
 
$
346,839




See accompanying Notes to Consolidated Financial Statements.


10

BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



1. Summary of Significant Accounting Policies
a) Principles of Consolidation & Reclassifications
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information, the instructions to Form 10-Q, and Rule 10-01 of Regulation S-X and include the accounts of BioTelemetry, Inc. and its wholly owned subsidiaries (“BioTelemetry,” the “Company,” “we,” “our” or “us”). In the opinion of management, all adjustments (which are of a normal and recurring nature) considered necessary to present fairly the financial position as of June 30, 2020 and December 31, 2019 and the results of operations, statements of comprehensive income, cash flows, and equity for the interim periods ended June 30, 2020 and 2019 have been included. All intercompany transactions and balances have been eliminated in consolidation. The results of operations for any interim period are not indicative of the results of the full year. Certain information and footnote disclosures normally included in consolidated financial statements presented in accordance with U.S. GAAP, but which are not required for interim reporting purposes, have been omitted. The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
A reclassification has been made to prior period statements to conform to the current period presentation. This consists of combining our non-cash depreciation and amortization expenses into one line on our consolidated statements of cash flows. This reclassification had no impact on previously reported working capital, consolidated results of operations, cash flows or accumulated deficit.
b) Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates.
c) Fair Value of Financial Instruments
Fair value is defined as the exit price, the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as defined below. Observable inputs are inputs a market participant would use in valuing an asset or liability based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our own assumptions about the factors a market participant would use in valuing an asset or liability developed using the best information available in the circumstances. The classification of an asset’s or liability’s level within the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
Level 1 -
Quoted prices in active markets for an identical asset or liability.
Level 2 -
Inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the asset or liability.

11

BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


Level 3 -
Inputs that are unobservable for the asset or liability, based on our own assumptions about the assumptions a market participant would use in pricing the asset or liability.
Our financial instruments consist primarily of cash and cash equivalents, Healthcare accounts receivable, other accounts receivable, accounts payable, acquisition-related contingent consideration, current portion of long-term debt and long-term debt. With the exception of acquisition-related contingent consideration and long-term debt, the carrying value of these financial instruments approximates their fair value because of their short-term nature (classified as Level 1).
Our long-term debt (classified as Level 2) is measured using market prices for similar instruments, inputs such as the borrowing rates currently available, benchmark yields, actual trade data, broker/dealer quotes and other similar data obtained from quoted market prices or independent pricing vendors.
The fair value of our acquisition-related contingent consideration (classified as Level 3) is measured on a recurring basis using a Monte Carlo simulation. The Monte Carlo model uses assumptions, including estimated projected revenues, estimated stock price volatility in future periods, estimated discount rates and discounts for the lack of marketability of common stock. These estimates are subject to a significant level of judgment.
In addition to the recurring fair value measurements, the fair value of certain assets acquired and liabilities assumed in connection with an acquisition are recorded at fair value, primarily using a discounted cash flow model (classified as Level 3). This valuation technique requires us to make certain assumptions, including future operating performance, cash flows and revenue growth rates, royalty rates and other such variables, which are discounted to present value using a discount rate that reflects the risk factors associated with future cash flow, the characteristics of the assets acquired and liabilities assumed and the experience of the acquired business.
Non-financial assets such as goodwill, intangible assets, property and equipment and right-of-use (“ROU”) assets are subsequently measured at fair value when there is an indicator of impairment and recorded at fair value only when an impairment is recognized. We assess the impairment of goodwill, intangible assets, property and equipment and ROU assets annually or whenever events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable.
d) Accounts Receivable and Allowance for Credit Losses
Healthcare accounts receivable, including contract assets, are recorded at the time Healthcare segment revenue is recognized and is presented on the consolidated balance sheet net of an allowance for credit losses. For our contracted payors, we determine revenue based on negotiated prices for the services provided. Based on our history, we have experience collecting substantially all of the negotiated contracted rates and are therefore not providing an implicit price concession. Because of continuing changes in the health care industry and third-party reimbursement, it is possible that our estimates of collectability could change, which could have a material impact on our operations and cash flows.
Other accounts receivable are related to the Research segment and Corporate and Other category and are recorded at the time revenue is recognized, when products are shipped or services are performed.
When calculating an allowance for credit losses, we calculate the expected credit loss based on past events, current conditions, and reasonable and supportable forecasts that affect the collectability of our receivables, even if we believe that no loss has been incurred as of the measurement date. This includes,

12

BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


but is not limited to, historical collection trends, the current state of the healthcare market, and current and projected future industry trends.
We write off receivables when the likelihood for collection is remote, we believe collection efforts have been fully exhausted and we do not intend to devote additional resources in attempting to collect. We assess write-offs on a monthly basis.
e) Accounting for Government Stimulus Receipts
During the second quarter of 2020, we received funding under certain COVID-19 government stimulus programs. Relief Funds distributed by the United States Department of Health and Human Services (“HHS”), appropriated under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which represent reimbursements for a portion of our lost revenue, are recognized as other revenue in our consolidated statements of operations as cash was received in the second quarter of 2020 and we have met the requisite funding criteria. We also received advanced payments for our future services in the second quarter of 2020 related to our Healthcare segment from the Centers for Medicare and Medicaid Services (“CMS”) under their Accelerated and Advance Payment Program, which are recorded as contract liabilities as a component of accrued liabilities on our consolidated balance sheet. We currently do not expect to receive additional funds under these programs.
f) Acquisition-Related Contingent Consideration
Acquisition-related contingent consideration is our obligation, arising from an acquisition, to transfer additional assets and/or equity interests to the seller if certain future events occur or conditions are met. The fair value of the contingency is estimated as of the acquisition date using certain unobservable inputs (and therefore classified as Level 3 in the fair value hierarchy) and is recorded as a liability. We re-measure the estimated fair value of acquisition-related contingent consideration at each reporting date. Adjustments subsequent to the acquisition measurement period are recorded in other charges in the consolidated statements of operations. Changes to the inputs used in the measurement of acquisition-related contingent consideration include estimated projected revenues, estimated stock price volatility in future periods, estimated discount rates and discounts for the lack of marketability of common stock. Acquisition-related contingent consideration may change significantly as our inputs and assumptions noted above evolve and additional data is obtained. The inputs and assumptions used in estimating fair value require significant judgment. The use of different assumptions and judgments could result in different fair value estimates that may have a material impact on our results from operations and financial position.
g) Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, Healthcare accounts receivable, including contract assets related to our cardiac monitoring services and other accounts receivable. We maintain our cash and cash equivalents with high quality financial institutions to mitigate this risk. We perform ongoing credit evaluations of our customers and generally do not require collateral. We record an allowance for credit losses in accordance with the procedures described above. Past-due amounts are written off against the allowance for credit losses when collections are believed to be unlikely and all collection efforts have ceased.
At June 30, 2020 and December 31, 2019, one payor, Medicare, accounted for 22% of our total gross accounts receivable.

13

BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


h) Leases
We lease our administrative and service facilities, as well as certain office equipment, monitoring devices and information technology equipment under arrangements classified as leases under Accounting Standards Codification (“ASC”) 842 - Leases (“ASC 842”).
We recognize ROU assets at the inception of the arrangement as the present value of the lease payments plus our initial direct costs (if any), less any lease incentives. The corresponding liability is computed as the present value of the lease payments at inception. Assets are classified as either operating or finance ROU assets according to the classification criteria in ASC 842. Upon the adoption of ASC 842, we elected the transition practical expedient to not separate lease and non-lease components where we are the lessor when the requisite criteria is met to be treated as such. The present value of the lease payments is computed using the rate implicit in the lease (if known) or our incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis of a similar term at an amount equal to the lease payments.
Operating lease costs are charged to operations on a straight-line basis over the lease term. Interest charged on the finance lease liabilities is charged to interest expense, while the amortization of the finance lease ROU assets is also charged to operations on a straight-line basis.
Under our policy, we do not record an ROU asset or corresponding liability for arrangements where the initial lease term is one year or less. Those leases are expensed on a straight-line basis over the term of the lease.
For our operating leases, we record the ROU assets as a component of other assets, the current lease liability as a component of accrued liabilities, and the long-term lease liability as a component of other long-term liabilities on our consolidated balance sheet. For our finance leases, we record the ROU asset and the accumulated amortization for the finance ROU asset as a component of property and equipment, net, with the current and long-term portions of the finance lease obligations as separate lines within our consolidated balance sheet. We amortize the finance ROU assets over the shorter of the remaining lease term or the estimated life of the asset.
i) Stock-Based Compensation
ASC 718 - Compensation - Stock Compensation (“ASC 718”), addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for: (i) equity instruments of the enterprise or (ii) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. ASC 718 requires that an entity measure the cost of equity-based service awards issued to employees, such as stock options and restricted stock units (“RSUs”), based on the grant-date fair value of the award and recognize the cost of such awards over the requisite service period (generally, the vesting period of the award). The compensation expense associated with performance stock units (“PSUs”) is recognized ratably over the period between when the performance conditions are deemed probable of achievement and when the awards are vested. Performance stock options (“PSOs”) are valued and stock-based compensation expense is recorded once the performance conditions of the outstanding PSOs have achieved probability.
We have historically recorded stock-based compensation expense based on the number of stock options or stock units we expect to vest using our historical forfeiture experience and we periodically update those forfeiture rates. We estimate forfeitures under the true-up provision of ASC 718. We record additional

14

BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


expense if the actual forfeiture rate is lower than estimated and record a recovery of prior expense if the actual forfeiture rate is higher than estimated.
We estimate the fair value of our stock options using the Black‑Scholes option valuation model. The Black‑Scholes option valuation model requires the use of certain subjective assumptions. The most significant of these assumptions are the estimates of the expected volatility of the market price of our stock and the expected term of the award. We base our estimates of expected volatility on the historical average of our stock price. The expected term represents the period of time that share‑based awards granted are expected to be outstanding. Other assumptions used in the Black‑Scholes option valuation model include the risk‑free interest rate and expected dividend yield. The risk‑free interest rate for periods pertaining to the expected term of each option is based on the U.S. Treasury yield of a similar duration in effect at the time of grant. We have never paid, and do not expect to pay, dividends in the foreseeable future.
We estimate the fair value of our PSUs using a Monte Carlo simulation. This model uses assumptions, including the risk free interest rate, expected volatility of our stock price and those of the performance group, dividends of the performance group members and expected life of the awards. As noted above, we continue to estimate forfeitures under the true-up provision of ASC 718. If it is deemed probable that the PSU performance targets will be met, compensation expense is recorded for these awards ratably over the requisite service period. The PSUs are forfeited to the extent the performance criteria are not met within the service period.
j) Income Taxes
We account for income taxes under the liability method, as described in ASC 740 - Income Taxes (“ASC 740”). Deferred income taxes are recognized for the tax consequences of temporary differences between the tax and consolidated financial statement reporting bases of assets and liabilities. When we determine that we will not be able to realize our deferred tax assets, we adjust the carrying value of the deferred tax asset through the valuation allowance.
We record unrecognized tax benefits in accordance with ASC 740 on the basis of a two-step process in which (i) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (ii) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
Under ASC 740, the effects of changes in tax rates and tax laws on deferred tax balances are recognized in the period in which the new legislation is enacted. The total effect of tax law changes on deferred tax balances is recorded as a component of income tax expense.
k) Net Income/(Loss) Per Share
We compute net income/(loss) per share in accordance with ASC 260 - Earnings Per Share. Basic net income/(loss) per share is computed by dividing net income/(loss) by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by giving effect to all potential dilutive common stock equivalents, including stock options, RSUs, PSOs and PSUs, using the treasury stock method and shares expected to be issued in connection with acquisition-related contingent consideration arrangements when dilutive.

15

BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


Certain stock options, which are priced higher than the average market price of our shares for the periods ended June 30, 2020 and 2019 would be anti-dilutive and therefore have been excluded from the weighted average shares used in computing diluted net income per share. These options could become dilutive in future periods. Similarly, certain recently granted RSUs and PSUs are also excluded using the treasury stock method as their impact would be anti-dilutive. The dilutive effect of weighted average shares outstanding excludes approximately 0.9 million and 0.8 million shares for the three and six month period ended June 30, 2020, respectively, and excludes approximately 0.6 million and 0.4 million shares for the three and six month period ended June 30, 2019, respectively, as their effect would have been anti-dilutive on our net income per share.
l) Segment Information
ASC 280 - Segment Reporting, establishes standards for reporting information regarding operating segments in annual consolidated financial statements. Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions on how to allocate resources and assess performance.
We report our business under two segments: Healthcare and Research. The Healthcare segment is focused on remote cardiac monitoring to identify cardiac arrhythmias or heart rhythm disorders and to monitor the functionality of implantable cardiac devices. We offer cardiologists, electrophysiologists, neurologists and primary care physicians a full spectrum of solutions, which provides them with a single source of cardiac monitoring services. The Research segment is engaged in centralized core laboratory services providing cardiac monitoring, imaging services, scientific consulting and data management services for drug and medical device trials. Included in the Corporate and Other category is the manufacturing, testing and marketing of cardiac and blood glucose monitoring devices to medical companies, clinics and hospitals and corporate overhead and other items not allocated to any of our reportable segments.
m) Recent Accounting Pronouncements
Accounting Pronouncements Recently Adopted
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-03, Codification Improvements to Financial Instruments (“ASU 2020-03”). ASU 2020-03 clarifies a number of issues, including certain issues related to leases and revolving credit arrangements. Our adoption of this update upon its release did not have a material impact to our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). This update eliminates certain disclosures related to transfers and valuation processes, clarifies the requirement for measurement uncertainty disclosures, and requires additional disclosures for Level 3 fair value measurements, including the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Our adoption of this update on January 1, 2020 did not have a material impact to our consolidated financial statements.

16

BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. This update, along with subsequent updates and amendments, introduces the current expected credit loss model, which requires an entity to measure credit losses for certain financial instruments and financial assets, including trade receivables. Under this update, upon initial recognition and at each reporting period, an entity is required to recognize an allowance that reflects the entity’s current estimate of credit losses expected to be incurred over the life of the financial instrument. Our adoption of this update on January 1, 2020 resulted in an immaterial adjustment to accumulated deficit, and we have modified our disclosures in accordance with the new guidance.
Accounting Pronouncements Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) the transition from LIBOR and other interbank offered rates to alternative reference interest rates. This ASU can be applied immediately; however, the guidance will only be available until December 31, 2022. We are in the process of evaluating the impact of this update on our consolidated financial statements and related disclosures.


2. Revenue Recognition
We recognize revenue in accordance with ASC 606 - Revenue from Contracts with Customers (“ASC 606”), which requires revenue recognized to represent the transfer of promised goods or services to customers at an amount that reflects the consideration that a company expects to receive in exchange for those goods or services.
Disaggregation of Revenue
We disaggregate revenue from contracts with customers by payor type and major service line. We determined that disaggregating revenue into these categories achieves the disclosure objective of illustrating the differences in the nature, amount, timing and uncertainty of our revenue streams. During the second quarter of 2020, we received Relief Funds distributed by HHS that represent reimbursements for a portion of our lost revenue and are recognized as other revenue in our consolidated statements of operations as cash was received and we met the requisite funding requirements. Other revenue is outside of the scope of ASC 606.

17

BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


Disaggregated revenue by payor type and major service line was as follows:
 
Three Months Ended June 30, 2020
 
Reporting Segment
 
Corporate and Other
 
Total
(in thousands)
Healthcare
 
Research
 
 
Payor/Service Line
 
 
 
 
 
 
 
Remote cardiac monitoring services - Medicare
$
33,281

 
$

 
$

 
$
33,281

Remote cardiac monitoring services - commercial payors
41,399

 

 

 
41,399

Clinical trial support and related services

 
11,459

 

 
11,459

Technology devices, consumables and related services

 

 
3,268

 
3,268

Subtotal
74,680

 
11,459

 
3,268

 
89,407

Other revenue
9,702

 

 

 
9,702

Total revenue
$
84,382

 
$
11,459

 
$
3,268

 
$
99,109


 
Three Months Ended June 30, 2019
 
Reporting Segment
 
Corporate and Other
 
Total
(in thousands)
Healthcare
 
Research
 
 
Payor/Service Line
 
 
 
 
 
 
 
Remote cardiac monitoring services - Medicare
$
36,096

 
$

 
$

 
$
36,096

Remote cardiac monitoring services - commercial payors
58,908

 

 

 
58,908

Clinical trial support and related services

 
13,879

 

 
13,879

Technology devices, consumables and related services

 

 
2,920

 
2,920

Total revenue
$
95,004

 
$
13,879

 
$
2,920

 
$
111,803


 
Six Months Ended June 30, 2020
 
Reporting Segment
 
Corporate and Other
 
Total
(in thousands)
Healthcare
 
Research
 
 
Payor/Service Line
 
 
 
 
 
 
 
Remote cardiac monitoring services - Medicare
$
73,409

 
$

 
$

 
$
73,409

Remote cardiac monitoring services - commercial payors
96,978

 

 

 
96,978

Clinical trial support and related services

 
25,279

 

 
25,279

Technology devices, consumables and related services

 

 
6,772

 
6,772

Subtotal
170,387

 
25,279

 
6,772

 
202,438

Other revenue
9,702

 

 

 
9,702

Total revenue
$
180,089

 
$
25,279

 
$
6,772

 
$
212,140


18

BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


 
Six Months Ended June 30, 2019
 
Reporting Segment
 
Corporate and Other
 
Total
(in thousands)
Healthcare
 
Research
 
 
Payor/Service Line
 
 
 
 
 
 
 
Remote cardiac monitoring services - Medicare
$
70,031

 
$

 
$

 
$
70,031

Remote cardiac monitoring services - commercial payors
112,982

 

 

 
112,982

Clinical trial support and related services

 
26,843

 

 
26,843

Technology devices, consumables and related services

 

 
5,926

 
5,926

Total revenue
$
183,013

 
$
26,843

 
$
5,926

 
$
215,782

Remote Cardiac Monitoring Services Revenue (Healthcare segment)
Healthcare segment revenue is generated by remote cardiac monitoring to identify cardiac arrhythmias or heart rhythm disorders and monitoring the functionality of implantable cardiac devices. We offer cardiologists, electrophysiologists, neurologists and primary care physicians a full spectrum of solutions, which provides them with a single source of cardiac monitoring services.
Performance obligations are determined based on the nature of the services provided. With our remote cardiac monitoring services, the patient receives the benefits of the service over time, resulting in revenue recognition over time based on the output method. We believe that this method provides an accurate depiction of the transfer of value over the term of the performance obligation because the level of effort in providing these services is consistent during the service period.
A summary of the payment arrangements with payors is as follows:
Contracted payors (including Medicare): We determine the transaction price based on negotiated prices for services provided, on a case rate basis, as provided for under the relevant Current Procedural Terminology (“CPT”) codes.
Non-contracted payors: Non-contracted commercial and government insurance carriers often reimburse out-of-network rates provided for under the relevant CPT codes on a case rate basis. Our transaction price includes implicit price concessions based on our historical collection experience for our non-contracted patients.
We are utilizing the portfolio approach practical expedient in ASC 606 for our patient contracts in the Healthcare segment. We account for the contracts within each portfolio as a collective group, rather than individual contracts. Based on our history with these portfolios and the similar nature and characteristics of the patients within each portfolio, we have concluded that the financial statement effects are not materially different than if accounting for revenue on a contract-by-contract basis.
For the contracted portfolio, we have historical experience of collecting substantially all of the negotiated contractual rates and determined at contract inception that these customers have the intention and ability to pay the promised consideration. We have also concluded that historical information is largely representative of forward-looking information. As such, we are not providing an implicit price concession but, rather, have chosen to accept the risk of default, and adjustments to the transaction price are recorded as credit loss expense.

19

BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


For our non-contracted portfolio, we are providing an implicit price concession because we do not have a contract with the underlying payor, the result of which requires us to estimate our transaction price based on historical cash collections utilizing the expected value method. Subsequent adjustments to the transaction price are recorded as an adjustment to Healthcare segment revenue and not as credit loss expense.
We have not made any significant changes to judgments in applying ASC 606 to the Healthcare segment during the three and six months ended June 30, 2020 and 2019.
Clinical Trial Support and Related Services Revenue (Research segment)
Research segment revenue is generated by providing centralized core laboratory services, including cardiac monitoring, imaging services, scientific consulting and data management services for drug and medical device trials. These amounts are due from pharmaceutical companies and contract research organizations. We bill our customers on a fee-for-service basis. Under a typical contract, some customers pay us a portion of our fee upon contract execution as an upfront refundable deposit. Upfront deposits are deferred and then recognized as the services are performed. If a contract is canceled prior to service being provided, the upfront deposit is refunded.
Performance obligations are determined based on the nature of the services provided. Our core laboratory services are provided over time as the customer receives benefits resulting in revenue recognition over the term of the contract. Our research customer contracts have legally enforceable terms that are predominately thirty days due to termination for convenience clauses, which are held by the customer with no significant penalty. Given the short-term nature of these contracts and the structure of our billing practices, our billing practices approximate our performance if measured by an output method, where each output is an individual occurrence of each performance obligation. Accordingly, we utilize the invoice practical expedient as defined in ASC 606, resulting in recognition of revenue in the amount that we have the right to invoice.
We have historical experience of collecting substantially all of the fees for services incurred and thus believe that no material loss has been incurred as of the measurement date. As such, we are not providing an implicit price concession but, rather, have chosen to accept the risk of default, and adjustments to the transaction price are recorded as credit loss expense.
We have not made any significant changes to judgments in applying ASC 606 to the Research segment during the three and six months ended June 30, 2020 and 2019.
Technology Device, Consumable and Related Service Revenue (Corporate and Other category)
Our Corporate and Other category revenue is primarily derived from the sale of non-invasive cardiac monitors to healthcare companies, wireless blood glucose meters and test strips to wholesale distributors of diabetes supplies and diabetic patients, as well as product repairs. Performance obligations are primarily the sale of devices, related goods and repairs provided by us. These contracts transfer control to a customer at a point in time based on the transfer of title for the underlying good or service. We provide standard warranty provisions.
We determine the transaction price based on fixed consideration in our contractual agreements with our customers and allocate the transaction price to each performance obligation based on the relative stand-alone selling price. We determine the relative stand-alone selling price utilizing our observable prices for the sale of the underlying goods. We have historical experience of collecting substantially all of the

20

BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


transaction price and thus believe that no material loss has been incurred as of the measurement date. As such, we are not providing an implicit price concession but, rather, have chosen to accept the risk of default, and adjustments to the transaction price are recorded as credit loss expense.
We have not made any significant changes to judgments in applying ASC 606 to the Corporate and Other category during the three and six months ended June 30, 2020 and 2019.
Contract Assets and Contract Liabilities
ASC 606 requires an entity to present a revenue contract as a contract asset when the entity performs its obligations under the contract by transferring goods or services to a customer before the customer pays consideration or before payment is due. ASC 606 also requires an entity to present a revenue contract as a contract liability in instances when a customer pays consideration, or an entity has a right to an amount of consideration that is unconditional (e.g., receivable), before the entity transfers a good or service to the customer.
As of June 30, 2020 and December 31, 2019, we had contract assets of $9.9 million and $15.1 million, respectively, related to cardiac monitoring services, which are included as a component of Healthcare accounts receivable on our consolidated balance sheets. As of June 30, 2020 and December 31, 2019, we also had contract assets of $2.0 million and $1.7 million, respectively, related to our Corporate and Other category revenue contracts, which are included as a component of other accounts receivable on our consolidated balance sheets.
As of June 30, 2020 and December 31, 2019, we had contract liabilities of $25.4 million and $1.6 million, respectively. Generally, our contract liabilities primarily relate to the Research segment where customers paid upfront deposits upon contract execution for future services to be performed by us; however, during the second quarter of 2020, we received and held $23.7 million of advanced payments from CMS under their Accelerated and Advance Payment Program for our future services related to our Healthcare segment which are recorded as contract liabilities, in addition to $1.7 million of Research segment upfront deposits, as of June 30, 2020. We expect to begin applying these advanced payments for our future services in the third quarter of 2020.
If the Research contract is canceled, those upfront deposits are refundable if service was not yet provided. Our contract liabilities are included as a component of accrued liabilities on our consolidated balance sheets.
For the three months ended June 30, 2020, the amount recognized as revenue from the contract liabilities balance as of March 31, 2020 was $0.7 million, while for the six months ended June 30, 2020, the amount recognized as revenue from the contract liabilities as of December 31, 2019 was $0.8 million. Similarly, for the three months ended June 30, 2019, the amount recognized as revenue from the contract liabilities balance as of March 31, 2019 was $0.9 million, while for the six months ended June 30, 2019, the amount recognized as revenue from the contract liabilities as of December 31, 2018 was $1.6 million. There were no significant changes or impairment losses incurred related to contract balances during the six months ended June 30, 2020.

21

BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


Allowance For Credit Losses
We record an allowance for credit losses based on historical collection trends, the current state of the healthcare market and current and projected future industry trends. Disaggregated allowance by portfolio was as follows:
 
Three Months Ended June 30, 2020
 
Portfolio
 
Total
(in thousands)
Healthcare
 
Other
 
Beginning balance
$
37,980

 
$
548

 
$
38,528

Current period credit loss expense*
6,105

 
61

 
6,166

Write-offs
(6,555
)
 
(67
)
 
(6,622
)
Ending Balance
$
37,530

 
$
542

 
$
38,072


 
Six Months Ended June 30, 2020
 
Portfolio
 
Total
(in thousands)
Healthcare
 
Other
 
Beginning balance
$
31,780

 
$
201

 
$
31,981

Cumulative effect of change in accounting principle

 
347

 
347

Current period credit loss expense*
12,125

 
61

 
12,186

Write-offs
(6,555
)
 
(67
)
 
(6,622
)
Recoveries collected
180

 

 
180

Ending Balance
$
37,530

 
$
542

 
$
38,072

* formerly bad debt expense


3. Acquisitions
ADEA Medical AB
During the second quarter of 2019, we acquired all of the remaining outstanding equity of ADEA Medical AB, now known as BioTel Europe AB (“ADEA” or “BioTel Europe”), a limited company incorporated and registered under the laws of Sweden. BioTel Europe provides cardiac monitoring in northern Europe.
Pursuant to the acquisition agreement, we agreed to issue the owners of ADEA 50,000 shares of our common stock, with a fair value of approximately $2.1 million, as well as to pay $0.2 million in cash. The shares that were issued came with restrictions: the restrictions related to 10,000 shares expired in the fourth quarter of 2019, and the restrictions on the remaining 40,000 shares, which are currently available to satisfy indemnification obligations, are set to expire in the second quarter of 2022.
Prior to the second quarter of 2019, we accounted for our 23.8% stake in ADEA as an equity method investment. We accounted for the acquisition of the remaining equity of ADEA as a step acquisition, which required us to re-measure our previous ownership interest to fair value prior to application of purchase accounting, and we recognized the immaterial difference between the fair value and the carrying value of the equity method investment at that time. The total purchase price of ADEA was $3.3 million, primarily consisting of the equity and cash consideration paid in the second quarter of 2019, plus the amounts paid

22

BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


for our initial investment in ADEA in 2018. We then allocated this purchase price to the assets acquired and liabilities assumed. The acquired net assets consisted primarily of customer relationships and non-compete agreements. The excess of the fair value of the purchase price over the fair value of the net assets acquired has been recognized as goodwill, which represents the expected future benefits arising from the assembled workforce and other synergies attributable to cost savings opportunities. We have recognized $2.6 million of goodwill as a result of the acquisition, all of which has been assigned to the Healthcare segment. None of this goodwill will be deductible for tax purposes.
We finalized our fair value estimates related to the ADEA acquisition during the three months ended September 30, 2019. There were no changes to the total purchase price, and the measurement period adjustment related to deferred income taxes during the three months ended September 30, 2019 was not material.
We do not consider this acquisition to be significant to our results of operations. The transaction costs related to this acquisition and revenues and results of operations of ADEA prior to our acquisition were all immaterial.
Geneva Healthcare, Inc.
On March 1, 2019, we acquired Geneva Healthcare, Inc., now known as Geneva Healthcare, LLC (“Geneva”), for cash consideration of $45.9 million. In addition, pursuant to the terms of the Agreement and Plan of Merger, dated January 25, 2019, by and among Geneva, BioTelemetry, Inc., Tyersall Merger Sub, Inc., and the Securityholders’ Representative (the “Geneva Agreement”), on the third anniversary date of the closing date, the Securityholders (as defined in the Geneva Agreement) are eligible to receive additional consideration in the form of cash payments, as well as shares of BioTelemetry common stock, with a total estimated present value of $32.0 million as of the March 1, 2019 acquisition date, for a total aggregate purchase price of $77.9 million. Concurrent with the closing of the acquisition, the Securityholders made elections as to the percentage mix of their total additional consideration to be settled in cash or common stock.
The estimated additional consideration of $32.0 million, as of the March 1, 2019 acquisition date, consists of the following:
The Securityholders will, subject to potential deductions pursuant to the Geneva Agreement, receive additional consideration of $20.0 million, a total of $11.1 million of which will be paid in cash, and the remaining value will be settled in shares. We will issue a total of 131,594 shares of our common stock to settle the share-related portion of the obligation, based on the elections made by the Securityholders and the formulas within the Geneva Agreement.
The estimated present value of the future cash payment of $11.1 million, which totals $9.7 million as of the acquisition date, as well as the estimated fair value of our common stock of $9.1 million, has been included within the purchase price for Geneva. The estimated present value of the future cash payment is recorded as a component of other long-term liabilities and will be accreted to its redemption value through interest expense through the payment date. The estimated fair value of the 131,594 shares our common stock has been recorded within paid-in-capital.
The Securityholders will also be eligible to receive additional consideration, in the form of both cash and shares, based on a predetermined formula that is driven by the future revenues of

23

BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


Geneva and does not have a predetermined limit. The total estimated acquisition-related contingent consideration as of the March 1, 2019 acquisition date was $13.2 million, which is also included in the purchase price of Geneva. The $13.2 million is recorded within other long-term liabilities and will be marked to market through earnings on a quarterly basis throughout the earn-out period. The equity portion of the acquisition-related contingent consideration requires liability classification and mark-to-market accounting pursuant to the provisions of ASC 815 - Derivatives and Hedging.
We acquired Geneva as part of our business strategy to go deeper and wider into the cardiac monitoring market. Geneva has developed an innovative proprietary cloud-based platform that aggregates data from the leading cardiac device manufacturers, enabling the Company to remotely monitor a physician’s patients with implantable cardiac devices such as pacemakers, defibrillators and loop recorders. Geneva’s platform provides physicians a single portal to order patient monitoring, review monitoring results and request routine device checks, helping drive significant in-office efficiencies and patient compliance. We have continued to merge this functionality with that of the Healthcare segment user interface, which we believe will drive greater workflow and data management efficiencies to the clients we serve.
We accounted for the transaction as a business combination, and as such, all assets acquired and liabilities assumed were recorded at their estimated fair values. The excess of the fair value of the purchase price over the fair value of the net assets acquired has been recognized as goodwill, which represents the expected future benefits arising from the assembled workforce and other synergies attributable to cost savings opportunities. We have recognized $59.9 million of goodwill as a result of the acquisition, all of which has been assigned to the Healthcare segment. None of this goodwill will be deductible for tax purposes.
The amounts in the table below represent our final fair value estimates related to the Geneva acquisition as of March 1, 2019. Measurement period adjustments recorded during 2019 consisted primarily of decreasing additional consideration by $2.2 million and increasing net deferred tax assets by $2.9 million. We finalized our fair value estimates related to the Geneva acquisition during the three months ended December 31, 2019.

24

BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


(in thousands, except years)
Amount
 
Weighted
Average Life
(Years)
Fair value of assets acquired:
 
 
 
Cash and cash equivalents
$
1,376

 
 
Healthcare accounts receivable
1,500

 
 
Prepaid expenses and other current assets
234

 
 
Identifiable intangible assets:
 
 
 
Customer relationships
3,500

 
12
Technology
8,900

 
7
Trade names
2,500

 
15
Total identifiable intangible assets
14,900

 
 
Deferred tax assets
1,013

 
 
Total assets acquired
19,023

 
 
Fair value of liabilities assumed:
 
 
 
Accounts payable
215

 
 
Accrued liabilities
872

 
 
Total liabilities assumed
1,087

 
 
 
 
 
 
Total identifiable net assets
17,936

 
 
Goodwill
59,944

 
 
Net assets acquired
$
77,880

 
 

We incurred $1.4 million of acquisition-related costs associated with Geneva for the year ended December 31, 2019. The costs were included in other charges in our consolidated statements of income. The revenues and income of Geneva for periods prior to our acquisition were immaterial to our consolidated operating results.


4. Inventory
Inventory consists of the following:
(in thousands)
June 30,
2020
 
December 31,
2019
Raw materials and supplies
$
4,741

 
$
4,429

Finished goods
2,188

 
1,309

Total inventory
$
6,929

 
$
5,738




5. Fair Value Measurements
We have determined that our long-term debt, classified as Level 2, has a fair value consistent with its carrying value, net of debt discount and deferred charges, of $157.7 million and $194.7 million as of June 30, 2020 and December 31, 2019, respectively.
Acquisition-related contingent consideration represents our contingent payment obligations related to our acquisitions and is measured at fair value, based on significant inputs not observable in the market,

25

BIOTELEMETRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


which represents a Level 3 measurement within the fair value hierarchy. The valuation of acquisition-related contingent consideration uses assumptions we believe would be made by a market participant. We assess these estimates on an ongoing basis as additional data impacting the assumptions is obtained. The balance of the fair value of acquisition-related contingent consideration is recognized within other long-term liabilities on our consolidated balance sheet. Changes in the fair value of the acquisition-related contingent consideration, after the final determination as of the acquisition date, resulting from changes in the variables used to compute the fair value, are recorded in other charges in the consolidated statements of operations.
The following table provides a reconciliation of the beginning and ending balances of acquisition-related contingent consideration:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(in thousands)
2020
 
2019
 
2020
 
2019
Beginning balance
$
12,650

 
$
15,990

 
$
12,940

 
$

Acquisition-related contingent consideration

 

 

 
15,990

Measurement period adjustments to acquisition-related contingent consideration

 
(2,820
)
 

 
(2,820
)
Change in fair value of acquisition-related contingent consideration
2,140

 
(1,810
)
 
1,850

 
(1,810
)
Ending balance
$
14,790

 
$
11,360

 
$
14,790

 
$
11,360


In conjunction with the Geneva acquisition, and after a measurement period adjustment recorded in the second quarter of 2019, we recognized $13.2 million of acquisition-related contingent consideration on March 1, 2019 as a component of other long-term liabilities as the contingency will be finalized after the third anniversary of the closing date.
The estimated fair value of the acquisition-related contingent consideration related to the Geneva acquisition was determined using a Monte Carlo simulation, that considered numerous variables, including estimated projected revenues, future stock price, discount rates and discounts for lack of marketability of common stock. These estimates are subject to a significant level of judgment.
The changes in the acquisition-related contingent consideration related to the Geneva