Acquisitions

ActiveCare

On October 2, 2018, we acquired, through our subsidiary Telcare Medical Supply, LLC, certain assets of ActiveCare, Inc. (“ActiveCare”) for $3.8 million in cash. The purchase price also includes a potential earn-out payment of $2.0 million, which is contingent on the achievement of certain revenue targets. The acquired net assets primarily consisted of customer relationships. The earn-out was assigned no value as of the acquisition date as it is currently not probable of achievement. The accounting for this transaction, including the valuation of certain intangible assets, remains open as of December 31, 2018. We have preliminarily accounted for this acquisition as a business combination. Our preliminary estimates are subject to subsequent adjustment as additional information is obtained and we expect to finalize all accounting for this transaction when the valuation is complete. The transaction costs related to this acquisition and revenues and income of ActiveCare prior to our acquisition were all immaterial.

LifeWatch AG

On July 12, 2017, we acquired, through our wholly owned subsidiary Cardiac Monitoring Holding Company, LLC, approximately 97.0% of the outstanding shares of LifeWatch AG for aggregate consideration of 3,615,840 shares of BioTelemetry common stock with a fair value of $116.8 million and cash in the amount of $165.8 million. On that date, we acquired control of LifeWatch and began consolidating its financial statements.

Through December 31, 2017, we purchased 343,525 additional shares of LifeWatch for cash consideration of $4.8 million and the issuance of 19,806 shares with a fair value of $0.6 million. We acquired the remaining untendered LifeWatch shares pursuant to a squeeze-out procedure in accordance with Swiss law and takeover regulations related to the offering occurring in early January 2018, with the settlement of $2.9 million cash, which was recorded as a component of accrued liabilities in our consolidated balance sheets, and 58,786 shares with a fair market value of $2.0 million, which was recorded as a component of paid-in capital in our consolidated balance sheets, both as of December 31, 2017. As of December 31, 2017, we owned 100% of LifeWatch.

Also on July 12, 2017, in connection with the closing of the acquisition of LifeWatch, and refinancing of our existing debt, we entered into the SunTrust Credit Agreement pursuant to which we obtained loans as follows; (i) a term loan (funded on July 12, 2017) in an aggregate principal amount equal to $205.0 million, the proceeds of which were used to (a) pay our existing GE Credit Agreement of $24.9 million and acquired LifeWatch debt of $3.0 million, (b) pay a portion of the cash consideration for the acquisition of LifeWatch, and (c) pay related transaction fees and expenses of the acquisition of LifeWatch; and (ii) a $50.0 million revolving credit facility for ongoing working capital purposes, which remains undrawn. The term loan will be repaid in quarterly installments beginning January 1, 2018, with the remaining principal balance repaid on or before July 12, 2022. For more information regarding the financing of this acquisition, please refer to “Note 11. Credit Agreement.”

The acquisition of LifeWatch strengthens our position as the leader in wireless medicine, creating the foremost connected health platform, significantly enhancing our ability to improve quality of life and reduce cost of care. 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 recognized $198.8 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 estimates related to the LifeWatch acquisition by July 12, 2018. The measurement period adjustments recorded in 2018 were due primarily to a $5.7 million adjustment to increase accrued liabilities related to the ZTech legal matter (see “Note 19. Legal Proceedings” for details) and an $8.9 million increase to other long-term liabilities.



(in thousands, except lives)	Amount			Weighted Average Life (Years)
Fair value of assets acquired:
Cash and cash equivalents	$	4,303
Healthcare accounts receivable	10,089
Inventory	1,136
Prepaid expenses and other current assets	3,798
Property and equipment	27,507
Other assets	713
Identifiable intangible assets:
Customer relationships	126,800			10
Technology	3,217			3
Total identifiable intangible assets	130,017
Total assets acquired	177,563
Fair value of liabilities assumed:
Accounts payable	10,292
Accrued liabilities	15,579
Current portion of capital lease obligations	4,664
Current portion of long-term debt	3,027
Long-term capital lease obligations	3,420
Deferred tax liabilities	14,465
Other long-term liabilities	32,364
Total liabilities assumed	83,811

Total identifiable net assets	93,752
Fair value of noncontrolling interest	(9,961		)
Goodwill	198,783
Net assets acquired	$	282,574

We have integrated the operations of LifeWatch into our Healthcare segment. As a result of this integration, it is impracticable to disclose the amount of revenue and income/(loss) attributable to LifeWatch.

We incurred $31.0 million of acquisition related costs related to LifeWatch for the year ended December 31, 2017. These costs were included in other charges in our consolidated statements of operations.

The following unaudited pro forma financial information has been prepared using historical financial results of BioTelemetry and LifeWatch as if the acquisition had occurred as of January 1, 2016. Certain adjustments related to the elimination of transaction costs, as well as the addition of depreciation and amortization related to fair value adjustments on the tangible and identifiable intangible assets acquired, have been reflected for the purposes of the unaudited pro forma financial information presented below. We believe the assumptions used in preparing the unaudited pro forma financial information are reasonable, but not necessarily indicative of actual results should the acquisition have occurred on January 1, 2016.

Pro forma financial information for the periods presented is summarized as follows:



	Year Ended December 31,
(pro forma, unaudited, in thousands, except share and per share amounts)	2017			2016
Revenue	$	349,900		$	322,200
Net income/(loss)	(1,800		)	23,400
Net income/(loss) per common share:
Basic	$	(0.05	)	$	0.74
Diluted	$	(0.05	)	$	0.69
Weighted average number of common shares outstanding:
Basic	34,022			31,556
Diluted	34,022			34,125

Telcare, Inc.

On December 1, 2016, we, through our wholly owned subsidiary BioTelemetry Care Management, LLC, entered into the Share and Asset Purchase Agreement with Telcare (the “Telcare Agreement”) pursuant to which we acquired the stock of Telcare Medical Supply, Inc. (“Telcare”) and certain assets of Telcare Inc. The total consideration paid at closing amounted to $7.0 million in cash, with the potential for a performance-based earn out up to $5.0 million upon reaching certain revenue milestones. The fair value of the total consideration transferred in the acquisition, including the fair value of the contingent consideration, was $9.7 million at the acquisition date.

The acquisition of Telcare provides us the opportunity to apply our expertise in remote monitoring to the diabetes market and increases our presence in the digital population health management market. 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 recognized $2.2 million of goodwill as a result of the acquisition, all of which has been assigned to the Corporate and Other category. We expect $0.3 million of this goodwill will be deductible for tax purposes.

The amounts below represent our final fair value estimates, which were completed in the fourth quarter ended December 31, 2017. The total consideration and related allocation for Telcare is summarized as follows:



(in thousands, except lives)	Amount		Weighted Average Life (Years)
Fair value of assets acquired:
Other accounts receivable	$	235
Inventory	1,417
Prepaid expenses and other current assets	1,261
Property and equipment	55
Other assets	933
Deferred tax assets	1,463
Identifiable intangible assets:
Customer relationships	400		5
Technology	2,000		5
Tradename	400		Indefinite
Total identifiable intangible assets	2,800
Total assets acquired	8,164
Fair value of liabilities assumed:
Accounts payable	459
Accrued liabilities	206
Total liabilities assumed	665
Total identifiable net assets	7,499
Goodwill	2,201
Net assets acquired	$	9,700

The acquisition has been included within the consolidated results of operations and financial condition from the date of the acquisition.

The following unaudited pro forma financial information has been prepared using historical financial results of BioTelemetry and Telcare as if the acquisition had occurred as of January 1, 2015. Certain adjustments related to the elimination of transaction costs, as well as the addition of depreciation and amortization related to fair value adjustments on the tangible and identifiable intangible assets acquired, have been reflected for the purposes of the unaudited pro forma financial information presented below. We believe the assumptions used in preparing the unaudited pro forma financial information are reasonable, but not necessarily indicative of actual results should the acquisition have occurred on January 1, 2015.

Pro forma financial information is summarized as follows:



(pro forma, unaudited, in thousands, except per share amounts)	Year Ended December 31, 2016
Revenue	$	212,538
Net income	50,693
Net income per common share:
Basic	$	1.82
Diluted	$	1.66

The Telcare Agreement includes the potential for a performance-based earn out up to $5.0 million upon reaching certain milestones. The fair value of the contingent consideration associated with the Telcare acquisition was $2.7 million as of the acquisition date and was included as a component of other long-term liabilities. For further details regarding contingent consideration, refer to “Note 6. Fair Value Measurements” below.

VirtualScopics, Inc.

On March 25, 2016, we, through our wholly owned subsidiary BioTelemetry Research Acquisition Corporation, entered into a definitive Agreement and Plan of Merger (“VirtualScopics Merger Agreement”) with VirtualScopics, Inc. (“VirtualScopics”), a leading provider of clinical trial imaging solutions. Under the terms of the VirtualScopics Merger Agreement, we purchased: (i) any and all outstanding shares of VirtualScopics’ $0.001 par value common stock for $4.05 per share; (ii) any and all outstanding shares of VirtualScopics’ $0.001 par value Series A and Series B Convertible Preferred Stock for $336.30 per share; and (iii) any and all outstanding shares of VirtualScopics’ $0.001 par value Series C-1 Convertible Preferred Stock for $920.00 per share. The all cash acquisition of VirtualScopics was completed on May 11, 2016. The total consideration paid at closing amounted to $15.0 million, net of cash acquired of $0.8 million.

The acquisition of VirtualScopics expands our existing clinical research offerings and gives us further access to established customer relationships. 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 consideration paid 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 recognized $4.3 million of goodwill as a result of the acquisition, all of which has been assigned to the Research segment. None of this goodwill will be deductible for tax purposes.

The amounts below represent our final fair value estimates, which were completed in the second quarter of 2017. Measurement period adjustments were recorded in the fourth quarter of 2016 related to the recognition of a $0.3 million deferred tax liability, and in the second quarter of 2017 primarily to recognize $0.3 million of deferred tax assets resulting from state net operating losses.

The total consideration and related allocation for VirtualScopics is summarized as follows:



(in thousands, except lives)	Amount		Weighted Average Life (Years)
Fair value of assets acquired:
Cash and cash equivalents	$	849
Other accounts receivable	3,679
Inventory	111
Prepaid expenses and other current assets	396
Property and equipment	500
Deferred taxes	20
Identifiable intangible assets:
Customer relationships	5,200		12
Technology	2,000		10
Backlog	3,100		4
Total identifiable intangible assets	10,300
Total assets acquired	15,855
Fair value of liabilities assumed:
Accounts payable	325
Accrued liabilities	2,945
Current portion of capital lease obligations	59
Current portion of long-term debt	91
Deferred revenue	700
Long-term capital lease obligations	162
Long-term debt	97
Total liabilities assumed	4,379
Total identifiable net assets	11,476
Goodwill	4,343
Net assets acquired	$	15,819

The acquisition has been included within the consolidated results of operations and financial condition from the date of the acquisition. For the period from May 11, 2016 to December 31, 2016, VirtualScopics contributed revenue of approximately $12.3 million and net income of approximately $1.4 million to our consolidated results of operations.

The following unaudited pro forma financial information has been prepared using historical financial results of BioTelemetry and VirtualScopics as if the acquisition had occurred as of January 1, 2015. Certain adjustments related to the elimination of transaction costs and acquisition-related indebtedness, as well as the addition of depreciation and amortization related to fair value adjustments on the tangible and identifiable intangible assets acquired, have been reflected for the purposes of the unaudited pro forma financial information presented below. No adjustments for synergies or certain other expected benefits of the acquisition have been included. We believe the assumptions used in preparing the unaudited pro forma financial information are reasonable, but not necessarily indicative of actual results should the acquisition have occurred on January 1, 2015.

Pro forma financial information is summarized as follows:



(pro forma, unaudited, in thousands, except per share amounts)	Year Ended December 31, 2016
Revenue	$	214,271
Net income	55,413
Net income per common share:
Basic	$	1.98
Diluted	$	1.82

ePatch Division of DELTA Danish Electronics, Light, and Acoustics

On April 1, 2016, we, through our wholly owned subsidiary BioTelemetry Technology ApS, entered into an Asset Purchase Agreement (“APA”) with DELTA Danish Electronics, Light & Acoustics (“DELTA”), pursuant to which we acquired substantially all of the assets of the ePatch division of DELTA, inclusive of all products and indications currently under development. The total consideration paid at closing amounted to $3.0 million in cash and 244,519 shares of our common stock valued at $2.9 million. In addition, there is the potential for a performance-based earn out up to $3.0 million upon reaching certain regulatory and revenue milestones, as defined in the APA. The fair value of the total consideration transferred in the ePatch acquisition, including the fair value of the contingent consideration, was $6.5 million at the acquisition date.

The ePatch acquisition is expected to generate future cost savings for us and will provide control over proprietary components for our next generation mobile cardiac telemetry device. 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 recognized $3.2 million of goodwill as a result of the acquisition, all of which has been assigned to the Corporate and Other category, and we expect all of this goodwill to be deductible for tax purposes.

The amounts below represent our final fair value estimates, which we completed in the first quarter of 2017. During the fourth quarter of 2016, we reduced the allocation to the technology intangible asset by $0.2 million as a result of additional information obtained during the measurement period.

The total consideration and related allocation for the ePatch acquisition is summarized as follows:



(in thousands, except lives)	Amount		Weighted Average Life (Years)
Fair value of assets acquired:
Inventory	$	100
Property and equipment	175
Identifiable intangible assets:
Customer relationships	400		10
Technology	2,800		10
Trade names	100		Indefinite
Total identifiable intangible assets	3,300
Total assets acquired	3,575
Fair value of liabilities assumed:
Accrued liabilities	266
Total liabilities assumed	266
Total identifiable net assets	3,309
Goodwill	3,181
Net assets acquired	$	6,490

While the ePatch acquisition provides control over proprietary components of our next generation cardiac monitoring device, the acquisition did not have a material effect on our consolidated results of operations.

The APA includes the potential for a performance-based earn out up to $3.0 million upon reaching certain regulatory and revenue milestones. The fair value of the contingent consideration associated with the ePatch acquisition was $0.6 million as of the acquisition date and was included as a component of other long-term liabilities. For further details regarding contingent consideration, refer to “Note 6. Fair Value Measurements” below.