BioTelemetry's (BEAT) CEO Joseph Capper on Q4 2015 Results - Earnings Call Transcript

| About: BioTelemetry, Inc. (BEAT)

BioTelemetry, Inc. (NASDAQ:BEAT)

Q4 2015 Earnings Conference Call

February 17, 2016, 17:00 ET

Executives

Joseph Capper - CEO

Heather Getz - CFO

Analysts

Jan Wald - Benchmark Company

Bruce Jackson - Lake Street Capital

Marco Rodriguez - Stonegate Capital Market

Charley Jones - Dougherty Market

Chip Saye - AWH Capital

Operator

Good afternoon. Thank you for joining us for the BioTelemetry' Fourth Quarter 2015 Earnings Conference Call. Certain statements during the conference call and question-and-answer period to follow may relate to future events and expectations and as such constitute forward-looking statements within the meaning of the Private Securities and Litigation Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance and 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 and 10-Q. We assume no duty to update these statements. [Operator Instructions]. It is now my pleasure to turn the floor over to your host, Mr. Joseph Capper. You may begin, sir.

Joseph Capper

Thank you, Operator and good afternoon everyone. I'm Joe Capper, President and CEO of BioTelemetry also with me on call today is our Chief Financial Officer, Heather Getz. I'll start with an overview of over third quarter performance, Heather will take you through a more detailed review of our operating results and we'll then open up the call to your questions.

So let's get started. I'm extremely pleased to report this afternoon that this we capped off 2015 with another record quarter posting our 14th consecutive growth period in which we improved margins, exceeded expectations and achieved new highs in both revenue and EBITDA and recorded positive GAAP quarterly and year-to-date EPS for the third consecutive quarter. At the outset of 2015 we established financial guidance that represented a significant increase over an extremely successful 2014 falling for a 50% increase in EBITDA. Later in the year we increased that guidance to 60% growth based on the success we were having executing on our key initiatives and as I just mentioned we even exceeded that revised higher EBITDA guidance. This success stems from the continued and disciplined execution of the three point strategy we have been following for the past few years. As a reminder the tenets of this plan are to solidify our leadership position in cardiac monitoring, establish a leading research services business around the cardio core platform and look to identify markets that would benefit from the application of our wireless platform and proprietary technology.

Our adherence to these overarching principles is incorporated into every facet of our decision making and has been instrumental in generating our strong results in 2015 and a consistent growth we have now had for 3.5 years running.

Let's take a few minutes to review some of the Q4 highlights. During the period revenue grew by 7.1% to $46.8 million exceeding the upper end up our expected range by nearly $1 million. Overall margins continue to improve as quarterly EBITDA grew by 60% to $10.1 million far exceeding expectations and bringing full year EBITDA to $33 million representing an increase of 61% over 2014.

We ended the quarter with $19 million in cash, up $3.5 million sequentially, the launch of CardioKey has been an outstanding success story as we've already serviced an excess of 2000 patients. Our Research Services team continue to expand backlog and make progress in several critical areas and we continue to advance our business development activities that will create additional sources of revenue.

Let's review the components of the business which are driving this sustained success. In our healthcare services division we saw our comprehensive approach continue to generate greater market penetration. With MCT services up over 12%. Organic growth was augmented with a further roll out of CardioKey and the scale we created through earlier acquisitions accelerating our path toward improved profitability and generating EBITDA margins of over 21% in the fourth quarter.

With demand for monitoring solutions on the rise our healthcare business continues to outperform the market. Throughout the year we dramatically improved our organic growth rate, realized efficiencies of scale, introduce new products, expanded coverage and reimbursement rates and successfully defended our extensive IP portfolio all of which positions the company for continued momentum in 2016. I also think it's important to again underscore the significance of the steps CMS took this past year by incorporating a rate increase for MCT as part of the 2016 physician fee schedule. This rate increase coupled with other legislative developments in the field of Telehealth has largely removed any kind of reimbursement uncertainty and highlights the importance of this burgeoning sector of healthcare services.

Turning to research services, during the quarter we continue to see improvement in the outlook for this important division as we made excellent progress in several areas. Our newly established business development presence in Japan, one of it's first significant study. A thorough QT study from a major Japanese pharma company and is rapidly forming additional channel partners in the region. We finished with a full year growth rate of approximately two times the industry average. We continue to evaluate opportunities to broaden our service offerings and we entered 2016 with a record high backlog.

In addition to the advancements in our core business we continue to invest resources toward further diversification which I have spoken about on previous calls. We are making excellent progress with our at home INR monitoring service which allows us to leverage our current independent diagnostic testing facility and sales and marketing infrastructure. We ended the quarter with approximately 2500 active patients on service. In 2016 we will more aggressively resource and promote this business and as such expect to achieve significant growth making INR a meaningful contributor to this year's performance.

Our collaboration with public Wellbridge Health, a CHF care management solutions company aimed at reducing unnecessary hospital readmission and emergency room visits is progressing according to plan and we're spending more time evaluating other opportunities to leverage certain core competencies within the company. Given the success we have had executing our plan and the trends we saw in the business as we closed out 2015 we anticipate that this will be another record setting year for the company. With double digit top line revenue growth to between $195 million to $200 million is about two times that growth rate on the bottom line to at least $40 million of EBITDA. We intend to update this outlook on a quarterly basis as we did last year.

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

Heather Getz

Thank you, Joe. Good afternoon everyone. As Joe just announced Q4 was a record breaking quarter with revenues coming in ahead of our expectations at 46.8 million. Healthcare and research revenue were strong with an increase of 4.6 million or 11.5% growth over the prior year while our technology revenue declined a $1.5 million. The strength in the healthcare and research segments largely resulted from 12% growth in MCTs and a higher number of active studies in the quarter. As we mentioned on our Q3 call we saw our biggest health care revenue month ever in the month of October and this strength continued into November and December.

In our technology segment the softness experienced in Q3 continued into Q4 as customers have delayed purchases pending the release of our 3G devices to the market. We expect this situation to reverse in the second half of 2016.

Moving to gross profit, our margin was 60.4% which was 370 basis points higher than the prior year quarter, this margin improvement comes from favorable pricing dynamics in the healthcare segment as well as operational and volume efficiencies. These positive benefits were partially offset by lower margins in our research segment due to investments made in the business during 2015 and lower technology margins stemming from the lower revenue.

As we've seen throughout the year our increased gross margin leverage combined with operating expense discipline is positively impacting the bottom line. We generated EBITDA of $10.1 million for the fourth quarter of 2015 a 60% increase as compared to our Q4 2014 adjusted EBITDA of $6.3 million. Since the first quarter of 2014 we have more than doubled our EBITDA margin return to 21.5%.

Now turning to the balance sheet. We ended the quarter with $19 million in cash compared to $20 million at year end 2014. In the first quarter we paid 6.4 million to the Department of Justice for the negotiated settlement and during that year we used $13.6 million for capital expenditures primarily for medical devices for use in our health care and research segment. Excluding the payment to the DOJ we generated free cash flow of $7.2 million for 2015. At the end of December we had $23.6 million of debt which is less than one times our trailing 12 month EBITDA, we also have access to a $15 million credit facility which remains undrawn. As you can see we have maintained a very healthy balance sheet with our cash balance and low debt level.

Shifting gears, I would now like to touch on the outlook for 2016. With the expansion of our product and service offerings as well as the Medicare increase on MCT we are reiterating our previous guidance of 195 million to 200 million in revenue and at least a 20% EBITDA return for the full year 2016. More specifically for the first quarter we expect to see revenue of 46 million to 47 million and EBITDA of 8 million to 9 million. This represents a 6% to 8% increase and year-over-year quarterly revenue and over a 30% increase in EBITDA.

Please keep in mind we typically see higher operating expenses in the first quarter relative to the rest of the year largely due to payroll taxes, sales meetings and trade shows. We have gotten off to a strong start in 2016 and expect the momentum to carry through the first quarter. To summarize we posted our 14th consecutive quarter of year-over-year growth and 7th consecutive quarter of EBITDA margin expansion. In addition we have generated GAAP net income in the quarter and on a year to date basis. We have a strong balance sheet with almost $20 million of cash, low leverage and additional debt capacity if needed. As such we’re confident about the company's position and our ability to achieve the guidance provided for the first quarter and the full year of 2016. And with that I will now turn the call back over to Joe.

Joseph Capper

Thanks, Heather. As you just heard we have got a highly successful fourth quarter capping off another record setting year for the company. In addition to achieving excellent results and improving margins we completed over 2000 CardioKey services, expanded the backlog in research and accelerated growth of our INR business. Our strategy is clearly working as designed as the company continues to build momentum. To ensure success in 2016 we will focus on continuing to build on our comprehensive approach by expanding market penetration for CardioKey followed by our next generation telemetry system. Capitalizing on the increased [indiscernible] awareness and education and marketplace by focusing on the world class attributes of our technology specifically as studies have shown MCOT incorporates the most sensitive and accurate [indiscernible] protection capability of any other remote monitoring system available today including both internally and externally warning system.

We were also focused on further increasing pair coverage for all services continuing to grow backlog and expanding the capabilities of our research business at least doubling the size of our INR services business, driving further efficiency throughout the organization to maximize margin opportunity and assessing acquisition targets that will accelerate our strategic plan. Given all the positive momentum in the business and the improved reimbursement environment. We have set expectations for 2016 at low double digit revenue growth and a remarkable 20% EBITDA return. The company has come a long way from where it was five years ago when it was a single product business with a 2% EBITDA return and negative earnings. Although we have made tremendous progress, progress we still have a lot of exciting opportunities to pursue as we continue to expand our business.

Before I close. I would again like to thank those at the company who helped deliver our 14th consecutive growth quarter and continue to improve all facets of the business to ensure our sustained growth well into the future. You should be very proud that your hard work positively impacts the lives of hundreds of thousands of people who depend on our product.

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

Question-and-Answer Session

Operator

[Operator Instructions]. And our first question comes from the line of Jan Wald with Benchmark Company. Your line is now open.

Jan Wald

I’ve one question and that is just looking at the top line and you’re now pointing to double digit growth on the top line. If I think about it a significant portion of that growth has come for reimbursement alone. So in that sense where do you see the other -- the rest of the growth coming from, is it going in volume growth in terms of your health care services, is it going to be the research services, programs that you’ve, how do you see that still are getting you to the double digit and then I know this unfair but let me get you to answer that question.

Joseph Capper

So where we sit today Jan, we feel comfortable saying that the business is going to grow kind of double digit top line and you nailed it we have $4 million or $5 from the Medicare rate change. The rest is going to come across the board. We see nice volume increase especially in the fourth quarter we saw good momentum coming into this year obviously we're not reporting on that quarter but we like what we see so far this year. We entered the year with a good healthy backlog and the only part of our business that actually underperformed last year frankly was our product sales and our technology division and we feel like that’s going to bounce back at least in par. So we feel pretty good about it Jan and as you know we take a relatively conservative approach when we give guidance, we've only been doing it for a few years now. So we intend to take a conservative approach and then update you as the year progresses but you know as we sit here today and we analyze the trends of the business we feel pretty good about that guidance.

Jan Wald

This is the question I was going to ask, if I look through the year with the new products coming out you know the better half of the year in terms of the technology business in the second half that people start buying those products again. Should we look at this sort of an accelerating growth story so that 2017 you could have predictable double digit growth on the top line. Is that a way to begin to think about how this year is going to look?

Joseph Capper

I think that that's probably a good way to put it. Our growth will build throughout the year as a sort of way we build the forecasts for the year and we do anticipate having fairly predictable growth beyond that. But Jan as you know, you never know, right. So we’re looking at all the indicators of our business and 80% of our business is healthcare services so we try to analyze that as best we can to predict trends in that market and what we've seen are all fairly positive trends throughout most of last year especially in the back half of '15 into fourth quarter and in the first quarter. So as we get more time under our belt we anticipate having more predictability in the business. But you know we will know that as the year progresses.

Operator

And our next question comes from the line of Bruce Jackson of Lake Street Capital. Your line is now open.

Bruce Jackson

Getting back to the product revenue guidance for next year. So I was wondering why I was going to pick up again in the second half of the year. So if people have been putting off their purchases until next year, some of like an annual cycle or is it just kind of take a while for them to come back into the market for the 3G equipment?

Joseph Capper

Part of it is just timing of this bringing upgraded part product into our mix and a lot of this has to do with telecom transitions from 2G to 3G to 4G things of that nature. So part of it is how we forecast the build for the year and what we know from based on feedback from our customers when they will be ready to buy.

Bruce Jackson

Okay. And then would you expect that the level of revenue would be above 2015 level or maybe more towards like a 2014 level?

Heather Getz

I would expect it to be in between so it should be higher than our 2015 numbers but it may not reach quite the 2014 levels.

Bruce Jackson

Okay. Then could we get the MCOT percent of the revenue mix?

Moshe Gabrielle

In the fourth quarter MCOT was about 56%.

Bruce Jackson

And just briefly, is there any update on some of the ongoing litigation for example with [indiscernible].

Joseph Capper

Nothing really significant to report that particular one was sort of delayed because of the judges calendar, it's scheduled for trial now. I think in like the September timeframe. So it will start picking up a little steam here over the summer time, in the spring and into the summer.

Bruce Jackson

And then last question, you’re talking about your [indiscernible] partnership in the congestive heart failure monitoring. I was just generally wondering given the results of that the BHF [ph] trial last November where they didn't really find any benefit for monitoring of the congestive heart failure patients. Are you seeing any benefit in monitoring these patients with your experience?

Joseph Capper

Absolutely. This is a startup company that we've put a little bit money in and we sort of help the best that we could but they had one pretty large product study it's nearing it's end and results matter, a nominal saving.

Bruce Jackson

Okay. Are they going to be publishing any of those results?

Joseph Capper

I can't speak to that at this point.

Operator

And our next question comes from the line of Marco Rodriguez from Stonegate Capital Market. Your line is now open.

Marco Rodriguez

I was wondering if you can maybe spend a little more time on the guidance. I'm just kind of curious here when looking at it what sort of the kind of major opportunities do you see for potential upside there and then also what are some of the major risks that you see as well?

Joseph Capper

We typically don't go to pluses and minuses to the forecast. We like to kind of give you a range and in that range we've incorporated those risks to the best of our knowledge. There is always a laundry list of potential upside and some short term risk on the downside. You know I would encourage you to take a look at how we perform relative to guidance over the last couple of years. We were pretty tight in 2015 when we put up the annual forecast. We're off by revenue I think by 3% we exceeded EBITDA by 10% and on a quarterly basis we were probably follow that trend and as we indicated had we not dropped in product sales we would have been spot on from the beginning of the year on which is pretty remarkable. So I think -- you’re never going to say that you figured it out but I think we’re getting a better handle on it on how to predict trends in business. So I wouldn’t look at that window as being a whole lot wider than we've already indicated and as evidence will so we tend to be a little bit on the conservative side.

The only swing at some point during the year I get asked this question. You know almost every call what's going on with the last big insurance company Anthem [ph] nothing to report -- hopefully they will get in line with all the other insurance providers and recognize the benefits of the technology that would provide a bigger opportunity for the company.

Marco Rodriguez

And then in terms of the product revenue delays. I just was wondering if you can -- can you kind of quantify the impact that you see on the revenue side for this last quarter and the prior quarter?

Heather Getz

So if you look at it in 2014 we did about $13.5 million of revenue, In 2015 we did 10.7, we would have expected that to be about flat to 2014, we don't look at this as a high growth area of the business. So I mean that's can give you an indication of what the dollar amount that sell out in the second part of the year were.

Marco Rodriguez

Next quick question on research services sounds like things are doing really well there, backlog had some record numbers there. How is that kind of performing versus your expectations?

Joseph Capper

Pretty much right on, for '15 I think the numbers were pretty much right on. Full year '15 we were right on for health care services, spot on for research and a little off in product again.

Marco Rodriguez

And last quick question is kind of a housekeeping item here, on G&A in the quarter just a little bit higher than we had actually expected. Just wondering if there are any sort of onetime items in there?

Joseph Capper

There were -- stock comp was a little bit higher than what it was in Q3 and that had to do with just how the options and performance shares is invested but that number is going to come back down going into '16.

Operator

And our next question comes from the line of Charley Jones from Dougherty Market. Your line is now open.

Charley Jones

So maybe you can help us a little bit with your overall volume growth for the quarter. I heard you say MCOT was 12%, can you give us the patient service overall volume growth is it similar?

Heather Getz

Yes, so the overall patient service was 6% but really what was pulling that down was Holter which is our lowest per patient end margin rev product. So we saw 10% plus growth in both our MCT and event volumes.

Charley Jones

And have started to see the kind of consistent reimbursement on the CardioKey device? Can you give us an idea of tight range that you're getting there?

Heather Getz

I think it's a little too early to say that I mean albeit it's significantly higher than what we're getting on 48, 24, 48 hour Holter but I think it's still little bit early to give guidance on that number.

Charley Jones

When you look at your adjustments for 2016 is it pretty much just going to be stock comp or do you expect some onetime items in there and can you kind of -- you’ve been kind of hitting somewhere around 1.1 on your stock comp for quite a while now, it sounds like you're going back down towards there. Are you expecting additional adjustments outside of 4 million to 5 million in stock comp--

Heather Getz

Right. Our stock comp will be about 5 million for 2016 and then the only onetime items we would have would have been around the stock care [ph] litigation, the patent litigation that we would foresee right now and that would be a couple million dollars.

Charley Jones

Can you talk a little bit about the patch whether or not you responded to any questions maybe a little bit of an update on timing there?

Joseph Capper

I really don't have enough an update, we’re in FDA now. We haven't gotten any questions back from them as of late. We had one submission we had questions took us a while to put together more documentation, they changed requirements since our last submission so it's a little bit more time than we anticipated. We’re in now -- so we should be here in back shortly.

Charley Jones

So on your research services business. For some reason I was getting the feeling towards the end of the year that you had a nice backlog and that '15 was coming a little bit below, did you come in a little bit above for the rest of the year in the fourth quarter on research services. You know what's your confidence level that business kind of performs as you expected. Maybe you could even talk to, if there's an area of your business, is there an area of your business that maybe has a little bit more give to it than others?

Joseph Capper

I think it came in pretty much as expected in the fourth quarter. You know all in our revenue was above our guidance and so we did a little bit better pretty much across the board primarily in the patient or healthcare services division that's for most of it came in but everything else was pretty much in line with what we expected. And you know we have a pretty good ability to see revenue with least in next two or three quarters based on backlog and our ability to convert backlog to revenue. So given everything that we see all the metrics in the business today. We feel pretty comfortable that business should perform again sort of that double digit growth rate.

Charley Jones

I guess a couple quick ones here, on your gross margin mine. Heather can you help us a little bit in the cadence you know I've got a pretty big jump at least in my first quarter from fourth, I think primarily as a result of 4 million to 5 million in pricing. Can you talk a little bit about how your gross margin is going to build throughout the year or give us some sort of target?

Heather Getz

Yes, be a little bit careful with that because as we have mentioned like one of the big increase -- a substantial piece of our increase and expense going into Q1 is related to payroll taxes and 60% of our payroll is sitting up in cost of sales. So what you're actually going to see an offset of the increase related to the MCT price increase being offset by the higher payroll taxes that happened in the first quarter. So you're going to see margin that are about flat in Q1 and then I would expect margins to be in that 60% to 61% range through the year. So with Q1 being the lowest quarter.

Charley Jones

Okay. And then Joe, I guess we've been talking a lot about some of the differentiation in your system and some of the superiority and ability to identity to AF [ph]. I'm curious if you could kind of talk a little bit about whether or not you plan to really try differentiate some marketing or put some R&D dollars towards that? Are we going to see R&D shifted all this years, it can be pretty flat and if it is, is there going to be anything extra towards studies or marketing?

Joseph Capper

Yes it wouldn't come out of R&D, R&D should be flat. A big portion of it would be refocusing the messaging through your sales and marketing spend and possibly allocating some of that spend towards clinical studies to compare the capability of MCOT versus other modalities specifically some of the newer devices that we've seen in the marketplace. The nice thing is Charley is there's been numerous studies published over the last few years that using MCOT for the purposes of measuring AFib and using other systems and [indiscernible] it's close so people are doing that work for us. Part of it is how do we then take that information and communicate it in an effective way to the marketplace at large. That's the challenge, how do you accurately message what you want folks to hear.

We feel pretty good about, I think that's one of the things that's frankly driving some of them that we just talked about that. You know that that's starting to resonate out there I think that the sales organization, the marketing team here is doing a really nice job of communicating that message to market and again I think some of the studies that have come out recently have been pretty effective.

Charley Jones

On your neurology business and the ER business can you give us an idea of where that business was in '14 or '15 and how that business is building, is that where a lot of the growth is coming from, the congestive heart failure and neurology or is it just still a pretty tiny base and not really impacting the numbers much?

Joseph Capper

Hard to say, I mean cryptogenic stroke in the neurology market has been a focus but often those services are performed by cardiologists, or an EP so you’re not going to really be able to segment that per say but I think that's contributing to it. I would say just overall kind of education awareness about AFib in general, there is a couple big drug companies that are promoting AFib awareness because they're trying to sell their products we have other products in our space, bigger companies unless they're promoting of education awareness around AFib because they have. Diagnostic products that they think are applicable to certain patient size. So I think we're in a pretty good spot to take advantage of all that. One thing's for sure we haven't seen a product out there it's nearly as accurate or nearly as extensive as this thing. Part of it's are algorithm, part of it's product design but the sensitivity and specificity of this diagnostic product is not comparable to anything else out there. So if you want to diagnose patient with AFib there is nothing better to use.

Charley Jones

You get this $4 million to $5 million number you've targeted for '16 that you’re looking to add as a result of pricing. How much of that is related to the insurance companies and are you surprised at all about any of the insurance companies pricing for '16?

Heather Getz

So you typically don’t see the commercial players tend to follow Medicare toward the end of the first quarter into the second, so you don't get the insurance piece of it all upfront. My estimate is that about 4 million is related to Medicare and the rest is related to commercial.

Operator

And our next question comes from the line of Chip Saye from AWH Capital. Your line is now open.

Chip Saye

A couple of follow ups if you don't mind, MCOT growth as you said MCOT 12%, event 10% plus how much of your business Is Holter? What percentage?

Heather Getz

Holter in fourth quarter was about 6% of our revenue.

Chip Saye

Okay, so very small.

Heather Getz

That's right.

Chip Saye

Okay, good. I just didn't know because I was a little bit -- okay let me step back a second. How much is the industry growing? If you guys are growing so if you take your guidance and you back out the 8% increase in MCOT reimbursement how much is -- I'm getting a 7% to 8% organic growth overall, does that sound like a good number?

Joseph Capper

Yes that’s about right and we think that's about two times the market average.

Chip Saye

Okay, that’s what I was going to ask you so the industry for MCOT and event are the two aspects that are really growing. You're growing at about 2x?

Joseph Capper

Maybe more from MCOT but I think overall I volume that’s probably 2x and that's you know not a scientific number. I would tell you that’s based on a variety of different inputs that we think how we sort of assess market growth but I would say that that 6% to 7% is probably 2x and that’s depending on how MCT grows this year, it could be slightly higher.

Chip Saye

Okay, so your growth is -- you're taking share from other companies and if so how are you doing that? Is that the studies or what?

Joseph Capper

I would like to say leadership. Look it's across the board and we have sales forces, it's performing at a high level. We have a marketing team that’s performing at a high level, it's messaging. It's scientific papers to back up your messaging, very important I think it's awareness in the marketplace and the fact that we've been the leader in the market for quite some time is driving a lot of that, I think we're growing as result of growth in the market and I think we’re growing as a result taking share from other people. As we have talked about we have been able to enforce our rights under patent law and we've removed a couple of people from the market one again this past year. So that certainly helps, when you tell people that you know you're the technology leader and you’ve invested in this technology and you’ve done lot of protection around it and you can actually exercise those rights. It tends to validate when you tell folks. So I think it's across the board, a lot of different reasons I can't tell you one reason.

Chip Saye

Now as it relates to Q1 I know you give annual guidance and you just gave a little update today on Q1. The revenue growth for Q1 why is it lower than I would have anticipated?

Joseph Capper

So a couple of things. There is a seasonal aspect to this business typically we see a step down from Q4 to Q1 and some of that has to do with Q1, you roll into what is commonly referred to as deductible season as people cycle through a new insurance year. You know you have some effect in early January from holidays. As the quarter progress our revenue tends to build with March being the biggest month of our three months that being the case you tend to forecast this is accurately as you can and based on all the facts that we know today that’s the forecasts that we’re most comfortable with and when I tell you it's back end loaded all quarters are kind of backend loaded, first quarter is more backend loaded than any of the other three because of the nature of the deductible season starting up in New Year and then just the way the days roll up. The business days breakdown I think 20, 21, and 23 in the quarter. So we expect to have a good quarter and a chunk of it's going to come in March, so we’re comfortable putting those numbers on the table today. So those numbers actually are flat year-over-year. They do take into account a slight decline but then that’s offset by the reimbursement uptick.

Chip Saye

Yes, because the 80% I was expecting to be higher but, yes, okay, thanks for the explanation on that. Next and this is something you brought up, you’ve business development team, you’re still looking for acquisitions in the space and if so what are you looking to pay for those acquisitions and I've looked at some of the metrics for the past but it was some involved litigation related IP settlements but what would be a good number for an acquisition?

Joseph Capper

Well you can't hold me to those all old metrics. We will average them. I can't tell you what we’re willing to pay whether it be 6, 7, 8 times EBITDA because we look at things differently. Number one, they have to accelerate our plan and if you look at how the business -- balance today we talked about growing the remote pace of monitoring services business in cardiac. We’ve talked about building that research, we have talked about adding the third leg to stole [ph]. These acquisitions we made in '14 were really in the first bucket. So logic would be we kind of research and new products but it tends to be opportunistic. So you know if it accelerates our plan and if it makes sense strategically and financially, we look at them we've been pretty fortunate the way we acquired in the past because we've been able to create a decent amount of synergy as we brought them into our operating platform. So that that helps when we talk about you know putting a value on things. As you know everybody wants more -- everybody thinks their business is worth more than it is, so you’ve to work those processes and all of these are for the most part competitive processes.

So we will approach it prudently and it makes sense for the business strategically and financially, we will think it very seriously otherwise we won't. We don't need to acquire to grow our business we're going to grow this business at a very healthy clip for the foreseeable future. We look at acquisitions as a way to accelerate that.

Chip Saye

And one last, this is kind of housekeeping for Heather, but I was looking at bad debt expense coming in around the 2.1, 2.2 number and it came in at 1.3, is that -- why was that lower versus the prior three quarters and will that continue onto next year?

Heather Getz

I think that you should look at that the full year number. Obviously as we liquidate our revenue that's really how we determine what our bad debt should be and we were reserving probably at a higher rate than what we needed to earlier in the year so we took a little bit of an adjustment in Q4, so when you look at the bad debt I would assume about 6.5% of patient services revenue in 2016.

Chip Saye

Okay. And then you may have an adjustment or true up at the end of the year like this or?

Heather Getz

If we liquidate in excess of that. We evaluate it.

Operator

And we do have a follow-up from Charley Jones from Dougherty Market. Your line is now open.

Charley Jones

Just a quick one, could you talk to about your go to market strategy on the research services side. Are you working with 1 or 2 CROs or are you going directly to companies and can you talk how all that’s involved a little bit. Thanks.

Joseph Capper

We go to market using a direct sales force of small compared to patient services but highly effective. Our customer is typically both the CRO and the pharma sponsor about half of our work comes through CROs, so we're stopping to them for the cardiac monitoring service portion of a study and then all of them were contracted directly by the pharmaceutical sponsor.

Operator

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

Joseph Capper

Thanks operator and thanks again everyone for your continued support and interest in the company. We will speak to you next quarter, actually in a few months. Operator that concludes today's call. Thanks everybody, have a great night.

Operator

[Operator Instructions]. Thank you for participating in today's conference. This concludes the program. You may now all disconnect. Everyone have a great day.

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