BioTelemetry Inc. (BEAT) continues to grow as a key partner in Apple Inc.'s (AAPL) Heart Study as Apple continues to rely more and more on its services to bring in additional revenue. Biotelemetry continues to grow at an impressive rate as it continues to absorb other companies that quickly add to its core strengths and abilities. Medicare headwinds and shrinking margins are not stopping the company from putting up double digit growth quarter after quarter as it effectively deals with adversity even near 52-week lows.
Apple's Heart Study is being conducted in conjunction with Stanford Medicine and features the Apple Watch and the health monitoring equipment and services from companies like BioTelemetry. The goal of the study is to develop new ways to detect and analyze irregular heart rhythms like atrial fibrillation. BioTelemetry is right there at the forefront of remote cardiac monitoring with Apple which could be a very big opportunity going forward for both companies. Morgan Stanley sees Apple as a leader in healthcare digital disruption as it looks to potentially seize a lucrative piece of the $3.5 trillion total addressable market that Morgan Stanley currently sees in U.S. healthcare.
According to Apple's latest conference call, its services division was up 13% year-over-year to an all-time high at ~$11.5B. Wearables, including Apple's Watch, has growth now accelerating to over 50% as the division is now bigger than 60% of the companies in the Fortune 500. All of this favors companies like BioTelemetry who specialize in superior remote cardiac monitoring services as a partner with Apple in creating these state of the art health services that are disrupting healthcare.
BioTelemetry itself is growing at a very impressive pace as it continues to acquire growth targets that continue to strengthen its core attributes as a company specializing in hardware and software for remote cardiac monitoring and other services. Here is a list of some of the company's latest acquisitions:CompanyM&A DateSizeKey Synergies
International expansion of
diagnostic products and
remote health services.
International expansion of
customer base in cardiac
monitoring and diagnostics.
Table by Trent Welsh
BioTelemetry's latest Q2, 2019 earnings call revealed that the company finished off its 28th consecutive quarter of year-over-year revenue growth with top-line growth of 10% to ~ $112M in the most recent quarter. It currently sits on ~$51.7M in cash, has ~$31.6M in quarterly EBITDA, and ~$198M in debt after its acquisitions over the past couple of years including the LifeWatch acquisition. All of this massive growth and key acquisitions and BioTelemetry still features a conservative debt to EBITDA ratio lower than 1.5 times meaning that it has room for additional add-on opportunistic M&A activity as its revenues continue to grow at a phenomenal pace. The question then becomes, what is holding the stock back from new highs instead of the new 52-week lows the company is currently exploring after a terrific last few years of stock price appreciation?Data by YCharts
The answer appears to be a concern about the drop in Medicare reimbursement in 2019, which has been a known commodity, along with some contracting margins primarily from the change in Medicare policy. The reduction in Medicare pricing went into effect on January 1, 2019 and resulted in a loss of ~ $1.5M in revenues in the current quarter for BioTelemetry. Hardly a huge concern for a company growing its top line in double digits with the pricing hit affecting only about ~1.3% of the company's quarterly revenues or less than 5% of the company's quarterly earnings. It is material, but it shouldn't be enough to explain the company's massive drop in stock price over the course of 2019.
With the drop in Medicare reimbursement, the company's margins have suffered a drop to 62.8% versus 64.9% in the prior year period. Increased hiring in the company is also part of the issue as patient volume is starting to slow as the latest company acquisitions have more to do with issues like the cloud and expanding the company's sales and marketing organization to accelerate the growth of Geneva's data management and workflow solutions than further building out of the customer base. These short-term headwinds should abate at the end of the year when the Medicare price reduction will have been in place for a full year. Results in 2020 will compare to the new Medicare pricing norm instead of in the past when reimbursement was more lucrative.
BioTelemetry is an intriguing buy hovering around 52-week lows as it is a key partner in Apple's Heart Study bringing the Apple Watch and remote cardiac monitoring to the forefront of healthcare innovation. BioTelemetry's performance on its own is admirable as impressive quarterly revenue growth is a given going forward. The company also has the ability to make smart acquisitions that enhance the company's core competencies while at the same time not breaking the bank by flooding the company with debt. Medicare pricing concerns and margin pressure continue to be a short-term headwind for the company that should mitigate at the end of 2019 as the company continues to strive for quarterly double digit top-line revenue growth year-over-year. I continue to be long BioTelemetry with currently a tiny position in my portfolio. Best of luck to all.
Disclosure: I am/we are long BEAT, AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.