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BioTelemetry, Inc. (NASDAQ:BEAT)
Q4 2018 Earnings Conference Call
Feb. 21, 2019 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon. Thank you for joining us for the BioTelemetry fourth-quarter 2018 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 Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the company in the future to be materially different from the statements that the company's executives may make today.

These risks are described in detail in our public filings with the Securities and Exchange Commission, including our latest periodic report on Form 10-K or 10-Q. We assume no duty to update these statements. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release, which is distributed and available to the public through the Investor Information section of the BioTelemetry website at gobio.com.

[Operator instructions] It is now my pleasure to turn the floor over to your host, Mr. Joseph Capper. Sir, you may begin.

Joseph Capper -- Chief Executive Officer and President

Thank you, operator, and good afternoon, everyone. I'm Joe Capper, president and CEO of BioTelemetry. I am joined by Heather Getz, our chief financial officer. I'll start with highlights about the fourth-quarter performance and other key developments.

Heather will take you through a more detailed review of our financial results. I will then provide commentary on how we see the business continuing to evolve as we get further into 2019. After our prepared remarks, we will open up the call for questions. I am extremely pleased to report that we ended 2018 the same way we started, with another record-setting quarter.

We once again surpassed expectations and set new highs in revenue and EBITDA. This marks our 26th consecutive quarter of year-over-year revenue growth. As you will recall, we set highly ambitious top- and bottom-line projections at the outset of 2018. Throughout the year, we consistently outperformed and then increased these projections, ultimately surpassing our original revenue and EBITDA estimates by approximately $20 million each, making 2018 a tremendous success by any standard.

We delivered these impressive full-year results while working through -- working our way through a major integration with near flawless execution, which resulted in the realization of our $30 million synergy objective ahead of projected timeline. We managed three significant product introductions, sales force expansions and multiple system and infrastructure investments and enhancements. We also dedicated significant time and resources evaluating numerous strategic opportunities to incubate future growth drivers. We can share with you one example of these efforts given our recently announced agreement to acquire Geneva Health Solutions.

I will discuss in more detail why we were so excited to get them onboard. Clearly, 2018 was an action-packed year and I could not be more pleased with how the team has performed. In a year when all the major indexes posted negative returns, we doubled the market value of our company while maintaining a strong balance sheet. I was recently asked the secret to our sustained performance.

Like any successful endeavor, it requires being one step ahead of the competition and solid execution.We communicate the drivers of our strategy to you each quarter and what we have built cannot be easily replicated. It starts with having a leadership team in place that knows the market, knows the customers and has the drive to take the company to new heights. We have applied our knowledge of the industry to develop a highly effective market strategy that is yielding consistently strong results. We have also been making key acquisitions and investments that have been critical to this ongoing success.

As a result of our focus, we have industry-leading product offerings, exceptional sales and service, excellent customer retention and the broadest geographic coverage in our industry and a pipeline brimming with new opportunities for BioTelemetry. As a reminder, the pillars of our strategic roadmap are to go deeper and wider in cardiac monitoring in order to expand our leadership position, to continue to build upon our leading research services business by expanding our service offerings and, last, to identify other markets that would benefit from the application of our wireless platform and proprietary technology. These remain our primary areas of focus as we move into 2019, a year in which we again expect great things from the company. Given the strength of BioTelemetry as one of the largest, fastest growing and most profitable connected health companies in the market, we are better positioned than ever to continue to execute our plan.

As a result of our exceptional performance and our confidence about the future, we expect to continue to experience double-digit growth for the foreseeable future, which Heather will detail in her upcoming comments. But first, I want to share with you some key metrics and thoughts about our performance in the fourth quarter. During the period, revenue grew by 13% to $103.6 million, ahead of expectations. Full-year revenue was $399.5 million, up 39% from 2017.

Overall margins continued to improve as quarterly EBITDA grew by 33% to $30.5 million, exceeding our expectation and bringing full-year EBITDA to $113.4 million, representing an increase of 74% over 2017. We ended the quarter with $81 million in cash, up nearly $18 million in the quarter. MCT was up 11% in the quarter and 14% for the full year. Our research services team continued to outperform the market with revenue up 26% in the quarter and 30% for the full year.

And we continued efforts to build upon our new digital population health management business through key partnerships and internal investments. As we take a closer look at the healthcare services business, there is a lot to be excited about. The fourth quarter represented the first period with the LifeWatch integration being fully annualized. As I have mentioned on previous calls, this has been an incredibly successful project having met or exceeded all expectations including $30 million of synergy.

Probably the most notable aspect of the integration was the team's ability to retain and grow in our largest and most important accounts with organic healthcare revenue up 14% for the year. Additionally, we continued to see excellent growth in the quarter with our new MCT and extended-wear Holter products. As mentioned, MCT again grew at double digits and the extended-wear Holter product continued to penetrate the market, growing at triple digits. This demonstrates tremendous market acceptance of these two marquee products.

In the latter part of 2018, we completed analysis and planning to grow the healthcare services sales team by approximately 20%. This expansion process is now well under way and will support continued growth in 2019 and beyond. We believe adding resources to what is currently far and away the most productive sales organization in our industry is a wise investment. Another initiative that will most certainly accelerate growth in the healthcare segment will be the addition of the well-regarded Geneva platform.

In keeping with our strategic intent to go deeper and wider in the cardiac monitoring market, we recently announced our plan to acquire Geneva healthcare solutions, which is expected to close in the first week of March. As an early stage company, Geneva has developed an innovative, proprietary cloud-based platform that aggregates data from the leading device manufacturer systems, enabling the company to remotely monitor all of 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, view monitoring results and request routine device checks, helping drive significant in-office efficiencies and patient compliance. This solution is transforming the way physician offices consolidate and manage data from implantable cardiac devices giving precious time back the staff to focus on patient care.

Our diligence found their clients greatly value the many benefits of the platform and that has translated into impressive growth for Geneva. The next logical step will be to merge the functionality of the Geneva system with that of BioTel Heart's user interface, providing even greater workflow and data management efficiencies to the thousands of clients we serve. We believe the combination of the Geneva solution with our current remote monitoring offering presents an opportunity to radically change the way we relate to customers in the cardiology market. And it will further solidify our leadership position in remote cardiac monitoring while providing access to over $1 billion of additional market opportunity.

Switching to research services, we were happy to report on another excellent quarter capping off a tremendous year. In fact, 2018 marked the third consecutive year in which we have had at least 20% growth in this division. During the quarter, we continued to invest in infrastructure and additional business development resources, a recurring theme across all parts of BioTelemetry. Also, as mentioned on the last call, we are starting to have success incorporating our proprietary ePatch monitor as a critical element of new cardiac studies creating cross-segment top-line synergy.

During the fourth quarter, we saw an increase in this activity as we committed to another large study using ePatch with a top-10 pharma company. While we are not liberty to discuss the details of the study, it was clear that the strength of our position the cardiac market and the access to our cutting-edge technology like ePatch helped win this business. As many of you know, BioTelemetry has worked with innovative consumer tech companies as they seek to integrate heart health trackers into their popular wearable devices. Those screening tools are designed to notify consumers of potential cardiac risk that may require medical monitoring, diagnosis and possible treatment.

During the quarter, we began another project of this type and are excited about its potential to further integrate health and fitness information seamlessly into the lives of consumers. We are delighted to support this trend as it has the potential to substantially expand our market and closely aligns with our mission to improve human health. In studies like this, BioTelemetry is uniquely positioned to leverage the strengths of our research and healthcare divisions to acquire, analyze and report cardiac data. For the full-year 2019, we again anticipate double-digit revenue in the research business.

From a strategic investment perspective, we are also continuing to evaluate additional services and technologies that might have the potential to accelerate our objectives for this important segment. With the healthcare and research divisions, which account for over 95% of the company's revenue, growing at double digits, we have the luxury of spending more time and resources developing additional opportunities for future revenue growth. In 2018, we introduced our latest-generation wireless blood glucose monitor powering our digital population health management service. Later in the year, we also acquired certain assets of a commercial partner in this business, expanding our reach into several key customers.

As we move into 2019, we are allocating more business development resources into this segment and expect Population Health to become a meaningful contributor later in the year. We also continue to put more effort into the evaluation of numerous connected-health technologies and solutions to better understand where we can best leverage our capabilities. The Geneva acquisition is illustrative of this effort, and based on my earlier commentary, it is easy to see why we are so excited about its potential. We are developing additional opportunities for unique partnerships with companies looking to enter the healthcare space, the Apple heart study being a prime example.

These are just a few of the many exciting prospects for the company. Expect BioTelemetry to continue to lead these market development efforts as no other company is as well-positioned to capitalize on such opportunities. To sum up, we are obviously very pleased with the company's exceptional performance in the fourth quarter and for the full-year 2018. More importantly, we expect that the investments we are making across the company will support our future growth objectives.

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

Heather Getz -- Chief Financial Officer

Thank you, Joe, and good afternoon, everyone. As Joe just announced, we closed out a tremendous 2018 with an incredibly strong fourth quarter where we recorded record revenue and adjusted EBITDA. To summarize, the fourth quarter of 2018 marked our 26th consecutive quarter of year-over-year revenue growth with total revenue reaching $103.6 million and exceeding expectation. This represents a 13% increase as compared to the fourth quarter of 2017 and resulted from increased revenue across all of our businesses.

healthcare revenue increased $9.1 million, or 12%, once again driven by significant increases in both MCT and extended Holter volume as well as favorable payer mix. Our research revenue increased 26%, or $2.7 million, largely due to a higher volume of studies in both imaging and cardiac. Moving to gross profit margin. Our gross profit margin for the fourth quarter of 2018 was 61.7% versus 59.3% in the prior-year period.

The increase in our margin was primarily due to volume-related efficiencies, synergies from the acquisition of LifeWatch, favorable product and payer mix and lower deprecation associated with the new MCT. These favorable impacts were partially offset by higher consumable costs from our patch products. Our fourth-quarter adjusted EBITDA was $30.5 million, our highest quarterly adjusted EBITDA in the company's history, which represented a 29.4% return on revenue. The increase in our EBITDA margins was primarily due to the same factors impacting our gross margins as well as synergies realized in OPEX.

Moving on to our tax rate. As you may remember, in 2017 the only cash taxes the company paid were for state taxes because of the use of federal NOLs. In 2018, we recorded a GAAP tax benefit of 1% with only a nominal amount of cash taxes paid due to the benefits of certain large discrete deductions taken during the year. For 2019, while we expect our GAAP tax rate to be approximately 20%, we anticipate that we will continue to be able to utilize our $150 million of net operating loss carry-forward.

As a result, we believe that we will pay approximately $1 million in taxes in 2019. Moving on to our balance sheet. We ended the quarter with $80.9 million in cash and $200 million of indebtedness, putting our debt-to-EBITDA ratio under two times. Year to date, we generated $72.7 million in cash from operations.

As previously mentioned, during 2018 we had one-time cash outlays of over $15 million largely for acquisition-related activity. In addition, we used $24.6 million for capital expenditures driven by the next-generation MCT and extended-wear Holter devices as well as for capitalized software and hardware as we invest in our IT environment and infrastructure. Free cash flow was $48.1 million, which is far in excess of any other year in the company's history. As a side, in the first quarter of 2019 we will use $45 million of cash for the upfront payment of the previously announced Geneva acquisition.

Shifting gears, I will give a quick review of the full-year 2018 and touch on the outlook for the first quarter and full year of 2019. To review, our full-year 2018 revenue was $399.5 million with EBITDA of $113.4 million. This represented a revenue increase of 39% over 2017 as recorded and a 14% organic growth rate. Adjusted EBITDA grew a remarkable 74% and our adjusted EBITDA margin increased 560 basis points to 28.4%.

As a reminder, at the point of the LifeWatch acquisition, pro forma EBITDA margin was 18%. This means the combination has created an impressive 1,000 basis point improvement in less than 18 months. These results are a reflection of the strong revenue growth from the commercial launches of our MCT and extended-wear Holter patch products, the introduction of our products into the legacy LifeWatch accounts, the positive impact of synergies as well as the strength in our research business. Looking at 2019, we mentioned on our last call that we can expect double-digit top-line growth and EBITDA margin expansion.

Looking specifically for 2019, we expect top-line revenue in the range of $438 million to $442 million, gross margins of approximately 63% and EBITDA return of approximately 29%. This guidance reflects additional investments that we are making in our sales force, on our information technology and for new product development as well as the slight headwind from a couple point reduction in Medicare pricing, which went into effect January 1. To be clear, this guidance excludes any benefit from our acquisition of Geneva, which is expected to close in early March. As always, we will continue to update our guidance as the year progresses.

For the first quarter of 2019, we are projecting revenue of $102 million to $105 million and EBITDA return of about 28%. We'd like to remind everyone that Q1 is heavily impacted by the resetting of payroll taxes and the timing of sales meetings. These impact both our gross margin as well as our EBITDA return. To summarize, the company remains in a strong financial position with moderate leverage and additional capacity if needed.

We just capped off the year with our 26th consecutive quarter of year-over-year revenue growth and realized our highest quarterly revenue and adjusted EBITDA in the history of the company. We achieved the high end of our synergy target of $30 million ahead of schedule, and we grew revenue by over 14% organically while driving a 560 basis point improvement to our EBITDA return all while integrating the LifeWatch acquisition. These results and consistent growth have provided and will continue to provide the financial strength and flexibility to execute on our key growth initiatives. And with that, I will now turn the call back to Joe.

Joseph Capper -- Chief Executive Officer and President

Thanks, Heather. As you just heard, we had an excellent fourth quarter building on the momentum we have cultivated over the past several years. Our strategy is yielding the results we expected. And we continue to broaden our opportunities.

We are in the early stages of several potentially significant drivers of future growth. The addition of Geneva will further broaden our cardiac offering, strengthen our leadership position and significantly accelerate our growth plan. To ensure our continued success throughout 2019, we will focus on completing the healthcare sales force expansion to help drive further market penetration of our MCT and extended-wear Holter systems, continuing to grow our research business by making additional business development and infrastructure-related investments, building out our Digital Population Health Management business, expanding on key partnerships we have developed and completing the acquisition and integration of Geneva. Given our excellent results and the momentum of the company, we remain bullish on the business for 2019 and beyond.

Based on Heather's comments about how we see things beginning to take shape, it is clear we are in store for another great year. We have all the key elements for continued success; a proven and experienced management team, market-leading products, exceptional sales and service and a solid financial foundation. In 2019, we will monitor over 1.1 million people or 1 every 30 seconds. Our revenue will grow by double digits with EBITDA margin in the high 20s%.

And the company will generate significant amount of free cash allowing for accelerating investments into other connected-health solutions, solutions which will improve the quality of care and dramatically reduce the cost to deliver that care. While we are pleased with the progress of the company, we get far more excited about what lies ahead. Our powerful cardiac monitoring and clinical research businesses have the potential to produce solid growth for years to come. We also look forward to increased contributions from our developing population health business and other areas of investment.

As I close, I would again like to thank those of you who helped deliver our 26th consecutive growth quarter. Let's continue to build on the excellent momentum we have established together. With that, we will now pause and open the call to your questions. Operator, we are ready for our first question.

Questions and Answers:

Operator

[Operator instructions]. Our first question comes from the line of Bruce Nudell of SunTrust. Your line is now open.

Bruce Nudell -- SunTrust Robinson Humphrey -- Analyst

Good afternoon. Thanks for taking the question. Joe, just could you explain the clinical value proposition of Geneva? As you know, of course, a lot of the -- all cardiac rhythm companies provide remote connectivity to specialized EPs. And I was just wondering is this a different population of docs? How does this figure in from easing workflow for subscribers?

Joseph Capper -- Chief Executive Officer and President

Yes, great question. And it goes to the heart of the value proposition offered by Geneva Health Solutions. Each of the primary cardiac device companies have remote monitoring systems, but they're all proprietary. So the workflow within a large cardiology practice that is monitoring patients, who have devices from multiple device companies, is kind of a nightmare because they're required to download data from three or four different systems and then manage that data.

What Geneva has done is develop the software platform that consolidates that on behalf of the physician so the staff and the physician can work out of a single portal and manage remote monitoring from the various cardiac devices for the various manufacturers. Big, big workflow efficiency. One of the primary pain points -- that was the feedback that we received -- it was one of the primary pain points in the cardiology practice.

Bruce Nudell -- SunTrust Robinson Humphrey -- Analyst

My follow-up is, I think the Apple Watch study is going to be at ACC at a late-breaker. Will there be any like read-throughs from it in terms of what it means for companies such as yourselves in terms of kind seeding the funnel or any other significant take-homes that will be pretty self-evident in your view?

Joseph Capper -- Chief Executive Officer and President

Yes. I mean that's been our view all along; that, if anything, they're going to expand the size of the pie. The device is more of a screening tool. And the benefit there is folks who are walking around with potential arrhythmias that are undiagnosed may have these triggered on this device.

The next step would be they would go to a clinical-grade device like ours. It can't do the type of diagnosis that we can do. It can't provide the type of information a physician would need to treat a patient. So we -- I can't give you numbers, but kind of the logical takeaway is it's going to expand the size of the market.

Bruce Nudell -- SunTrust Robinson Humphrey -- Analyst

Thanks so much.

Heather Getz -- Chief Financial Officer

Thanks, Bruce.

Operator

And our next question comes from the line of Brooks O'Neil of Lake Street Capital. Your line is now open.

Brooks O'Neil -- Lake Street Capital -- Analyst

Good afternoon. Congratulations on a terrific year, guys. I am at the airport so I apologize in advance for any background noise. But I am curious if you could just detail sort of what you're seeing from a competitive position particularly in the cardiac monitoring business.

Joseph Capper -- Chief Executive Officer and President

I would say nothing really new from the last few quarters. The same competitors that have been out there are out there. We continue to outperform relative to the competitive set. But there's nothing really terribly new to report.

Obviously, we launched two new products this year and both of them are getting wide market acceptance; one growing at double digits in a relatively mature market, the other growing in triple digits. And we're actually seeing growth in our other, our legacy, our other two legacy product lines as well, Brooks. So nothing really new to report from a competitive standpoint.

Brooks O'Neil -- Lake Street Capital -- Analyst

That's great. So you mentioned the new product. I'm curious if you have any additional remote monitoring, cardiac remote monitoring products in the pipeline that you will launch in 2019.

Joseph Capper -- Chief Executive Officer and President

Nothing that I'm prepared to talk about today. I think the focus will be let's get the Geneva platform acquired and integrated. I mentioned in my talking points that the next logical step would be to integrate our user interface capabilities with those of Geneva. So if you think about that, Brooks, from a cardiology practice perspective, I mentioned that they could be using or practically using multiple software interfaces for the various manufacturing companies.

They also have one for us. So in the long run, we're not looking to going four to one. We're looking to consolidating five systems into one. So huge efficiency within the cardiology practice.

All of that is remote monitoring. We do have additional products in development in our pipeline, but nothing that we're prepared to talk about today.

Brooks O'Neil -- Lake Street Capital -- Analyst

Great. I appreciate all that. And then my last one. I'm just curious if you could tell us what you're seeing and what you're thinking about in diabetes.

I am personally quite excited about the opportunity in diabetes. But where do you think you're at? Where do you think you're going in diabetes in 2019?

Joseph Capper -- Chief Executive Officer and President

Yes. It's still a little bit early on. We spent most of '18 focused on the LifeWatch integration and then focused on getting the latest-generation wireless blood glucose monitor through development and making enhancements to the cloud-based platform as well. So we got all of that done.

As we move into '19, we're investing in more business development resources out selling the program. We anticipate starting to get a bit more traction as we move into 2019. One of the other areas that could benefit this initiative is the new remote monitoring codes that Medicare put in place at the beginning of '19, which allow physicians and IDTFs to monitor chronic conditions remotely. We're still developing programs around those codes.

Brooks O'Neil -- Lake Street Capital -- Analyst

OK. Great. Thanks a lot. And again congratulations on a terrific year.

Joseph Capper -- Chief Executive Officer and President

Thanks.

Operator

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

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

Good afternoon. Thank you for taking my questions. I was wondering if you could talk a little bit more about the sales force expansion. Maybe if you can discuss the timing, maybe how many additional heads you might be looking to add there as well.

Joseph Capper -- Chief Executive Officer and President

Yes. So we're moving it up by about 20%. So we were anywhere from 95 to 100 in '18 and we'll be 115 to 120 in '19. We're probably 75% of the way through that as sit here today.

Obviously, new headcounts aren't that productive in the first year, take a little bit of time to ramp up. But we think it's a good investment. We have seen in the past as we added a few headcount, it makes sense. We were seeing good return on the marginal investment.

So we will continue to do that.

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

Got you. And will those individuals -- will that money flow through the sales and marketing line? Or is there going to be a mixture between that and the cost of services?

Joseph Capper -- Chief Executive Officer and President

No. That would be all sales, SG&A, sales and marketing.

Heather Getz -- Chief Financial Officer

Yes.

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

OK, got you. And then maybe if you could talk a little bit, Joe, about fiscal '19 year. Obviously, on the guidance side you've gone through a lot of the drivers here that are pointing toward growth. Maybe you can talk a little bit more about some of the risks that you're kind of taking a look at and monitoring.

Joseph Capper -- Chief Executive Officer and President

Same as always. Our biggest risk is reimbursement. To the extent that there is some new technology, which we monitor pretty closely, that's always kind of a high-level risk. None of this bothers us.

We've got a good view on reimbursement. We do have a little bit of a headwind coming into 2019. So it's probably somewhere in the 1% to 2% range in terms of overall revenue as a result of a rate cut or rate cuts from Medicare. So when we talk about 10% growth it's really kind of 11% to 12%.

And we think that that's -- it's really comfortable for us this year. So I mean nothing new from a risk perspective. I think all the same stuff. And look, we're pretty close to everything that's happening in the industry.

I get a lot of questions about the consumer tech companies that are trying to come in. We talked a little bit about that earlier on the call. Is that a risk for us? No, actually we think that that's a tremendous benefit for the industry. There is a couple more that are coming into -- one or two more that we know of that are coming into the category.

We're working with one or two more. We just entered into another study with one. So we think that activity is really good for the category. It brings more awareness, and ultimately these folks have got to get treated.

And they're not going to be treated until they get on one of our products.

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

Got you. And last quick question, just kind of coming back on Geneva. Assuming the acquisition closes here as expected, just kind of wondering timing-wise here as far as the integration efforts, timing-wise, just how long think it will take.

Joseph Capper -- Chief Executive Officer and President

So this -- you've got to think about this one differently than LifeWatch. LifeWatch was a massive integration project because a lot of that benefit was coming from cost synergy and merging the sales and marketing infrastructure. So we really kind of needed to get that done quickly. We're not expecting any cost synergy from Geneva.

This is all about driving that top line and solidifying our position within the cardiology market. We believe that wrapping a software service like this around products and services that we already offer is just going to further entrench us in these practices. So our plan there is really market expansion as quickly as possible. We talked, I think, in the press release about their revenue in 2018 being approximately $6 million.

What we didn't talk about was the fact that they're already at breakeven. So they're paying their own freight, which is kind of cool, right, because now we have the opportunity to really invest in the growth of this. It tells you that it's not a high cost structure behind this and it makes sense, right, because it's not the same as our monitoring business where we were required to manufacture and supply devices. This is primarily a software and service with, then, an IDTF service behind that.

So really the mentality here is get them onboard, treat them with our current cardiology sales force and infrastructure and ramp that business as fast as possible. Naturally, it will start to kick off earnings over time, but that's really not what we're after in the near term. We're after top-line growth and sales, which is perfectly aligned with the group, the sellers, and the group that's coming onboard.

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

Got it. Thanks a lot. Appreciate your time.

Joseph Capper -- Chief Executive Officer and President

Sure.

Operator

And our next question comes from the line of Jayson Bedford of Raymond James. Your line is now open.

Jayson Bedford -- Raymond James -- Analyst

Good evening. Can you hear me OK?

Joseph Capper -- Chief Executive Officer and President

[Inaudible]

Jayson Bedford -- Raymond James -- Analyst

All right. Perfect. So just maybe along the last line of questioning there. The 20% jump in the sales force, is that in support of the base business or more in anticipation of Geneva coming on? And then just as a follow-on to that, is your existing sales force, are they going to be selling the Geneva offering as well?

Joseph Capper -- Chief Executive Officer and President

Yes, great question. And all that planning is kind of under way. The 20% growth in the cardiology sales force, the BioTel Heart division of BioTelemetry, is a stand-alone initiative. That was happening regardless of the Geneva acquisition.

With Geneva coming onboard, we will, in all likelihood, allocate even additional sales resources to that effort. The two organizations will -- now that's a much smaller team. The two organizations will partner. Eventually, they'll work closer and closer together.

But the idea is, at least initially, have the BioTel Heart cardiology sales force feed into the Geneva sales organization. And again, I don't want to get bogged down with a whole lot of synergy exercises and integration exercises. I really want both of these groups selling as much as possible. If that makes sense.

We have -- the benefit here is BioTelemetry has relationships with thousands of doctors, thousands of doctors. The Geneva group has built a nice business with a relatively small number of parent accounts, to date. We have the opportunity to take that and move it through the BioTel Heart sales channel. We want to do that as rapidly and as efficiently as possible so we're going to need dedicated specialists on the Geneva side of the house, if you will, even though they're going to be working very closely.

I don't want to give you the impression that we're going to run it as a totally separate company. They're going to be working very closely. But they're going to have kind of a dedicated role.

Jayson Bedford -- Raymond James -- Analyst

OK, OK.

Joseph Capper -- Chief Executive Officer and President

I guess the important thing there is, in terms of the customers, there's 100% overlap.

Jayson Bedford -- Raymond James -- Analyst

OK. And Joe, at what point will you be ready -- and maybe it's right here -- just to talk about the potential revenue and EBITDA contribution from Geneva in '19 and '20?

Joseph Capper -- Chief Executive Officer and President

So it's not right here. We've got to get it closed. We've got to get it closed first and then we'll put out a little bit more guidance on it, right. And so we're still kind of modeling that out.

And again, they're sort of in the ramp-up phase.

Jayson Bedford -- Raymond James -- Analyst

OK. And I don't mean to jump the gun on this. But are you planning on quantifying it or talking about the potential revenue contribution at the time of the deal close? Or is that a 1Q call type of event?

Joseph Capper -- Chief Executive Officer and President

Oh, no. We'll give some guidance when the transaction closes to the best of our ability. And then we'll give, obviously, updates on a quarterly basis when we get together on these calls. I just don't want to get too far out in front of it.

Our primary objective is to get it closed.

Jayson Bedford -- Raymond James -- Analyst

Understood. That's fair. And I may have missed this. I'm not sure if it's even in the release.

But just in terms of the international piece of the business, Joe, can you talk about the potential to maybe globalize the business going forward? And is that a strategic initiative here in '19?

Joseph Capper -- Chief Executive Officer and President

I would say it's a strategic initiative. It's not one that we're throwing a ton of resources at in '19. We have started to invest some resources in that area, but it's more kind of early stage development and primarily looking for the right partners in various parts of the world where we think it makes sense to be doing business. We don't anticipate opening up shops all around the world.

We think we'll do this through partnership, which is really the only strategy that makes sense for a company our size.

Jayson Bedford -- Raymond James -- Analyst

OK. And then just last question from me. I think you kind of touched on it or alluded to it earlier. I think you mentioned multiple M&A opportunities and you talked about one, Geneva.

You also talked about a pipeline of new opportunities. I wasn't sure if that was internal opportunities or additional M&A that we should expect over the next 12 months.

Joseph Capper -- Chief Executive Officer and President

I would say both. So we're always developing initiatives, products, things within the company that will enhance our business and help us execute our strategy. To the extent we can accelerate that longer-term strategy or longer-term plan via M&A, we will look to do that. And I've been asked, cardiology, research, pop health; what's your priority? And it really is kind of market-dependent, what's there.

In a perfect world, I'd invest a little bit more in Pop Health and research, but the assets have to be there for me and they have to be there for me at the right price.

Jayson Bedford -- Raymond James -- Analyst

OK, good. Thanks.

Operator

And our next question comes from the line of Mitra Ramgopal of Sidoti. Your line is now open.

Mitra Ramgopal -- Sidoti and Company -- Analyst

First, Joe, just coming back to the Geneva acquisition. Obviously, LifeWatch was a homerun. Clearly it was a competitor, much more established company with a track record. How comfortable were you sort of taking a look at Geneva given it's still very much an emergent company and you didn't have quite the history with it you had with LifeWatch?

Joseph Capper -- Chief Executive Officer and President

I thought the product offering was a no-brainer. It was; do I build it or do I buy it? And I was -- when I came in contact with the folks at Geneva, they were just world-class people. They were so far ahead of what other folks were doing in this space. It just made all the sense in the world for me to make the investment to accelerate this idea.

Again, this is a top pain point within the cardiology practices that we service. Arguably, it's not a pain point that we're creating, but we're there and if we can solve it, we're going to further solidify our standing in that practice. So I'm very comfortable with it. There is already dedicated CPT codes for payment of the service.

They've established a nice ramp-up. They have super high-quality people. We have all the other infrastructure that is needed to ramp this. They could have done it on their own.

Again, I think I mentioned earlier that they were already approaching breakeven or at breakeven. They could have gone out and raised money or brought in a PE sponsor to do this on their own. But partnering with us allowed them to get where they wanted to be in the next three years a whole lot faster. So we'll provide an opportunity for them to ramp this business a whole lot faster than if they were to do it on a stand-alone basis.

But we think it's -- we think it's a really attractive business.

Mitra Ramgopal -- Sidoti and Company -- Analyst

OK. No, that's great. And I know you've already talked about making some incremental investments in 2019 starting with the sales force. I'm just wondering on the R&D front, however, you brought on or launched a number of products in 2018.

Should we see that starting to come in a little? Or do you still feel there's still quite a bit to be investing on in terms of product development?

Joseph Capper -- Chief Executive Officer and President

Oh, no. No, we're investing quite a bit on the R&D side, both on the system side as well as a product side. A lot in kind of machine learning and AI to bring more efficiencies into the operation, a lot on the product side as well. And across the platform.

So we're looking at cardiology. We're looking in some other areas as well. So we're continuing to invest a lot of money in the business.

Mitra Ramgopal -- Sidoti and Company -- Analyst

OK. That is great. And finally, Heather, what should we be thinking from a CAPEX standpoint for 2019?

Heather Getz -- Chief Financial Officer

We're probably looking about $25 million. That includes a combination of devices to meet the demand as well as some infrastructure investments that we talked about on the IT side.

Mitra Ramgopal -- Sidoti and Company -- Analyst

OK. Thanks for taking the questions.

Heather Getz -- Chief Financial Officer

Thanks, Mitra.

Operator

And our next question comes from the line of Gene Mannheimer of Dougherty and Company. Your line is now open.

Gene Mannheimer -- Doughtery and Company -- Analyst

Thanks, good afternoon. And I echo the congratulations on a good year. I wanted to ask you first about the triple-digit growth you're in the ePatch area. I'm just trying to glean how much of that growth is from the commercial, call it out to practices, versus the stuff that you're doing in the research segment with clinical trials.

Joseph Capper -- Chief Executive Officer and President

Oh, no. That's all out to practices. It's all in the healthcare market.

Gene Mannheimer -- Doughtery and Company -- Analyst

Oh, OK. Good. So the research piece, then, that you're doing with some pharma is incremental of that, to that growth.

Joseph Capper -- Chief Executive Officer and President

It is. And to the extent you see benefit from that, you're going to see it more on the research side than the healthcare side.

Gene Mannheimer -- Doughtery and Company -- Analyst

Right. OK. All right, good. Can you talk a little about the number of sales people and practices that Geneva had pre-acquisition?

Joseph Capper -- Chief Executive Officer and President

I think on their website they talked a little bit about the number of accounts that they had, and I think it was somewhere around 60 parent accounts and very few business development resources in place. Again, it was a small company with a handful of people out driving that business. So we think that once we unleash our sales organization and we can leverage all the current relationships we have in place now -- in fact, it would be a fit for everybody. For all of our high-volume accounts, this is a perfect solution to bring into the cardiology practice.

So today, relatively small. I think, again, the opportunity that we calculated it was well in excess of $1 billion and that was just by looking at the installed implant base and multiplying it by the average selling price for the CPT codes that are already established for the services we're going to be providing. And we think there's actually market potential higher than that given the growth rate of the implantable loop recorders that also feed into this solution. So big market, big opportunity and it's relatively un-penetrated.

Gene Mannheimer -- Doughtery and Company -- Analyst

That's great. And Heather, I appreciate the CAPEX comment. Any guidance on cash flow this year considering also what you're paying for Geneva in Q1?

Heather Getz -- Chief Financial Officer

Yes. Excluding Geneva, we are looking at free cash flow of about, yes, $90 million to $100 million. So with the cash on our balance sheet, obviously we'll pay for the upfront payment of Geneva.

Gene Mannheimer -- Doughtery and Company -- Analyst

Terrific. Thanks again.

Heather Getz -- Chief Financial Officer

No problem.

Operator

And our next question comes from the line of Bill Sutherland of Benchmark. Your line is now open.

Bill Sutherland -- The Benchmark Company -- Analyst

Thanks. Hey, everybody. Just at this point just one I want to kind of look at with you and that's the revenue guidance. So it's coming -- it comes in midpoint-ish around 10% for the year.

I know there's a point or two of pressure on Medicare, but then I figure that's mostly offset by a little bit of revenue from Geneva. So give or take, around 10%. And then so I'm just wondering how to think about the key, the two main segments, research and healthcare, relative to that. Are they -- is research kind of moving to that kind of growth rate? Or how do I think about that?

Joseph Capper -- Chief Executive Officer and President

Yes. So first of all, none of that includes -- that includes nothing from Geneva, right?

Heather Getz -- Chief Financial Officer

Right.

Joseph Capper -- Chief Executive Officer and President

So you're right. We're saying kind of 10-ish%. If you pro forma that for the rate cuts, it's probably more like 11% to 12-ish percent. And yes, I mean last year the research business grew by an unbelievable rate, like 30-plus%, right? The market growth rate is probably 3% to 5%.

So we're asking them for 10% this year. I think we're comfortable forecasting that based on the backlog that we have in place, which is still phenomenal growth. But you know the way we kind of forecast our business, Bill. We try not to get too far out of over our skis.

I think at about this time last year, we were talking about 10% growth for the business in 2018. We were asking for like $380 million to $385 million out of the business and now we were able to outperform and move that up. We're a slightly bigger business than we were at this time last year. And I think we talked a little bit about the dynamics in the research business.

And of course, we think there's going to be nice upside with Geneva as well. So we're comfortable coming into the year with that number, but you know us.

Bill Sutherland -- The Benchmark Company -- Analyst

Yes. I mean as far as the sales force impact, I mean -- and the productivity ramp, do you think, though, that's a difference maker by the back half of this year?

Joseph Capper -- Chief Executive Officer and President

Yes. It will take a little bit of time to get that done and the people in place and trained. So you'll see some impact of it, but you'll see more impact in 2020.

Bill Sutherland -- The Benchmark Company -- Analyst

Right. That's what I've figured. OK, thank you.

Joseph Capper -- Chief Executive Officer and President

Thank you.

Operator

And I'm not showing any further questions at this time.

Joseph Capper -- Chief Executive Officer and President

Thanks again, everybody. That's going to conclude today's call. Appreciate your support and we'll speak to you next quarter.

Operator

[Operator signoff]

Duration: 51 minutes

Call Participants:

Joseph Capper -- Chief Executive Officer and President

Heather Getz -- Chief Financial Officer

Bruce Nudell -- SunTrust Robinson Humphrey -- Analyst

Brooks O'Neil -- Lake Street Capital -- Analyst

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

Jayson Bedford -- Raymond James -- Analyst

Mitra Ramgopal -- Sidoti and Company -- Analyst

Gene Mannheimer -- Doughtery and Company -- Analyst

Bill Sutherland -- The Benchmark Company -- Analyst

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