Cotiviti Announces Third Quarter 2016 Results

Cotiviti Announces Third Quarter 2016 Results

Revenue of $156.2 million, up 14% over prior year period

Net Income of $4.6 million, up 163% over prior year period

Net Income per diluted share of $0.05

Non-GAAP Adjusted Net Income per diluted share of $0.36

Non-GAAP Adjusted EBITDA of $61.6 million, up 19% over prior year period

 

Atlanta, GA, November 9, 2016. (BUSINESS WIRE) - Cotiviti Holdings Inc. (NYSE:COTV) (“Cotiviti”), a leading provider of analytics-driven payment accuracy solutions primarily focused on the healthcare industry, today announced financial results for the three and nine months ended September 30, 2016.  The Company will host a conference call on November 10, 2016 at 8:30 a.m. Eastern Time to discuss its results.

“We continue to achieve strong operating and financial performance as a result of our successful execution on our long-term strategic plan by delivering unique value and service to our clients every day. Our third quarter results demonstrate the strength of our business and our very talented team’s dedication to serving our clients, with total revenue growth of 14% compared to the prior year period driven by 16% revenue growth in our Healthcare segment,” said Doug Williams, Chief Executive Officer. “Our robust performance, as shown by the 19% growth in non-GAAP Adjusted EBITDA in the third quarter, was driven by our ability to deliver tangible payment solutions to our clients through our proprietary technology platform, advanced analytics capabilities and the unique expertise collected from decades of experience across the payment continuum. In both Healthcare and Retail, payment complexity continues to grow and drive demand for our services. Beyond the economic benefit, assuring payment accuracy also supports our clients’ relationships with their providers and suppliers, enhancing the overall value we deliver.”

“As recently announced by the Centers for Medicare and Medicaid Services (CMS), we are pleased to have been selected once again as a national contractor for the CMS Recovery Audit Program for both Region 2 and Region 3,” continued Doug Williams. “We look forward to continuing to generate tangible value to the Medicare system, enabling the program to better serve all stakeholders.”

 

  • As a result of the strength of our business model and the successful debt refinancing we completed in the third quarter of 2016, we were able to further reduce our net leverage ratio to 3.3 times at September 30, 2016 from 3.5 times at June 30, 2016, adding flexibility and strength to our balance sheet,” said Steve Senneff, Chief Financial Officer. “Using our strong cash flow, we will continue to make strategic investments in technology and analytics to continuously evolve our payment accuracy solutions to create value for clients while also benefiting the broader healthcare industry cost containment efforts.”

Third Quarter 2016 Financial Results

  • Total revenue for the quarter increased 14% to $156.2 million, compared to $136.9 million in the third quarter a year ago. Revenue growth was driven by a 16% increase in the Healthcare segment to $138.5 million, with the Global Retail and Other segment contributing $17.8 million, essentially flat compared to the same period a year ago. Healthcare revenue was favorably impacted in the quarter by an increase in volume and expanded adoption of our solutions within existing healthcare clients. Retail revenue was essentially unchanged from the prior year quarter primarily due to a regulatory change in the United Kingdom.
  • Net income increased 163% to $4.6 million, or $0.05 per diluted share for the third quarter, compared to a loss of $7.3 million in the prior year quarter, or $(0.09) per diluted share. The debt refinancing in the third quarter 2016 resulted in a $9.3 million loss on extinguishment of debt.  In addition, the impact of a higher stock price triggered the vesting of substantially all performance-based stock options resulting in total stock compensation expense of $17.0 million for the third quarter 2016. Net loss in the third quarter of 2015 was driven by a $27.8 million impairment charge on the Company’s trademark assets due to the Cotiviti rebranding. 
  • Non-GAAP Adjusted EBITDA for the quarter was $61.6 million, compared to $51.9 million for the quarter a year ago, or a 19% increase.
  • Non-GAAP Adjusted Net Income for the quarter was $33.7 million, or $0.36 per diluted share, compared to $26.5 million, or $0.34 per diluted share a year ago.

 

Nine Months 2016 Financial Results

  • Total revenue for the nine months ended September 30, 2016, increased 17% to $457.3 million, compared to $389.9 million for the same period a year ago. Revenue growth was driven by a 20% increase in the Healthcare segment to $403.6 million, with the Global Retail and Other segment contributing $53.6 million, up slightly from the same period a year ago. Healthcare revenue growth for the first nine months of 2016 was primarily driven by the success of existing client adoption of new solutions, the addition of new clients and our ability to cross sell our services across our client base. Healthcare revenue also benefitted from $5 million for special projects in the second quarter 2016.
  • Net income increased 403% to $23.6 million, or $0.27 per diluted share for the nine months  ended September 30, 2016, compared to a $4.7 million in the prior year period, or $0.06 per diluted share. The increase in net income for 2016 to date is driven by the 17% increase in revenue partially offset by a $16.4 million loss on extinguishment of debt due to debt repayments in the second quarter and the refinancing in the third quarter, as well as stock-based compensation of $21.5 million. Results for the nine months ended September 2015 were adversely impacted by a $27.8 million impairment charge on the Company’s trademark assets due to the Cotiviti rebranding. 
  • Non-GAAP Adjusted EBITDA for the nine-months ended September 2016 was $175.3 million, compared to $146.9 million for the same period a year ago, or a 19% increase.
  • Non-GAAP Adjusted Net Income for the quarter was $87.1 million, or $1.00 per diluted share, compared to $68.1 million, or $0.88 per diluted share in the comparable period a year ago.

 

Cotiviti is increasing full year 2016 guidance as follows:

  • Total revenue in a range of $615 - $620 million, up from $610 to $615 million; and
  • Adjusted EBITDA in a range of $235 - $237 million, up from $233 to $235 million.

 

Adjusted EBITDA, Adjusted Net Income, and Adjusted Net Income per Share are non-GAAP financial measures.For an explanation of these as measures of the Company’s operating performance, refer to the reconciliation in “Non-GAAP Financial Measures.”

 

Conference Call Information

To participate in the conference call, domestic callers can dial (877) 883-0383 and international callers can dial (412) 902-6506 and provide the following conference passcode: 9856769.The call will also be webcast and be accessible on the Investor page of Cotiviti’s website at http://investors.cotiviti.com. 

Supplemental Financial Information

Supplemental financial information that is not part of this press release is available on the Investor page of Cotiviti’s website at http://investors.cotiviti.com.

 

About Cotiviti

Cotiviti is a leading payment accuracy provider that helps healthcare payers and retailers achieve their business objectives by unlocking value from the incongruities the company discovers in the complex interactions customers have with stakeholders. Cotiviti helps clients capture over $3 billion annually through improved payment accuracy. Cotiviti provides services to eight of the top ten U.S. healthcare payers and eight of the top ten U.S. retailers.

 

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties. All statements other than statements of historical fact or relating to present facts or current conditions included in this press release are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “seek,” “plan,” “intend,” “believe,” “will,” “may,” “could,” “continue,” “likely,” “should,” and other words.

 

The forward-looking statements contained in this press release are based on assumptions that we have made in light of our industry experience and our perceptions of historical trends, current conditions, expected future developments and other factors that we believe are appropriate under the circumstances. These statements are not guarantees of performance or results. These assumptions and our future performance or results involve risks and uncertainties (many of which are beyond our control). Important factors that could cause actual results to differ materially from those in the forward-looking statements include regional, national or global political, economic, business, competitive, market and regulatory conditions and the following: our inability to successfully leverage our existing client base by expanding the volume of claims reviewed and cross-selling additional solutions; improvements to healthcare claims and retail billing processes reducing the demand for our solutions or rendering our solutions unnecessary; healthcare spending fluctuations; our clients declining to renew their agreements with us or renewing at lower performance fee levels; inability to develop new clients; delays in implementing our solutions; system interruptions or failures, including cyber-security breaches, identity theft or other disruptions that could compromise our information; our failure to innovate and develop new solutions for our clients; our failure to comply with applicable privacy, security and data laws, regulations and standards; changes in regulations governing healthcare administration and policies, including governmental restrictions on the outsourcing of functions such as those that we provide; loss of a large client; consolidation among healthcare payers or retailers; slow development of the healthcare payment accuracy market; negative publicity concerning the healthcare payment industry or patient confidentiality and privacy; significant competition for our solutions; our inability to protect our intellectual property rights, proprietary technology, information, processes and know-how; compliance with current and future regulatory requirements; declines in contracts awarded through competitive bidding or our inability to re-procure contracts through the competitive bidding process; our failure to accurately estimate the factors upon which we base our contract pricing; our inability to manage our growth; our inability to successfully integrate and realize synergies from the merger of Connolly Superholdings, Inc. and iHealth Technologies, Inc. in May 2014 or any future acquisitions or strategic partnerships; our failure to maintain or upgrade our operational platforms; our failure to reprocure our Medicare Recovery Audit Contractor program contract; our rebranding may not be successful; litigation, regulatory or dispute resolution proceedings, including claims or proceedings related to intellectual property infringements; our inability to expand our retail business; our inability to manage our relationships with information suppliers, software vendors or utility providers; fluctuation in our results of operations; changes in tax rules; risks associated with international operations; our inability to realize the book value of intangible assets; our success in attracting and retaining qualified employees and key personnel; and general economic, political and market forces and dislocations beyond our control; risks related to our substantial indebtedness and holding company structure; volatility in bank and capital markets; our status as a controlled company and as an emerging growth company; and provisions in our amended and restated certificate of incorporation. Additional factors or events that could cause our actual performance to differ from these forward-looking statements may emerge from time to time, and it is not possible for us to predict all of them. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, our actual financial condition, results of operations, future performance and business may vary in material respects from the performance projected in these forward-looking statements.

 

Any forward-looking statement made by us in this press release speaks only as of the date on which it is made. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

 

Non-GAAP Financial Measures

The Company defines Adjusted EBITDA as net income (loss) before depreciation and amortization, impairment of intangible assets, interest expense, other non-operating (income) expense such as foreign currency translation, income tax expense (benefit), gain on discontinued operations, transaction-related expenses and other, stock-based compensation and loss on extinguishment of debt.  The Company defines Adjusted Net Income as net income adjusted for non-cash and other non-recurring items. 

Management believes Adjusted EBITDA is useful because it provides meaningful supplemental information about our operating performance and facilitates period-to-period comparisons without regard to our financing methods, capital structure or other items that we believe are not indicative of our ongoing operating performance.  Management believes Adjusted Net Income is useful because it provides meaningful supplemental information about our operating performance and facilitates period-to-period comparisons without regard to non-cash expenses and other items that are one-time in nature.  In order to assure that all investors have access to similar data the Company has determined that it is appropriate to provide these non-GAAP financial measures.  Management believes we are enhancing investors’ understanding of our business and our results of operations, as well as assisting them in evaluating how well we are executing our strategic initiatives.  Adjusted EBITDA and Adjusted Net Income are intended as supplemental measures of our performance that is not required by, or presented in accordance with U.S. generally accepted accounting principles, or GAAP.  Adjusted EBITDA and Adjusted Net Income are not determined in accordance with GAAP, and should not be considered in isolation or as an alternative to net income, income from operations, net cash provided by operating, investing or financing activities or other financial statement data presented as indicators of financial performance or liquidity, each as presented in accordance with GAAP.

 

Cotiviti Holdings, Inc.

Consolidated Balance Sheets

Cotiviti Third Quarter 2016 Consolidated Balance Sheet


Cotiviti Holdings, Inc.

Consolidated Statements of Comprehensive Income (Loss)

Cotiviti Third Quarter 2016 Consolidated Statements of Comprehensive Income

 

Cotiviti Holdings, Inc.

Consolidated Statements of Cash Flows

Cotiviti Third Quarter 2016 Consolidated Statements of Cash Flows

 

Cotiviti Holdings, Inc.

Reconciliation of Net Income (Loss) to Adjusted EBITDA

 Cotiviti Third Quarter Reconciliation of Net Income Loss to Adjusted EBITDA

 

Cotiviti Holdings, Inc.

Reconciliation of Net Income (Loss) to Adjusted Net Income

 Cotiviti Third Quarter 2016 Reconciliation of Net Income Loss to Adjusted Net Income

 

Cotiviti Third Quarter 2016 Adjusted EBITDA

 

 

Investor and Media Contact:
 
Jennifer W. DiBerardino
Vice President, Investor Relations
203-642-0718
Investor.Relations@Cotiviti.com