COTIVITI HOLDINGS, INC. filed this S-1/A on 05/16/2016
Cotiviti Holdings, Inc. (Form: S-1/A, Received: 05/16/2016 06:21:20)

Use these links to rapidly review the document
TABLE OF CONTENTS
INDEX TO FINANCIAL STATEMENTS

Table of Contents

As filed with the Securities and Exchange Commission on May 16, 2016

Registration No. 333-211022


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



Cotiviti Holdings, Inc.
(Exact name of registrant as specified in its charter)

Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
  7389
(Primary Standard Industrial
Classification Code Number)
  46-0595918
(I.R.S. Employer
Identification Number)



115 Perimeter Center Place
Suite 700
Atlanta, GA 30346
(770) 379-2800
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices)



J. Douglas Williams
Chief Executive Officer
115 Perimeter Center Place
Suite 700
Atlanta, GA 30346
(770) 379-2800
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)



Copies to:

Alexander D. Lynch, Esq.
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
(212) 310-8000 (Phone)
(212) 310-8007 (Fax)

 

Jonathan Olefson, Esq.
Senior Vice President,
General Counsel and Secretary
115 Perimeter Center Place
Suite 700
Atlanta, GA 30346
(770) 379-2800

 

Peter M. Labonski, Esq.
Keith L. Halverstam, Esq.
Latham & Watkins LLP
885 Third Avenue
New York, NY 10022
(212) 906-1200 (Phone)
(212) 751-4864 (Fax)



Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.

             If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.     o

             If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

             If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

             If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

             Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer  o   Accelerated filer  o   Non-accelerated filer  ý   Smaller reporting company  o

CALCULATION OF REGISTRATION FEE

               
 
Title of Each Class of Securities Offered
  Amount to be
Registered (1)

  Proposed maximum
offering price per
share

  Proposed maximum
aggregate offering
price (2)

  Amount of
registration fees (3)

 

Common stock, par value $0.001 per share

  14,375,000   $19.00   $273,125,000   $27,504

 

(1)
Includes shares of common stock that may be issuable upon exercise of an option to purchase additional shares granted to the underwriters.

(2)
Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(a) promulgated under the Securities Act of 1933, as amended.

(3)
Of this amount, $10,070 of the registration fee has previously been paid.

              The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

   


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to Completion, Dated May 16, 2016

PRELIMINARY PROSPECTUS

LOGO

12,500,000 Shares

Cotiviti Holdings, Inc.

Common Stock

          This is an initial public offering of common stock by Cotiviti Holdings, Inc. (the "Company"). We are offering 12,500,000 shares of our common stock.

          Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price per share will be between $17.00 and $19.00. We have been authorized to list our common stock on the New York Stock Exchange ("NYSE") under the symbol "COTV."

          We are an "emerging growth company" as defined under the federal securities laws and, as such, will be subject to reduced public company reporting requirements. See "Prospectus Summary—Implications of Being an Emerging Growth Company."

           See "Risk Factors" on page 19 to read about factors you should consider before buying shares of our common stock.



           Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.



  Per Share   Total
 

Initial public offering price

  $                $               

Underwriting discount (1)

  $                $               

Proceeds, before expenses, to us

  $                $               

(1)
We refer you to "Underwriting," beginning on page 152 of this prospectus, for additional information regarding total underwriter compensation.

          To the extent that the underwriters sell more than 12,500,000 shares of our common stock, the underwriters have an option to purchase up to an additional 1,875,000 shares from us at the initial public offering price less the underwriting discount.



          Delivery of the shares is expected to be made on or about                      , 2016.



Goldman, Sachs & Co.   J.P. Morgan

 

Barclays   Citigroup   Credit Suisse   Morgan Stanley   RBC Capital Markets   SunTrust Robinson Humphrey

Baird   William Blair

   

Prospectus dated                      , 2016.


Table of Contents

GRAPHIC


Table of Contents


TABLE OF CONTENTS

    Page
 

Prospectus Summary

    1  

Risk Factors

    19  

Cautionary Note Regarding Forward-Looking Statements

    54  

Use of Proceeds

    56  

Dividend Policy

    57  

Capitalization

    58  

Dilution

    60  

Unaudited Pro Forma Consolidated Financial Statements

    62  

Selected Historical Consolidated Financial Data

    64  

Management's Discussion and Analysis of Financial Condition and Results of Operations

    66  

Business

    100  

Management

    115  

Executive and Director Compensation

    122  

Principal Stockholders

    133  

Certain Relationships and Related Party Transactions

    136  

Description of Material Indebtedness

    138  

Description of Capital Stock

    143  

Shares Eligible for Future Sale

    147  

Material U.S. Federal Income and Estate Tax Considerations for Non-U.S. Holders

    149  

Underwriting

    152  

Legal Matters

    158  

Experts

    158  

Where You Can Find More Information

    159  

Index to Financial Statements

    F-1  



          You should rely only on the information contained in this prospectus or in any free-writing prospectus we may specifically authorize to be delivered or made available to you. Neither we nor the underwriters (or any of our or their respective affiliates) have authorized anyone to provide any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. Neither we nor the underwriters (or any of our or their respective affiliates) take any responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the underwriters (or any of our or their respective affiliates) are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus or any free-writing prospectus is only accurate as of its date, regardless of its time of delivery or the time of any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

Trademarks and Trade Names

          We own or have the rights to use various trademarks, service marks and trade names referred to in this prospectus, including, among others, Cotiviti SM , Connolly®, Connolly Healthcare®, iHealth Technologies®, iHT, ClaimsPlus®, AuditPlus and their respective logos. Solely for convenience, we refer to trademarks, service marks and trade names in this prospectus without the TM, SM and ® symbols. Such references are not intended to indicate, in any way, that we will not assert, to the fullest extent permitted by law, our rights to our trademarks, service marks and trade names. Other trademarks, service marks or trade names appearing in this prospectus are the property of their respective owners.


Table of Contents

Market and Industry Information

          Unless otherwise indicated, market data and industry information used throughout this prospectus is based on management's knowledge of the industry and the good faith estimates of management. We also relied, to the extent available, upon management's review of independent industry surveys and publications, other publicly available information prepared by a number of sources, including the Centers for Medicare and Medicaid Services ("CMS"), the Centers for Disease Control and Prevention, the Federal Bureau of Investigation, Atlantic Information Systems' Directory of Health Plans, the National Retail Federation, the Kaiser Family Foundation Report, SNL Financial and the RAND Corporation. All of the market data and industry information used in this prospectus involves a number of assumptions and limitations. You are cautioned not to give undue weight to such market data, industry information or estimates. Although we believe that these sources are reliable, neither we nor the underwriters can guarantee the accuracy or completeness of this information and neither we nor the underwriters have independently verified this information. While we believe the estimated market position, market opportunity and market size information included in this prospectus is generally reliable, such information, which is derived in part from management's estimates and beliefs, is inherently uncertain and imprecise. Projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in "Risk Factors," "Cautionary Note Regarding Forward-Looking Statements" and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in our estimates and beliefs and in the estimates prepared by independent parties.

ii


Table of Contents



PROSPECTUS SUMMARY

           This summary highlights information appearing elsewhere in this prospectus. This summary is not complete and does not contain all of the information that you should consider before making a decision to participate in this offering. You should carefully read the entire prospectus, including the information presented under "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Unaudited Pro Forma Consolidated Financial Statements" and the consolidated financial statements and notes related thereto included elsewhere in this prospectus, before making an investment decision. Unless the context requires otherwise, references to "our company," "we," "us," "our" and "Cotiviti" refer to Cotiviti Holdings, Inc. and its direct and indirect subsidiaries on a consolidated basis.

Overview

          Cotiviti is a leading provider of analytics-driven payment accuracy solutions, focused primarily on the healthcare sector. Our integrated solutions help clients enhance payment accuracy in an increasingly complex healthcare environment. We leverage our robust technology platform, configurable analytics, proprietary information assets and expertise in healthcare reimbursement to help our clients enhance their claims payment accuracy. We help our healthcare clients identify and correct payment inaccuracies, which resulted in over $2.7 billion in savings in 2015. We work with over 40 healthcare organizations, including eight of the ten largest U.S. commercial, Medicare and Medicaid managed health plans, as well as CMS. We are also a leading provider of payment accuracy solutions to over 40 retail clients, including eight of the ten largest retailers in the United States.

          Timely and accurate healthcare claims processing is critical to the U.S. healthcare system. The administration of healthcare claims is complex and payment inaccuracies can occur for many reasons. Changes in the healthcare industry, such as increasingly complex reimbursement models, increased coding complexity, changing demographics, the shift to managed care plans within government healthcare and increased healthcare coverage, are expected to further increase the complexity of healthcare payments. We support healthcare payers in managing these complexities in the claims payment process. Our analytics-driven solutions review claims for accuracy with respect to billing accuracy, contract compliance, payment responsibility and clinical appropriateness before and after claims are paid.

          We were formed in May 2014 through the merger (the "Connolly iHealth Merger") of Connolly Superholdings, Inc. ("Connolly"), a leader in retrospective payment (post-payment) accuracy solutions for the healthcare and retail sectors and iHealth Technologies, Inc. ("iHealth Technologies"), a leader in prospective payment (pre-payment) accuracy solutions for the healthcare sector. Through the merger, we significantly broadened our suite of payment accuracy solutions, expanded our client base, enhanced our subject matter expertise and positioned ourselves for continued growth.

          We have multiple strategies for achieving this continued growth. There are significant opportunities to grow our business within our existing client base by increasing the volume of claims we review with our solutions, expanding the utilization of our solutions within these claims and cross-selling our prospective and retrospective solutions. As a result of the Connolly iHealth Merger, we have cross-sell opportunities across more than 70% of our healthcare client base. We have a long history of innovation in improving our existing solutions, developing new solutions and expanding the scope of our services. We intend to expand our client base by targeting healthcare payers who utilize competing third party or internal payment accuracy solutions. Additionally, we plan to selectively pursue acquisitions and strategic partnerships in payment accuracy and adjacent markets.

1


Table of Contents

          As a result of the meaningful savings we deliver to our clients, we have increased our client base and strengthened our long-standing relationships with many of the leading healthcare payers in the United States. The average length of our relationships with our ten largest healthcare clients is approximately ten years and, since January 1, 2013, we have successfully retained all of our healthcare clients except one, who represented less than 2% of our revenue. We have also substantially increased the annual savings captured by our healthcare clients over time. As a result, we believe our revenue is highly recurring and we have strong visibility into our revenue.

          We are also a leading provider of payment accuracy solutions to the retail market. Retailers process and validate extremely high volumes of transactions with disparate suppliers on varying terms. We work with retail clients in the United States, Canada and the United Kingdom to realize their negotiated allowances, concessions, rebates and other incentives associated with merchandise procurement, logistics and other service transactions. In 2015, we generated over $500 million in savings for our retail clients.

          Our track record of consistently delivering value for our clients has enabled strong growth in our revenue and profitability, especially within our core healthcare payer client base. For the three months ended March 31, 2016 and the year ended December 31, 2015, our total revenue was $142.7 million and $541.3 million, respectively. In this same period, we generated Adjusted EBITDA of $50.6 million and $203.4 million, respectively, representing 35.5% and 37.6% of revenue, respectively, and net income of $8.1 million and $13.9 million, representing 5.7% and 2.6% of revenue, respectively. For a reconciliation of Adjusted EBITDA, a non-GAAP measure, to our net income (loss), see "—Summary Historical Consolidated Financial and Other Data."

          We operate in two segments, (i) Healthcare and (ii) Global Retail and Other. Through our Healthcare segment, we offer prospective and retrospective claims accuracy solutions to healthcare payers in the United States. We also provide analytics based solutions unrelated to our healthcare payment accuracy solutions, on a limited basis in the United States. Through our Global Retail and Other segment, we provide retrospective claims accuracy solutions to retailers primarily in the United States, Canada and the United Kingdom, as well as solutions that improve efficiency and effectiveness of payment networks for a limited number of clients. We derived 87.0% and 85.4% of our revenue for the three months ended March 31, 2016 and 2015, respectively, and 86.3% and 81.6% of our revenue for the years ended December 31, 2015 and 2014, respectively, from our Healthcare segment. The remaining 13.0% and 14.6% of our revenue for the three months ended March 31, 2016 and 2015, respectively, and the remaining 13.7% and 18.4% of our revenue for the years ended December 31, 2015 and 2014, respectively, was derived from our Global Retail and Other segment.

The Payment Process

          Timely and accurate healthcare claims processing is critical to the U.S. healthcare system. This process is complicated and involves applying specific codes, policies and contracts, cross-referencing disparate data sources, and, in many cases, adhering to regulatory requirements. To ensure prompt and accurate claims reimbursement, payers utilize internal processes and systems and third party solutions to review claims and apply analytics throughout the claims payment process. The following graphic represents the healthcare claims payment process.

2


Table of Contents

GRAPHIC

          After delivering care, a provider initiates the claims payment process by submitting a claim for reimbursement to the patient's health insurance carrier (Step 1). After the insurance carrier (payer) uses internal and external tools to conform the claim to its claims processing system, it validates that the patient is a member, that the services provided were eligible under the member's benefits and that appropriate prior authorizations were in place, if necessary. The payer then adjudicates the claim by applying the provider's contract and fee schedule to the claim along with any claim system edits (Step 2). During this adjudication process, the payer uses payment accuracy solutions to perform claim reviews for information discrepancies between the provider's submission and the payer's payment policies. These reviews range in complexity and can be executed by the payer or by third party solutions. After the claim has been adjudicated but before the claim is paid, the payer may utilize advanced, automated analytical solutions, such as those we provide, to review the claim to identify additional discrepancies (Step 3). If the prepayment review identifies a claim inaccuracy, the payer makes the correction and pays the corrected claim (Step 4).

          After payment is made and additional information becomes available, the payer and third party solutions such as Cotiviti's continue to identify, select and evaluate claims for payment accuracy (Step 5). If this retrospective payment review identifies a payment inaccuracy, the payer makes the correction and recovers overpayments through offsets against future claims or by seeking reimbursement from the provider.

          We apply our analytics-driven payment accuracy solutions at multiple points across the client's claims processing cycle. Our extensive library of complex payment analytics is designed to identify, select and make recommendations for correct application of contracts and coding to meet client payment policies.

Our Solutions

          The following is a description of our payment accuracy solutions:

          Prospective Claims Accuracy Solutions.     Our prospective claims accuracy solutions help our healthcare clients identify and address claim discrepancies immediately following claim adjudication and before a claim is paid to a healthcare provider. We help our clients ensure that claims payments meet regulatory, compliance, industry and health plan requirements based on correct coding and clinical guidelines. We customize, configure and integrate our payment policy

3


Table of Contents

algorithms to enhance our clients' claims payment systems and automatically and efficiently review our clients' adjudicated claims. By directly interfacing with our clients' systems, our solutions analyze claims either in real-time or in batch processes. Our algorithms apply our proprietary library of current payment policies including industry, regulatory and medical specialty coding requirements as well as customized health plan rules. We review claims on a transactional as well as longitudinal basis, evaluating against our accumulated claims data, to make accurate payment policy recommendations. We believe that our differentiated content library, configurable algorithms and other post-adjudication software tools provide our clients with a more thorough and client-specific analysis of claims than other claims adjudication systems, creating more value for our clients. In 2015, our prospective claims accuracy solutions analyzed over $65 billion in claims.

          Retrospective Claims Accuracy Solutions.     Our retrospective claims accuracy solutions help health insurers identify and resolve payment inaccuracies after a claim has been paid to a healthcare provider. These solutions utilize sophisticated analytics and data mining tools to identify potential inaccuracies. Our claim analytics include longitudinal reviews of data to identify discrepancies that may span multiple claims and time periods. Our analytics are configurable to our clients' claims payment processes and enable us to prioritize areas of review based on our clients' operational and financial objectives. If expert validation is required, our claims analysts conduct a deeper review of more complex reimbursement issues. In analyzing claims retrospectively, we leverage additional information sources and broader data sets beyond the claims files, many of which only become accessible post-payment. These data and retrospective analytics enable reviews of a variety of payment accuracy categories, including issues relating to coordination of benefits, member eligibility and provider adherence to complex contract conditions. We also can provide clinical chart validation for our clients, in which our certified clinical and coding specialists review the clinical documentation associated with a claim. Clinical chart validation provides our clients with broader payment accuracy reviews beyond claims files analysis, including more complex clinical appropriateness and payment policies. We believe that our combination of retrospective analytics and clinical and coding expertise provides our clients with more thorough and configurable solutions than they are able to develop on their own, leading to increased savings for our clients. In 2015, our retrospective claims accuracy solutions analyzed over $459 billion in claims.

          Other Services.     Beyond our prospective and retrospective claims accuracy solutions, we provide analytics and support to our clients in optimizing their operations and enterprise-wide claims payments and trends. These offerings include selective anti-fraud, waste and abuse analytics to identify abnormal patterns in coding and billing practices. We also provide our clients with ongoing surveillance and longitudinal analytics by reviewing claims submissions and payments across multiple dimensions, including provider, plan-type, procedure and others. In addition, clients engage us for comprehensive claims history analytics to identify necessary areas for direct interaction, as well as to identify policy and program changes that can improve future payment accuracy.

Healthcare Industry Overview

          The market for payment accuracy solutions is large and growing, driven by increasing healthcare costs and payment complexities. From 2004 to 2014, healthcare costs in the United States grew at a 4.8% compounded annual growth rate ("CAGR") to $3.0 trillion and are projected to total $3.2 trillion in 2015. According to CMS, healthcare costs are expected to continue to grow at an average annual rate of 5.9% through 2024. The introduction of new reimbursement models, the increase in coding complexity and the shift to managed care plans within government healthcare are expected to further increase the complexity of healthcare payments.

          We believe that there is substantial opportunity for continued growth in the payment accuracy solutions market. We estimate that there was approximately $900 billion in unnecessary or wasteful

4


Table of Contents

spending in the U.S. healthcare system in 2015. The U.S. federal government estimates that inaccurate provider claim submissions totaled between 3% and 10% of annual healthcare spend and we estimate that there were approximately $170 billion of inaccurate provider claim submissions in 2015. Healthcare payers will continue to invest in payment accuracy solutions in an effort to identify and resolve these inaccurate billings. We estimate that the relevant savings opportunity addressable by our current payment accuracy solutions is approximately $35 billion, for a total addressable market of approximately $5 billion. Approximately 75% of our addressable market is within our existing client base and the balance is new client prospects across the 100 largest health plans.


Cotiviti's potential savings impact and addressable market opportunity

LOGO

(1)
Source: Institute of Medicine and CMS

Our Strengths

          Our operational and financial success is based on the following key strengths:

          Broad suite of specialized solutions.     We offer a broad suite of analytics-driven payment accuracy solutions that deliver measurable value to our clients and are highly configurable across provider settings and claim types. Our suite of solutions includes prospective and retrospective analytics that review billing accuracy, contract compliance, payment responsibility and clinical appropriateness. We believe that the breadth of our solutions across multiple points in the claims payment process and the depth of our expertise and capabilities are difficult for any single healthcare payer to replicate.

          Large and expanding library of information and knowledge assets.     Our robust library of information assets includes proprietary algorithms and concepts developed by our research teams over 15 years. We believe that our library of accumulated information and unique knowledge assets is a differentiator that is difficult to replicate by current or potential competitors and provides a competitive advantage. We continuously expand and improve the quality of our library by regularly

5


Table of Contents

incorporating new claims data and up-to-date algorithms and concepts. We also have a team of full-time, dedicated, doctors, nurses, claims coders, forensic auditors and other experts focused on developing new proprietary algorithms and analytics assets for our payment accuracy solutions. Additionally, our team of specialists monitors hundreds of content sources on medical and payment policy to ensure our algorithms and concepts incorporate the latest standards.

          Advanced and proprietary technology platform and analytics capabilities.     Our advanced proprietary platform and analytics capabilities are the result of significant investment in our technology infrastructure and applications. We are continually developing and improving our scalable technology platform to deliver the speed, integrity and quality necessary for client-specific business solutions. In addition, our focus on analytics, automation and knowledge-sharing allows us to quickly and accurately implement existing algorithms and concepts as well as solutions for newly identified reimbursement discrepancies. We believe that our proprietary technology platform is a key driver of our leading market position.

          Aligned financial model that delivers measureable return.     Our financial performance is directly tied to the savings we deliver to our clients. The majority of our contracts are structured such that we receive a percentage of the savings that we help our clients achieve. We have consistently generated a high return on investment for our clients of approximately 4 to 1 as a result of our aligned financial model. The savings we deliver are incremental to our clients' internal payment accuracy capabilities. As a result, we can provide a substantial contribution to our clients' earnings and create strong alignment and durability in our client relationships. In 2015 and 2014, our commercial healthcare clients realized over $2.5 billion and over $2.0 billion, respectively, in savings using our solutions.

          Long-standing and expanding client relationships.     Our client base includes the largest and most recognized healthcare organizations in the United States, including eight of the ten largest U.S. commercial, Medicare and Medicaid managed health plans, as well as CMS. The average length of our relationships with our top ten healthcare clients is approximately ten years. We also have strong, long-standing relationships with over 40 retail clients, including eight of the ten largest U.S. retailers. We believe our robust client relationships and strong client retention rates reflect a high level of satisfaction with our solutions. Over time, we have expanded the breadth and depth of our existing client relationships, thus further integrating us into our clients' payment accuracy processes.

          Attractive operating model.     We believe we have an attractive operating model due to the recurring nature of our revenue, the scalability of our solutions and the low capital intensity/high free cash flow conversion of our business. Since January 1, 2013, we have successfully retained all of our healthcare clients except one, who represented less than 2% of our revenue. We believe our client retention rate reflects strong satisfaction with our solutions. Additionally, our information asset and technology platform is highly scalable, which allows us to accommodate significant additional transaction volumes with limited incremental costs. We have low capital needs that allow us to generate strong cash flow. In 2015, our capital expenditures as a percentage of revenue were 4.2%. We believe our recurring revenue, combined with our scalable solutions and low capital intensity, will continue to contribute to our long-term growth, strong operating margins and flexibility in allocating capital.

          History of innovation.     We have a long history of developing innovative solutions which we continuously incorporate into our suite of offerings. Many of our solutions have been generated as a response to complex client issues. This development process has continually enhanced our solutions, thereby optimizing the value we deliver to our clients over time and allowing us to thrive in an ever-changing and increasingly complex healthcare environment. Our track record of innovation is strengthened by the diverse backgrounds of our clinical and coding specialists who

6


Table of Contents

continually and consistently update and develop our content library and analytical algorithms and identify new ways to accelerate our value creation for our clients.

          Experienced management team with a track record of performance.     Our leadership team brings extensive and relevant expertise in the payment accuracy market. Our management has a proven track record in adapting to clients' needs and developing innovative analytical solutions to drive growth and profitability. With our talented management team, we believe we are positioned for long-term growth.

Our Growth Strategies

          We believe we are well positioned to benefit from the expected growth in claims processing complexity, healthcare spend and healthcare insurance coverage, which we expect will drive continued demand for payment accuracy solutions among healthcare payers. Our strategies for achieving growth include:

          Expand within our existing client base.     We have significant opportunities to expand our business within our existing client base through the following strategies:

    Increase the volume of claims reviewed by our solutions.   When our clients initially implement our solutions, they typically start by having us review a subset of their claims. As we demonstrate success and deliver value, our clients often increase the volume of claims we review. We have significant opportunities to evaluate additional claim types, plan types, geographic regions and/or provider settings. In 2015, we reviewed approximately 15% and 61% of the healthcare claims of our clients who used our prospective and retrospective solutions, respectively.

    Expand the utilization of our solutions.   When our clients initially implement our solutions, they typically start with a subset of our algorithms and analytical tools. As we demonstrate success and deliver value, our clients often expand the utilization of our algorithms and analytical tools. The opportunity to expand the utilization of our solutions is significant.

    Cross-sell between prospective and retrospective solutions.   We believe we have a significant opportunity to further cross-sell our solutions to existing clients. As a result of the Connolly iHealth Merger, we have cross-sell opportunities across more than 70% of our healthcare client base. We are actively engaging with existing clients to cross-sell our solutions.

          Expand our client base.     There is a significant opportunity to increase our client base of healthcare payers by targeting new relationships. The top 100 healthcare payers that are not our existing clients made over $250 billion in payments in 2015. We are pursuing these healthcare payers as potential new clients by leveraging our proven value proposition, leadership position, track record of performance and the strong references provided by our diversified client base of leading health plans.

          Continue to innovate.     We plan to enhance our existing solutions by developing new concepts and analytical algorithms and improving our information assets to allow us to expand our value creation for our clients. We also plan to continue to improve our processes and upgrade our technology infrastructure to improve the efficiency with which we deliver our solutions. Additionally, we will continue to monitor the evolution of the healthcare environment and develop new solutions in anticipation of increasing complexity in reimbursement models to supplement our core payment accuracy solutions.

          Selectively pursue acquisitions and strategic partnerships.     We plan to selectively pursue acquisitions and strategic partnerships to (i) accelerate the pace of innovation and expansion of our

7


Table of Contents

core solutions, (ii) provide cross-sell opportunities, (iii) offer complementary data, technologies or industry expertise to our existing analytics-driven payment accuracy solutions or (iv) expand our addressable market beyond payment accuracy to address other dimensions of healthcare waste, potentially including missed prevention opportunities, inefficiently delivered services, excessive administrative costs and unnecessary services. We have a successful track record of identifying, acquiring and integrating high-quality solutions providers that complement and enhance the value of our existing solutions, as demonstrated by the Connolly iHealth Merger.

Special Cash Dividend

          Prior to the consummation of this offering, we intend to declare and pay a special cash dividend of $150.0 million in the aggregate (the "Special Cash Dividend"), or $1.94 per share of common stock outstanding prior to this offering, to holders of record of our common stock on the dividend record date. In addition, in connection with the Special Cash Dividend we intend to lower the exercise price of our outstanding stock options by $1.94 per share in order to preserve the intrinsic value of the options giving effect to the Special Cash Dividend. We intend to fund the Special Cash Dividend using cash on hand. The record date for the Special Cash Dividend will precede the consummation of this offering, and investors in this offering will not be entitled to receive any payments or distributions in connection with the Special Cash Dividend on shares purchased in this offering.

Implications of Being an Emerging Growth Company

          As a company with less than $1.0 billion in gross revenue during our last fiscal year, we qualify as an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"). An emerging growth company may take advantage of specified reduced reporting and other regulatory requirements for up to five years that are otherwise applicable generally to public companies. These provisions include, among other matters:

    requirement to present only two years of audited financial statements and only two years of related Management's Discussion and Analysis of Financial Condition and Results of Operations;

    exemption from the auditor attestation requirement on the effectiveness of our system of internal control over financial reporting;

    exemption from the adoption of new or revised financial accounting standards until they would apply to private companies;

    exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor's report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer;

    exemption from the requirement to seek non-binding advisory votes on executive compensation and golden parachute arrangements; and

    reduced disclosure about executive compensation arrangements.

          We will remain an emerging growth company for five years unless, prior to that time, we have more than $1.0 billion in annual gross revenue, have a market value for our common stock held by non-affiliates of more than $700 million as of the last day of our second fiscal quarter of the fiscal year and a determination is made that we are deemed to be a "large accelerated filer," as defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or issue more than $1.0 billion of non-convertible debt over a three-year period, whether or

8


Table of Contents

not issued in a registered offering. We have availed ourselves of the reduced reporting obligations with respect to audited financial statements and related Management's Discussion and Analysis of Financial Condition and Results of Operations and executive compensation disclosure in this prospectus and expect to continue to avail ourselves of the reduced reporting obligations available to emerging growth companies in future filings.

          In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. An emerging growth company can, therefore, delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we are choosing to "opt out" of that extended transition period and, as a result, we plan to comply with new and revised accounting standards on the relevant dates on which adoption of those standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

          As a result of our decision to avail ourselves of certain provisions of the JOBS Act, the information that we provide may be different than what you may receive from other public companies in which you hold an equity interest. In addition, it is possible that some investors will find our common stock less attractive as a result of our elections, which may cause a less active trading market for our common stock and more volatility in our stock price.

Risks Associated with Our Business

          Investing in our common stock involves a number of risks. These risks represent challenges to the successful implementation of our strategy and the growth of our business. Some of these risks are:

    Our business and future growth depend on our ability to successfully expand the scope of claims reviewed for, and cross-sell additional solutions to, our existing client base.

    Internal improvements to healthcare claims and retail billing processes by our clients could reduce the need for, or revenue generated by, our solutions.

    Healthcare spending fluctuations, simplification of the healthcare delivery and reimbursement system, programmatic changes to the scope of benefits and limitations to payment integrity initiatives could reduce the need for and the price of our solutions.

    We may be materially adversely affected if our clients do not renew their agreements with us, renew at lower performance fee levels, choose to reduce the number of claims reviewed by our solutions, or prematurely terminate their agreements with us, and we are unable to replace any related lost revenue.

    If we are unable to develop new client relationships, it could have a material adverse effect on our business, financial condition and results of operations.

    We may face system interruptions or failures, including cyber-security breaches and other disruptions that could compromise our information.

    We may be adversely affected if we fail to innovate and develop new solutions for our clients or if any such solutions are not adopted by existing and potential clients.

    Any failure to comply with current and future regulatory requirements, including applicable privacy, security and data laws, regulations and standards, could have a material adverse effect on our business, financial condition and results of operations.

    We face significant competition for our solutions and we expect competition to increase.

9


Table of Contents

    Our outstanding indebtedness could adversely affect our financial condition.

    We are controlled by Advent, as defined below, whose interests may differ from those of our public stockholders.

    We have elected to take advantage of the "controlled company" exemption to the corporate governance rules for publicly-listed companies, which could make our common stock less attractive to some investors or otherwise harm our stock price.

          For a discussion of these and other risks you should consider before making an investment in our common stock, see the section entitled "Risk Factors."

Our Private Equity Sponsor

          Founded in 1984, Advent International Corporation ("Advent") has invested in more than 300 private equity transactions in 40 countries and, as of December 31, 2015, had $29.3 billion in assets under management. Advent's current portfolio is comprised of investments across five sectors: Retail, Consumer & Leisure; Financial and Business Services; Industrial; Technology, Media & Telecoms; and Healthcare. The Advent team includes more than 180 investment professionals across Europe, North America, Latin America and Asia.

          Following the closing of this offering, funds managed by Advent (the "Advent Funds") are expected to own approximately 65.4% of our outstanding common stock, or 64.1%, if the underwriters' option to purchase additional shares is fully exercised. As a result, Advent will be able to exercise significant voting influence over fundamental and significant corporate matters and transactions. See "Risk Factors—Risks Relating to This Offering and Ownership of Our Common Stock" and "Principal Stockholders." In addition, the Advent Funds will receive approximately $114.0 million in aggregate in connection with the Special Cash Dividend.

Corporate Information

          We were incorporated in Delaware on June 4, 2012, under the name "Husky-C&W Superholdings, Inc." On July 26, 2012, we changed our name to "Strident Superholding, Inc." and on January 28, 2014, we changed our name to "Connolly Superholdings, Inc." On May 14, 2014, we acquired the stock of iHealth Technologies, resulting in the Connolly iHealth Merger, and on September 24, 2015, we changed our name to "Cotiviti Holdings, Inc." Our principal executive offices are located at 115 Perimeter Center Place, Suite 700 Atlanta, GA 30346, and our telephone number is (770) 379-2800. Our corporate website address is www.cotiviti.com. Our website and the information contained on, or that can be accessed through, the website is not deemed to be incorporated by reference in, and is not considered part of, this prospectus. You should not rely on any such information in making your decision whether to purchase our common stock.

10


Table of Contents

 


THE OFFERING

Issuer

  Cotiviti Holdings, Inc.

Common stock offered by us

 

12,500,000 shares of common stock (14,375,000 shares if the underwriters exercise their option to purchase additional shares in full).

Common stock to be outstanding after this offering

 

89,731,531 shares of common stock (91,606,531 shares if the underwriters exercise their option to purchase additional shares in full).

Option to purchase additional shares of common stock

 

The underwriters have an option to purchase an additional 1,875,000 shares of common stock from us. The underwriters can exercise this option at any time within 30 days from the date of this prospectus.

Use of proceeds

 

We estimate that the net proceeds from the sale of our common stock in this offering, after deducting the underwriting discount and estimated offering expenses payable by us, will be approximately $205.8 million ($237.3 million if the underwriters exercise their option to purchase additional shares in full) based on an assumed initial public offering price of $18.00 per share (the midpoint of the price range set forth on the cover of this prospectus).

 

We intend to use approximately $5.8 million of the net proceeds from this offering for working capital and approximately $200.0 million to repay outstanding borrowings under the Second Lien Credit Facility (or to repay approximately $231.5 million of outstanding borrowings under our Second Lien Credit Facility if the underwriters exercise their option to purchase additional shares in full). See "Use of Proceeds."

Dividend policy

 

We do not anticipate paying any dividends on our common stock for the foreseeable future; however, we may change this policy in the future. See "Dividend Policy."

Risk Factors

 

Investing in our common stock involves a high degree of risk. See the "Risk Factors" section of this prospectus beginning on page 19 for a discussion of factors you should carefully consider before investing in our common stock.

Listing

 

We have been authorized to list our common stock on the NYSE under the symbol "COTV."

          Except as otherwise indicated, the number of shares of our common stock outstanding after this offering:

    excludes 6,425,844 shares of our common stock issuable upon the exercise of outstanding stock options at a weighted average exercise price of $11.52 per share (which weighted average exercise price is expected to be adjusted downward by $1.94 per share after the

11


Table of Contents

      adjustment of the exercise price in connection with the Special Cash Dividend as described under "—Special Cash Dividend");

    excludes an aggregate of 6,266,884 shares of our common stock that will be available for future equity awards under our Cotiviti Holdings, Inc. 2012 Equity Incentive Plan (the "2012 Plan") and our Cotiviti Holdings, Inc. 2016 Equity Incentive Plan (the "2016 Plan"), including 258,861 shares of common stock issuable upon the exercise of stock options and 31,573 shares of common stock issuable upon the vesting of restricted stock unit ("RSU") awards that we expect to issue under 2016 Plan in connection with this offering (the "IPO Equity Awards")

    gives effect to our amended and restated certificate of incorporation and our amended and restated bylaws, which will be in effect prior to the consummation of this offering; and

    assumes no exercise of the underwriters' option to purchase additional shares.

          Unless otherwise indicated, this prospectus assumes an initial public offering price of $18.00 per share (the midpoint of the price range set forth on the cover of this prospectus).

          Unless otherwise indicated, exercise prices of stock options described in this prospectus do not reflect the downward adjustment of $1.94 per share in connection with the Special Cash Dividend.

12


Table of Contents

 


SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA

          The following tables set forth our summary historical consolidated financial and other data for the periods as of the dates indicated. We derived the summary consolidated statement of operations data for the years ended December 31, 2015 and 2014 and the balance sheet data as of December 31, 2015 from the audited consolidated financial statements and related notes thereto included elsewhere in this prospectus. We derived the summary consolidated statement of operations data for the three months ended March 31, 2016 and 2015 and the balance sheet data as of March 31, 2016 from our unaudited consolidated financial statements and related notes thereto included elsewhere in this prospectus. The unaudited consolidated financial statements have been prepared on a basis consistent with our audited consolidated financial statements included in this prospectus and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary to fairly state our financial position as of March 31, 2016 and results of operations and cash flows for the three months ended March 31, 2016 and 2015. The interim results are not necessarily indicative of results for the year ended December 31, 2016 or for any other period.

          On May 14, 2014, we acquired the stock of iHealth Technologies, resulting in the Connolly iHealth Merger. The results of operations of iHealth Technologies have been included in our consolidated financial statements as of and since the date of the Connolly iHealth Merger. As a result, the consolidated financial statements for periods prior to such date are not comparable to subsequent periods. For further details, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting the Comparability of our Results of Operations—Connolly iHealth Merger," "Unaudited Pro Forma Consolidated Financial Statements" and Note 1 to our consolidated financial statements included elsewhere in this prospectus.

          Our historical results are not necessarily indicative of future operating results. You should read the information set forth below together with "Selected Historical Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Unaudited Pro Forma Consolidated Financial Statements," "Capitalization" and our consolidated financial statements and the related notes thereto included elsewhere in this prospectus.

13


Table of Contents

    Three Months Ended
March 31,
    Year Ended
December 31,
 

(in thousands, except share and per share amounts)

    2016     2015     2015     2014
 

    (unaudited)              

Consolidated Statement of Operations Data:

                         

Net revenue

  $ 142,718   $ 119,638   $ 541,343   $ 441,372  

Cost of revenue

    58,859     46,338     204,617     179,088  

Selling, general and administrative expenses

    34,339     31,462     136,745     92,537  

Depreciation and amortization

    20,042     18,131     74,162     59,771  

Transaction-related expenses

    240         1,469     5,745  

Impairment of intangible assets

            27,826     74,034  

Operating income

    29,238     23,707     96,524     30,197  

Other expense (income)

    15,761     16,746     68,819     72,826  

Income tax expense (benefit)

    5,393     3,326     14,401     (16,804 )

Gain on discontinued operations, net of tax

        (559 )   (559 )    

Net income (loss)

  $ 8,084   $ 4,194   $ 13,863   $ (25,825 )

Earnings per share:

   
 
   
 
   
 
   
 
 

Basic

  $ 0.10   $ 0.05   $ 0.18   $ (0.40 )

Diluted

  $ 0.10   $ 0.05   $ 0.18   $ (0.40 )

Weighted average shares outstanding:

                         

Basic

    77,231,196     77,204,691     77,216,133     65,253,954  

Diluted

    77,757,328     77,381,601     77,641,385     65,253,954  

Unaudited Pro Forma Data (1) :

   
 
   
 
   
 
   
 
 

Pro forma earnings per share:

                         

Basic

  $ 0.11   $ 0.07   $ 0.24   $ (0.22 )

Diluted

  $ 0.11   $ 0.07   $ 0.24   $ (0.22 )

Pro forma weighted average shares outstanding:

                         

Basic

    98,000,436     98,244,179     97,668,291     88,082,952  

Diluted

    98,526,568     98,421,089     98,093,543     88,082,952  

Statement of Cash Flow Data:

   
 
   
 
   
 
   
 
 

Net cash provided by (used in):

                         

Operating activities

  $ 36,353   $ (4,050)   $ 63,154   $ 95,728  

Investing activities

    (9,465)     (4,163)     (22,581)     (1,091,520)  

Financing activities

    (2,009)     (2,025)     (8,976)     1,025,872  

Other Data:

   
 
   
 
   
 
   
 
 

Operating margin (2)

    20.5%     19.8%     17.8%     6.8%  

Adjusted EBITDA (3)

  $ 50,594   $ 42,441   $ 203,380   $ 172,239  

14


Table of Contents

 

    As of March 31, 2016
 

(in thousands)

    Actual     Pro Forma (5)
 

    (unaudited)  

Consolidated balance sheet data:

             

Cash and cash equivalents

  $ 174,252   $ 30,035 (4)

Total assets

    2,142,819     1,998,602  

Total long-term debt (6)

    1,033,392     839,636  

Total liabilities

    1,346,557     1,152,801  

Working capital

    142,495     (1,722 )

Total stockholders' equity

    796,262     845,801  

(1)
We present earnings per share on a pro forma basis to give pro forma effect to the sale by us of 12,500,000 shares of common stock in this offering at an initial public offering price of $18.00 per share (the midpoint of the price range set forth on the cover of this prospectus) and the application of the net proceeds to be received therefrom by us in this offering less estimated underwriting discounts and commissions and estimated offering expenses payable by us, as described under "Use of Proceeds," which would have reduced our interest expense by $4.0 million for each of the three month periods ended March 31, 2016 and 2015 and by $16.2 million and $10.3 million in the years ended December 31, 2015 and 2014, respectively.

The number of shares used in the calculation of pro forma earnings per share includes 12,148,738 shares of common stock being sold in this offering, the net proceeds of which, less estimated underwriting discounts and commissions and estimated offering expenses payable by us, will be used to repay indebtedness as described under "Use of Proceeds" and does not include 351,262 shares of common stock being sold in this offering, the net proceeds of which, less estimated underwriting discounts and commissions and estimated offering expenses payable by us, will be used for working capital as described under "Use of Proceeds."

The calculation of pro forma earnings per share also includes the incremental shares which give effect to the deemed issuance of the number of shares that would be required to generate net proceeds sufficient to make the Special Cash Dividend payment of $150.0 million in the aggregate to our pre-IPO stockholders. The number of incremental shares that would be required to be issued to pay the dividend is based on the assumed initial public offering price of $18.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), after deducting the estimated underwriting discounts and estimated offering expenses payable by us, resulting in net proceeds of $16.46 per share. On this basis, the incremental shares were determined to be 8,620,502 and 8,890,750 for the three months ended March 31, 2016 and 2015, respectively, and 8,303,420 and 10,680,260 for the year ended December 31, 2015 and 2014, respectively.

(2)
Represents operating income as a percentage of net revenue.

(3)
We report our financial results in accordance with U.S. generally accepted accounting principles ("GAAP"). To supplement this information, we also use Adjusted EBITDA, a non-GAAP financial measure, in this prospectus. Adjusted EBITDA represents 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, stock-based compensation and loss on extinguishment of debt. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information regarding

15


Table of Contents

    these adjustments. 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. By providing this non-GAAP financial measure, management believes we are enhancing investors' understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. In addition, the determination of Adjusted EBITDA is consistent with the definition of a similar measure in our secured credit facilities other than adjustments for severance costs and non-income based taxes permitted by the secured credit facilities but not considered by management in evaluating our performance using Adjusted EBITDA.

    Our presentation of Adjusted EBITDA is intended as a supplemental measure of our performance that is not required by, or presented in accordance with, U.S. GAAP. Adjusted EBITDA should not be considered as an alternative to operating income (loss), net income (loss), earnings per share or any other performance measures derived in accordance with U.S. GAAP as measures of operating performance or operating cash flows or as measures of liquidity. Our presentation of Adjusted EBITDA should not be construed to imply that our future results will be unaffected by these items. Adjusted EBITDA is included in this prospectus because it is a key metric used by management to assess our operating performance.

    Although Adjusted EBITDA is not necessarily a measure of liquidity or our ability to fund our operations, we understand that it is frequently used by securities analysts, investors and other interested parties as a supplemental measure of financial performance within our industry.

    Adjusted EBITDA has important limitations as an analytical tool and you should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:

    Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

    Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

    although depreciation is a non-cash charge, the assets being depreciated will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;

    Adjusted EBITDA does not reflect the impact of stock-based compensation upon our results of operations;

    Adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments on our debt;

    Adjusted EBITDA does not reflect our income tax expense (benefit) or the cash requirements to pay our income taxes; and

    other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

    In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses similar to those eliminated in this presentation.

16


Table of Contents

          The following table reconciles net income (loss) to Adjusted EBITDA for the periods presented:

    Three Months
Ended
March 31,
    Year Ended
December 31,
 

(in thousands)

    2016     2015     2015     2014     2014
Pro Forma (a)
 

    (unaudited)                    

Net income (loss)

  $ 8,084   $ 4,194   $ 13,863   $ (25,825 ) $ (18,752 )

Depreciation and amortization

    20,042     18,131     74,162     59,771     76,885  

Impairment of intangible assets (b)

            27,826     74,034     74,034  

Interest expense

    16,060     16,922     65,561     51,717     69,103  

Other non-operating (income) expense (c)

    (299 )   (176 )   (826 )   (415 )   (1,082 )

Income tax expense (benefit)

    5,393     3,326     14,401     (16,804 )   (13,927 )

Gain on discontinued operations, net of tax (d)

        (559 )   (559 )        

Transaction-related expenses (e)

    240         1,469     5,745      

Stock-based compensation (f)

    1,074     603     3,399     2,492     2,492  

Loss on extinguishment of debt (g)

            4,084     21,524     21,524  

Adjusted EBITDA

  $ 50,594   $ 42,441   $ 203,380   $ 172,239   $ 210,277  

(a)
Refer to "Unaudited Pro Forma Consolidated Financial Statements" included elsewhere in this prospectus for further discussion.

(b)
Represents a $74,034 impairment charge for the year ended December 31, 2014 due to the change in the estimated fair value of our customer relationship intangible asset related to our Medicare Recovery Audit Contractor ("Medicare RAC") contract. Also represents a $27,826 impairment charge during the year ended December 31, 2015 as a result of our rebranding and the related impact to our tradenames. Refer to the notes to our consolidated financial statements included elsewhere in this prospectus for further discussion.

(c)
Represents other non-operating (income) expense that consists primarily of gains and losses on transactions settled in foreign currencies. Income received for certain sub-leases is included herein.

(d)
Represents payment on a $900 note receivable ($559 net of taxes) related to a business that was disposed of in 2012. This note receivable had been reported in the loss on discontinued operations in 2012 upon the sale of that business. Since the date of sale, we have elected to fully reserve the note receivable as the collectability was determined to be uncertain.

(e)
Represents transaction-related expenses that consist primarily of professional services associated with the Connolly iHealth Merger and certain expenses associated with our preparation for this offering.

(f)
Represents expense related to stock-based compensation awards granted to certain employees, officers and non-employee directors as long-term incentive compensation. We recognize the related expense for these awards ratably over the vesting period.

(g)
Represents loss on extinguishment of debt that consists primarily of fees paid and write-offs of unamortized debt issuance costs and original issue discount in connection with the refinancings of our long-term debt in 2014 and the repricing of our long-term debt in 2015.
(4)
Pro forma cash and cash equivalents gives pro forma effect to the payment of the Special Cash Dividend of $150.0 million and the allocation of $5.8 million from the net proceeds of this offering for working capital.

17


Table of Contents

(5)
We present certain consolidated balance sheet data on a pro forma basis to give pro forma effect to (i) the sale by us of 12,500,000 shares of common stock in this offering at an initial public offering price of $18.00 per share (the midpoint of the price range set forth on the cover of this prospectus), less estimated underwriting discounts and commissions and estimated offering expenses payable by us, (ii) the payment of the Special Cash Dividend and (iii) the application of the net proceeds to be received by us in this offering as described under "Use of Proceeds."

(6)
Includes the current portion of our long-term debt and is net of debt issuance costs.

18


Table of Contents


RISK FACTORS

           Investing in our common stock involves a high degree of risk. You should consider carefully the following risks and all of the information in this prospectus, including our historical financial statements and related notes thereto, included elsewhere in this prospectus, before purchasing our common stock. If any of the following risks actually occur, our business, financial condition and results of operations could be materially adversely affected. In that case, the trading price of our common stock could decline, perhaps significantly and you may lose all or part of your investment.

Risks Relating to Our Business

Our business and future growth depend on our ability to successfully expand the scope of claims reviewed for, and cross-sell additional solutions to, our existing client base.

          We expect a significant portion of our future revenue growth to come from expanding the scope of claims we review for, and cross-selling additional solutions to, our existing clients. Our efforts to do so may not be successful. If we are unable to successfully expand the scope of payments reviewed by our solutions for or cross-sell additional solutions to our existing clients, it could have a material adverse effect on our growth and on our business, financial condition and results of operations.

Internal improvements to healthcare claims and retail billing processes by our clients could reduce the need for, and revenue generated by, our solutions, which could have a material adverse effect on our business, financial condition and results of operations.

          We provide solutions that help our clients enhance payment accuracy in an increasingly complex environment. If our clients improve their healthcare claims and retail billing processes, demand for our solutions could be reduced. Since most of our contracts are performance fee based, enhancement of client internal billing processes could reduce the revenue generated by our solutions. With enough time and investment, many of our clients may be able to reduce or resolve recurring payment process complexities and resulting payment inaccuracies. In addition, many of our clients also utilize third party or internal technology, systems and personnel that review transactions before we do, all of which are constantly updated and improved. As the skills, experience and resources of such technology, systems and personnel improve, they may be able to identify payment inaccuracies before using our solutions, which would reduce the payment inaccuracies identified by our solutions and our ability to generate related revenue, which could have a material adverse effect on our business, financial condition and results of operations.

Healthcare spending fluctuations, simplification of the healthcare delivery and reimbursement system, programmatic changes to the scope of benefits and limitations to payment integrity initiatives could reduce the need for and the price of our solutions, which could have a material adverse effect on our business, financial condition and results of operations.

          Our solutions improve our clients' ability to accurately pay healthcare claims and prevent or recover inaccurate payments, which often are a result of complexities in the healthcare claims payment system. Although the healthcare benefit and payment system continues to grow in complexity due to factors such as increased regulation and increased healthcare enrollment, the need for our solutions, the price clients are willing to pay for them and/or the scope and profitability of the solutions that we provide to our clients could be negatively affected by, among other things:

    simplification of the U.S. healthcare delivery and reimbursement systems, either through shifts in the commercial healthcare marketplace or through legislative or regulatory changes at the federal or state level;

19


Table of Contents

    reductions in the scope of private sector or government healthcare benefits (for example, decisions to eliminate coverage of certain services);

    the transition of healthcare beneficiaries from fee-for-service plans to value-based plans;

    the adoption of healthcare plans with significantly higher deductibles;

    limits placed on payment integrity initiatives, including the Medicare RAC program; and

    lower than projected growth in private health insurance or the various Medicare and Medicaid programs, including Medicare Advantage.

          Any of these developments could have a material adverse effect on our business, financial condition and results of operations.

If our existing clients do not renew their agreements with us, renew at lower performance fee levels, choose to reduce the number of claims reviewed by our solutions, or prematurely terminate their agreement with us, and we are unable to replace any related lost revenue, it could have a material adverse effect on our business, financial condition and results of operation.

          We historically have derived, and expect in the future to derive, a significant portion of our revenue from our existing clients and, accordingly, we are reliant on ongoing renewals of our agreements with existing clients. As a result, maintaining a high renewal rate is critical to our future growth and our business, financial condition and results of operations. We may experience significantly more difficulty than we anticipate in renewing our existing client agreements. Factors that may affect the renewal rate for our services and our ability to sell additional solutions include:

    the price, performance and functionality of our solutions;

    the availability, price, performance and functionality of competing solutions;

    our clients' perceived ability to review claims accurately using their internal resources;

    our ability to develop complementary solutions;

    our continued ability to access the data necessary to enable us to effectively develop and deliver new solutions to clients;

    the stability and security of our platform;

    changes in healthcare laws, regulations or trends; and

    the business environment of our clients.

          Contracts with our clients generally have stated terms of one to five years. Our clients have no obligation to renew their contracts for our services after the term expires. In addition, our clients may negotiate terms less advantageous to us upon renewal, may renew with a reduced scope of services, may choose to discontinue one or more services under an existing contract, may exercise flexibilities within their contracts to adjust service volumes, or may terminate the agreement prior to its contracted completion date, if any, which could reduce our revenue from these clients. If our clients fail to renew their agreements, renew their agreements upon less favorable terms, at lower performance fee levels or for fewer services, fail to purchase new services from us, or terminate their agreements with us, and we are unsuccessful in generating significant revenue from new or other existing clients to replace any lost revenue, our growth may be constrained and our revenue may decline which could have a material adverse effect on our business, financial condition and results of operations.

20


Table of Contents

If we are unable to develop new client relationships, it could have a material adverse effect on our business, financial condition and results of operations.

          As part of our strategy, we seek to develop new client relationships, principally among healthcare payers. Our ability to develop new relationships depends on a variety of factors, including the quality and performance of our solutions, as well as the ability to market and sell our solutions effectively and differentiate ourselves from our competitors. We may not be successful in developing new client relationships. If we are unable to develop new client relationships, it could have a material adverse effect on our business, financial condition and results of operations.

We have long sales and implementation cycles for many of our solutions and if we fail to close sales after expending time and resources on the sales process, or if we experience delays in implementing the solutions we sell, it could have a material adverse effect on our business, financial condition and results of operations.

          Potential clients generally perform a thorough evaluation of available payment accuracy solutions and require us to expend time, effort and money educating them as to the value of our solutions prior to entering into a contract with them. We may expend significant funds and management resources during the sales cycle and ultimately fail to close the sale. Our sales cycle may be extended due to our clients' budgetary constraints or for other reasons. In addition, following a successful sale, the implementation of our systems frequently involves a lengthy process, as we integrate our technology with the new client's technology and learn the new client's business, operations and billing processes and preferences. If we are unsuccessful in closing sales after expending funds and management resources or if we experience delays in such sales or in implementing our solutions, it could have a material adverse effect on our business, financial condition and results of operations.

System interruptions or failures could expose us to liability and have a material adverse effect on our business, financial condition and result of operations.

          Our data and operations centers are essential to our business, which depends on our ability to maintain and protect our information systems. In addition, our operations are spread across the United States, Canada, the United Kingdom and India and we rely heavily on technology to communicate internally and efficiently perform our services. We have implemented measures that are designed to mitigate the potential adverse effects of a disruption, relocation or change in operating environment; however, we cannot provide assurance that the situations we plan for and the amount of insurance coverage that we maintain will be adequate in any particular case. In addition, despite system redundancy and security measures, our systems and operations are vulnerable to damage or interruption from, among other sources:

    power loss, transmission cable cuts and telecommunications failures;

    damage or interruption caused by fire, earthquake and other natural disasters;

    attacks by hackers or nefarious actors;

    human error;

    computer viruses and other malware, or software defects; and

    physical break-ins, sabotage, intentional acts of vandalism, terrorist attacks and other events beyond our control.

          If we encounter a business interruption, if we fail to effectively maintain our information systems, if it takes longer than we anticipate to complete required upgrades, enhancements or integrations or if our business continuity plans and business interruption insurance do not effectively

21


Table of Contents

compensate on a timely basis, we could suffer operational disruptions, disputes with clients, civil or criminal penalties, regulatory problems, increases in administrative expenses, loss of our ability to produce timely and accurate financial and other reports or other adverse consequences, any of which could have a material adverse effect on our business, financial condition and results of operations.

We obtain and process a large amount of sensitive data. Our systems and networks may be subject to cyber-security breaches and other disruptions that could compromise our information. Any real or perceived improper use of, disclosure of, or access to such data could harm our reputation as a trusted brand, as well as have a material adverse effect on our business, financial condition and results of operations.

          We use, obtain and process large amounts of confidential, sensitive and proprietary data, including protected health information ("PHI") subject to regulation under the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, and personally identifiable information ("PII") subject to state and federal privacy, security and breach notification laws. The secure processing and maintenance of this information is critical to our operations and business strategy. We face risks associated with new and untested personnel, processes and technologies which have recently been implemented to augment our security and privacy management programs. If our security measures or those of the third party vendors we use who have access to this information are inadequate or are breached as a result of third party action, employee error, malfeasance, malware, phishing, hacking attacks, system error, trickery or otherwise, and, as a result, someone obtains unauthorized access to sensitive information, including PHI and PII, on our systems or our providers' systems, our reputation and business could be damaged. We cannot guarantee that our security efforts will prevent breaches or breakdowns to our or our third party vendors' databases or systems. The occurrence of any of these events could cause our solutions to be perceived as vulnerable, cause our clients to lose confidence in our solutions, negatively affect our ability to attract new clients and cause existing clients to terminate or not renew our solutions. If the information is lost, improperly disclosed or threatened to be disclosed, we could incur significant liability and be subject to regulatory scrutiny and penalties. Furthermore, we could be forced to expend significant resources in response to a security breach, including investigating the cause of the breach, repairing system damage, increasing cyber-security protection costs by deploying additional personnel and protection technologies, notifying and providing credit monitoring to affected individuals, paying regulatory fines and litigating and resolving legal claims and regulatory actions, all of which could increase our expenses and divert the attention of our management and key personnel away from our business operations.

          In addition, if our own confidential business information were improperly disclosed, our business could be materially adversely affected. A core aspect of our business is the reliability and security of our technology platform. Any perceived or actual breach of security could have a significant impact on our reputation as a trusted brand, cause us to lose existing clients, prevent us from obtaining new clients, require us to expend significant funds to remedy problems caused by breaches and to implement measures to prevent further breaches, and expose us to legal risk and potential liability. Any security breach at a third party vendor providing services to us could have similar effects. Any breach or disruption of any systems or networks on which we rely could have a material adverse effect on our business, financial condition and results of operations.

22


Table of Contents

If we fail to innovate and develop new solutions, or if these new solutions are not adopted by existing and potential clients, it could have a material adverse effect on our business, financial condition and results of operations.

          Our results of operations and continued growth will depend on our ability to successfully develop and market new solutions that our existing and potential clients are willing to adopt. We cannot provide assurance that our new or modified solutions will be responsive to client preferences or industry changes, or that the product and service development initiatives we prioritize will yield the gains that we anticipate, if any.

          If we are unable to predict market preferences or if our industry changes, or if we are unable to modify our solutions on a timely basis, we may lose clients or fail to attract new clients. If existing clients are not willing to adopt new solutions, or if potential clients do not value such new solutions, it could have a material adverse effect on our business, financial condition and results of operations.

Certain of our activities present the potential for identity theft or similar illegal behavior by our employees or contractors with respect to third parties, which could have a material adverse effect on our business, financial condition and results of operations.

          Our solutions involve the use and disclosure of personal information that in some cases could be used to impersonate third parties or otherwise improperly gain access to their data or funds. If any of our employees or contractors take, convert or misuse such information, or we experience a data breach creating a risk of identity theft, we could be liable for damages and our business reputation could be damaged. In addition, we could be perceived to have facilitated or participated in illegal misappropriation of documents or data and, therefore, be subject to civil or criminal liability. In addition, federal and state regulators may take the position that a data breach or misdirection of data constitutes an unfair or deceptive act or trade practice. We also may be required to notify individuals affected by any data breaches. Further, a data breach or similar incident could impact the ability of our clients that are creditors to comply with the federal "red flags" rules, which require the implementation of identity theft prevention programs to detect, prevent and mitigate identity theft in connection with client accounts, which could be costly. If data utilized in our solutions are misappropriated for the purposes of identity theft or similar illegal behavior, it could have a material adverse effect on our reputation, business, financial condition and results of operations.

If we fail to comply with applicable privacy, security and data laws, regulations and standards, including with respect to third party service providers that utilize sensitive personal information on our behalf, it could have a material adverse effect on our reputation, business, financial condition and results of operations.

          In order to provide our services and solutions, we often receive, process, transmit and store PHI and PII of individuals, as well as other financial, confidential and proprietary information belonging to our clients and third parties from which we obtain information (e.g., private insurance companies, financial institutions, etc.). The receipt, maintenance, protection, use, transmission, disclosure and disposal of this information is regulated at the federal, state, international and industry levels and we are also obligated by our contractual requirements with customers. These laws, rules and requirements are subject to frequent change. Compliance with new privacy and security laws, regulations and requirements may result in increased operating costs and may constrain or require us to alter our business model or operations. For example, we are subject to federal regulation as a result of the Final Omnibus Privacy, Security, Breach Notification and Enforcement Rules (the "Omnibus Final Rule") amendments to the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and

23


Table of Contents

Clinical Health Act of 2009. We collectively refer to these acts and their implementing federal regulations, including the Omnibus Final Rule, as "HIPAA."

          HIPAA establishes privacy and security standards that limit our use and disclosure of PHI and requires us to implement administrative, physical and technical safeguards to ensure the confidentiality, integrity and availability of PHI, as well as notify our covered entity customers of breaches of unsecured PHI and security incidents. HIPAA also imposes direct penalties on us for violations of its requirements. In addition to HIPAA, we are also subject to varying state laws governing the use and disclosure of PII, including medical record information, as well as state laws requiring notification in case of a breach of such information. The Omnibus Final Rule significantly increased the risk of liability to us, our business associates and subcontractors by making us directly subject to many of HIPAA's requirements and made more incidents of inadvertent disclosure reportable and subject to penalties.

          We act as a business associate to our covered entity customers because we collect, use, disclose and maintain PHI in order to provide services to these customers. HIPAA requires us to enter into satisfactory written business associate agreements with our covered entity customers, which contain specified written assurances that we will safeguard PHI that we create or access and will fulfill other material obligations. Under the Omnibus Final Rule, we may be held directly liable under our business associate agreements and HIPAA for any violations of HIPAA. Therefore, we could face contractual liability with our customers as well as liability to the government under HIPAA if we do not comply with our business associate obligations and those provisions of HIPAA that are applicable to us. While we take measures to comply with applicable laws and regulations as well as our own posted privacy policies, such laws, regulations and related legal standards for privacy and security continue to evolve and any failure or perceived failure to comply with applicable laws, regulations and standards may result in threatened or actual proceedings, actions and public statements against us by government entities, private parties, consumer advocacy groups or others, or could cause us to lose clients, which could have a material adverse effect on our business, financial condition and results of operations. The penalties for a violation of HIPAA are significant and, if imposed, could have a material adverse effect on our business, financial condition and results of operations. While we have included protections in our contracts with our third party service providers, as required by the Omnibus Final Rule, we have limited oversight or control over their actions and practices. In addition, we could also be exposed to data breach risk if there is unauthorized access to one of our or our subcontractors' secured facilities or from lost or stolen laptops, other portable media from current or former employee theft of data containing PHI, from misdirected mailings containing PHI, or other forms of administrative or operational error. HHS is currently conducting audits to assess HIPAA compliance efforts by covered entities and business associates. An audit resulting in findings or allegations of noncompliance could have a material adverse effect on our results of operations, financial position and cash flows.

          Noncompliance or findings of noncompliance with applicable laws, regulations or requirements, or the occurrence of any privacy or security breach involving the misappropriation, loss or other unauthorized disclosure of sensitive personal information, whether by us or by one of our third party service providers, could have a material adverse effect on our reputation and business, including, among other consequences, mandatory disclosure to the media, loss of existing or new customers, significant increases in the cost of managing and remediating privacy or security incidents and material fines, penalties and litigation awards, any of which could have a material adverse effect on our results of operations, financial position and cash flows. Further, if such laws and regulations are not enforced equally against other competitors in a particular market, our compliance with such laws may put us a competitive disadvantage vis-à-vis competitors who do not comply with such requirements.

24


Table of Contents

          We have clients throughout all 50 states and our solutions may contain healthcare information of patients located across all 50 states. Therefore, we may be subject to the privacy laws of each such state, which vary from state to state and, in some cases, can impose more restrictive requirements than federal law. Where state laws are more protective, we have to comply with the stricter provisions. In addition to fines and penalties imposed upon violators, some of these state laws also afford private rights of action to individuals who believe their personal information has been misused. California's patient privacy laws, for example, provide for penalties of up to $250,000 and permit injured parties to sue for damages. The interplay of federal and state laws may be subject to varying interpretations by courts and government agencies, creating complex compliance issues for us and our clients and potentially exposing us to additional expense, adverse publicity and liability. Further, as regulatory focus on privacy issues continues to increase and laws and regulations concerning the protection of personal information expand and become more complex, these potential risks to our business could intensify. Changes in laws or regulations associated with the enhanced protection of certain types of sensitive data, such as PHI or PII, along with increased customer demands for enhanced data security infrastructure, could greatly increase our cost of providing our services, decrease demand for our services, reduce our revenue and/or subject us to additional liabilities.

          The following legal and regulatory developments also could have a material adverse effect on our business, financial condition and results of operations:

    amendment, enactment, or interpretation of laws and regulations that restrict the access and use of personal information and reduce the supply of data available to clients;

    changes in cultural and consumer attitudes to favor further restrictions on information collection and sharing, which may lead to regulations that prevent full utilization of our solutions;

    failure of our solutions to comply with current laws and regulations; and

    failure of our solutions to adapt to changes in the regulatory environment in an efficient, cost-effective manner.

Changes in the United States healthcare environment, or in laws relating to healthcare programs and policies, and steps we take in anticipation of such changes, particularly as they relate to the Affordable Care Act and Medicare and Medicaid programs, could have a material adverse effect on our business, financial condition and results of operations.

          The healthcare industry in the United States is subject to a multitude of changing political, economic and regulatory influences that affect every aspect of our healthcare system. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act (the "Affordable Care Act"), made major changes in how healthcare is delivered and reimbursed, and generally increased access to health insurance benefits to the uninsured and underinsured population of the United States. Among other things, the Affordable Care Act increased the number of individuals with Medicaid and private insurance coverage, implemented reimbursement policies that tie payment to quality, facilitated the creation of accountable care organizations that may use capitation and other alternative payment methodologies, strengthened enforcement of fraud and abuse laws and encouraged the use of information technology. However, many of these changes require implementing regulations which have not yet been drafted or have been released only as proposed rules. Until the Affordable Care Act is fully implemented, it will be difficult to predict its full impact and influence on the healthcare industry. In addition, there have been and continue to be a number of legislative and regulatory initiatives to contain healthcare costs, reduce federal and state government spending on healthcare products and services and limit or restrict the scope of the Medicare RAC program and other program integrity initiatives.

25


Table of Contents

          We have made and intend to continue to make investments in personnel, infrastructure and product development, as well as in the overall expansion of the services that we offer to support existing and new clients as they implement the requirements of the Affordable Care Act. However, future changes to the Affordable Care Act and to the Medicare and Medicaid programs and other federal or state healthcare reform measures may lower reimbursement rates, establish new payment models, increase or decrease government involvement in healthcare, decrease the Medicare RAC program and otherwise change the operating environment for us and our clients. If efforts to waive, modify or otherwise change the Affordable Care Act, in whole or in part, are successful, if we are unable to adapt our solutions to meet changing requirements or expand service delivery into new areas, or the demand for our solutions is reduced as a result of healthcare organizations' reactions to changed circumstances and financial pressures, it could have a material adverse effect on our business, financial condition and results of operations.

          Healthcare organizations may react to such changed circumstances and financial pressures, including those surrounding the implementation of the Affordable Care Act, by taking actions such as curtailing or deferring their retention of service providers like us, which could reduce the demand for our solutions and, in turn, have a material adverse effect on our business, financial condition and results of operations.

A significant portion of our revenue comes from a limited number of clients, and the loss of one or more of these clients could have a material adverse effect on our business, financial condition and results of operations.

          We generate a significant portion of our revenue from a limited number of large clients. Our first-, second- and third-largest clients accounted for approximately 14%, 10% and 8% of our revenue for the year ended December 31, 2015. In addition, our ten largest clients, in the aggregate, accounted for approximately 59% of our revenue for the year ended December 31, 2015. The engagement between these clients and us generally is covered through a master services agreement with multiple separate statements of work ("SOWs"), each with different and/or staggered terms, generally ranging from one to three years. In addition, we also rely on our reputation and recommendations from key clients to promote our solutions to potential new clients. Accordingly, if any of these clients fail to renew or terminate their existing contracts or their SOWs with us, it could have a material adverse effect on our business, financial condition and results of operations.

Consolidation among healthcare payers or retailers could have a material adverse effect on our business, financial condition and results of operations.

          The healthcare and retail industries have recently undergone significant consolidation and further consolidation could occur in the future. When companies consolidate, services provided by more than one provider may be consolidated and purchased from a single provider or they may renegotiate or not renew their existing contractual arrangements, which could lead to the loss of a client. Overlapping services that were previously purchased separately typically are purchased only once by the combined entity, resulting in loss of revenue for the service provider. If our clients merge with or are acquired by other entities that are not our clients, they may discontinue their use of our services or renegotiate the terms of our agreements. In addition, if an existing client of ours merges with or is acquired by a company that does not use payment accuracy solutions, we could lose our existing client, which could have a material adverse effect on our business, financial condition and results of operations.

26


Table of Contents

The healthcare payment accuracy market is relatively new and unpenetrated, and if it does not develop or if it develops more slowly than we expect, it could have a material adverse effect on our business, financial condition and results of operations.

          The healthcare payment accuracy market is relatively new and the overall market opportunity remains relatively unpenetrated. It is uncertain whether the healthcare payment accuracy market will achieve and sustain high levels of demand, client acceptance and market adoption. Our success will depend to a substantial extent on the willingness of our clients to use, and to increase the frequency and extent of their utilization of, our solutions, as well as on our ability to demonstrate the value of payment accuracy solutions to healthcare payers and government agencies. If our clients do not perceive the benefits of our solutions, then our market may not continue to develop, or it may develop more slowly than we expect. If any of these events occurs, it could have a material adverse effect on our business, financial condition and results of operations.

Negative publicity concerning the healthcare payment accuracy industry or patient confidentiality and privacy could limit the future growth of the healthcare payment accuracy market.

          Our payment accuracy solutions help prevent and recover improper payments made to healthcare providers. As a result, healthcare providers and others have criticized the healthcare payment accuracy industry and have hired lobbyists to discredit the reported success that payment accuracy solutions have had in improving the accuracy of payments. Further, negative publicity regarding patient confidentiality and privacy could limit market acceptance of our healthcare solutions. Many consumer advocates, privacy advocates and government regulators believe that the existing laws and regulations do not adequately protect privacy. They have become increasingly concerned with the use of personal information. As a result, they are lobbying for further restrictions on the dissemination or commercial use of personal information to the public and private sectors. If healthcare providers, privacy advocates and others are successful in creating negative publicity for the healthcare payment accuracy industry, government and private healthcare payers could hesitate to contract with payment accuracy providers, such as us, which could have a material adverse effect on our reputation, business, financial condition and results of operations.

We face significant competition for our solutions and we expect competition to increase.

          Competition among providers of healthcare payment accuracy solutions to U.S. healthcare insurance companies is strong and we may encounter additional competition as new competitors enter this area.

          Our current healthcare solutions competitors include:

    other payment accuracy vendors, including vendors focused on discrete aspects of the healthcare payment accuracy process;

    fraud, waste and abuse claim edit and predictive analysis companies;

    primary claims processors;

    numerous regional utilization management companies;

    in-house payment accuracy capabilities;

    Medicare RACs; and

    healthcare consulting firms and other third party liability service providers.

27


Table of Contents

          In addition, our competition for retail solutions consists of one main competitor, PRGX Global, Inc. ("PRGX") and a number of smaller companies that do not have a material market share of the retail payment accuracy market.

          Many of the payment accuracy solutions we provide are being targeted by competitors, and their success in attracting business or winning contract bids could adversely affect our business. In certain cases, our competitors and potential competitors have significantly greater resources and market recognition than we have and may be in a position to bundle services that compete with our product and services offerings, or may be able to devote greater resources to the sale of their services and to developing and implementing new and improved systems and solutions for the clients that we serve.

          We cannot provide assurance that we will be able to compete successfully against existing or new competitors. In addition, we may be forced to lower our pricing or the demand for our solutions may decrease as a result of increased competition. Further, a failure to be responsive to our existing and potential clients' needs could hinder our ability to maintain or expand our client base, hire and retain new employees, pursue new business opportunities, complete future acquisitions and operate our business effectively. Any inability to compete effectively could have a material adverse effect on our business, financial condition and results of operations.

If we are unable to protect our proprietary technology, information, processes and know-how, the value of our solutions may be diminished, which could have a material adverse effect on our business, financial condition and results of operations.

          We rely significantly on proprietary technology, information, processes and know-how that are not subject to patent or copyright protection. We seek to protect this information through trade secret or confidentiality agreements with our employees, consultants, subcontractors or other parties, as well as through other security measures. These agreements and security measures may be inadequate to deter misappropriation of intellectual property and may be insufficient to protect our proprietary information. Misappropriation of our intellectual property by third parties, or any disclosure or dissemination of our business intelligence, queries, algorithms and other similar information by any means, could undermine competitive advantages we currently derive or may derive therefrom. Any of these situations could result in our expending significant time and incurring expense to enforce our intellectual property rights. Although we have taken measures to protect our proprietary rights, others may compete with our business by offering solutions or services that are substantially similar to ours. If the protection of our proprietary rights is inadequate to prevent unauthorized use or appropriation by third parties or our employees, the value of our solutions, brand and other intangible assets may be diminished and competitors may be able to more effectively offer solutions that have the same or similar functionality as our solutions, which could have a material adverse effect on our business, financial condition and results of operations.

Our success depends on our ability to protect our intellectual property rights.

          Our success depends in part on our ability to protect our proprietary software, confidential information and know-how, technology and other intellectual property and intellectual property rights. To do so, we rely generally on copyright, trademark and trade secret laws, confidentiality and invention assignment agreements with employees and third parties, and license and other agreements with consultants, vendors and clients. There can be no assurance that employees, consultants, vendors and clients have executed such agreements or have not breached or will not breach their agreements with us, that we will have adequate remedies for any breach, or that our trade secrets will not otherwise become known or independently developed by competitors. Additionally, we monitor our use of open source software to avoid uses that would require us to disclose our proprietary source code or violate applicable open source licenses, but if we engaged in such uses inadvertently, we could be required to take remedial action or release certain of our

28


Table of Contents

proprietary source code. These scenarios could have a material adverse effect on our business, financial condition and results of operations. In addition, despite the protections we do place on our intellectual property, a third party could, without authorization, copy or otherwise obtain and use our products or technology, or develop similar technology. In addition, agreement terms that address non-competition are difficult to enforce in many jurisdictions and might not be enforceable in certain cases.

          Pursuant to our initial strategy regarding intellectual property protection, we currently hold one patent that does not apply to our current solutions. As we begin to pursue additional patents, we might not be able to obtain meaningful patent protection for our technology. In addition, if any additional patents are issued in the future, they might not provide us with any competitive advantages or might be successfully challenged by third parties.

          We rely on unpatented proprietary technology. It is possible that others will independently develop the same or similar technology or otherwise obtain access to our unpatented technology. To protect our trade secrets and other proprietary information, we require employees, consultants, advisors and collaborators to enter into confidentiality agreements. We cannot assure you that these agreements will provide meaningful protection for our trade secrets, know-how, or other proprietary information in the event of any unauthorized use, misappropriation, or disclosure of such trade secrets, know-how, or other proprietary information. Further, the theft or unauthorized use or publication of our trade secrets and other confidential business information could reduce the differentiation of our services and harm our business, the value of our investment in development or business acquisitions could be reduced and third parties might make claims against us related to losses of their confidential or proprietary information.

          We rely on our trademarks, service marks, trade names and brand names to distinguish our services from the services of our competitors and have registered or applied to register many of these trademarks. We cannot assure you that our trademark applications will be approved. Third parties may also oppose our trademark applications, or otherwise challenge our use of the trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our services, which could result in loss of brand recognition and could require us to devote resources advertising and marketing new brands. Further, we cannot assure you that competitors will not infringe our trademarks or that we will have adequate resources to enforce our trademarks. Additionally, if we expand our focus to the international payment accuracy market, there is no guarantee that our trademarks, service marks, trade names and brand names will be adequately protected.

Our ability to obtain, protect and enforce our intellectual property rights is subject to uncertainty as to the scope of protection, registerability, patentability, validity and enforceability of our intellectual property rights in each applicable jurisdiction, as well as the risk of general litigation or third party oppositions.

          Existing U.S. federal and state intellectual property laws offer only limited protection. Moreover, if we expand our business into markets outside of the United States, our intellectual property rights may not receive the same degree of protection as they would in the United States because of the differences in foreign trademark and other laws concerning proprietary rights. Governments may adopt regulations, and government agencies or courts may render decisions, requiring compulsory licensing of intellectual property rights. When we seek to enforce our intellectual property rights we may be subject to claims that the intellectual property rights are invalid or unenforceable. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Litigation brought to protect and enforce our intellectual property rights could be costly, time consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property rights. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and

29


Table of Contents

enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management's attention and resources, could delay further sales or the implementation of our solutions, impair the functionality of our solutions, delay introductions of new solutions, result in our substituting inferior or more costly technologies into our solutions, or have a material adverse effect on our business, financial condition and results of operations.

We are subject to extensive government regulation and our clients' contracts are subject to audit and investigation rights. Any violation of the laws and regulations applicable to us or a negative audit or investigation finding could have a material adverse effect on our business, financial condition and results of operations.

          Much of our business is regulated by the federal government and the states in which we operate. The laws and regulations governing our operations generally are intended to benefit and protect individual citizens, including government program beneficiaries, health plan members and providers, rather than stockholders. The government agencies administering these laws and regulations have broad latitude to enforce them. These laws and regulations, along with the terms of our government contracts, regulate how we do business, what services we offer and how we interact with our clients, providers, other healthcare payers and the public. We are subject, on an ongoing basis, to various governmental reviews, audits and investigations to verify our compliance with our contracts and applicable laws and regulations. Increased involvement by us in analytic or audit work that can have an impact on the eligibility of individuals for medical coverage or specific benefits could increase the likelihood and incidence of our being subjected to scrutiny or legal actions by parties other than our clients, based on alleged mistakes or deficiencies in our work, with significant resulting costs and strain on our resources.

          In addition, because we receive payments from federal and state governmental agencies, we are subject to various laws, including the Federal False Claims Act and similar state statutes, which permit government law enforcement agencies to institute suits against us for violations and, in some cases, to seek double or treble damages, penalties and assessments. In addition, private citizens, acting as whistleblowers, can sue on behalf of the government under the " qui tam " provisions of the Federal False Claims Act and similar statutory provisions in many states.

          The expansion of our operations into new products and services may further expose us to requirements and potential liabilities under additional statutes and legislative schemes that previously have not been relevant to our business, such as banking statutes, that may both increase demands on our resources for compliance activities and subject us to potential penalties for noncompliance with statutory and regulatory standards.

          If the government discovers improper or illegal activities in the course of audits or investigations, we may be subject to various civil and criminal penalties and administrative sanctions, which may include termination of contracts, forfeiture of profits, suspension of payments, fines and suspensions and debarment from doing business with the government. Such risks, particularly under the Federal False Claims Act and similar state fraud statutes, have increased in recent years due to legislative changes that have (among other amendments) expanded the definition of a false claim to include, potentially, any unreimbursed overpayment received from, or other monetary debt owed to, a government agency. If we are found to be in violation of any applicable law or regulation, or if we receive an adverse review, audit or investigation, any resulting negative publicity, penalties or sanctions could have an adverse effect on our reputation in the industry, impair our ability to compete for new contracts and have a material adverse effect on our business, financial condition and results of operations.

30


Table of Contents

Federal or state governments may limit or prohibit the outsourcing of certain services or functions, or may refuse to grant consents and/or waivers necessary to permit private entities, such as us, to perform certain elements of government programs or functions, such as healthcare claim auditing, or there may be state or federal limitations placed on the ability of the government to award contracts to private companies that use non-U.S. personnel, such as us, which could have a material adverse effect on our business, financial condition and results of operations.

          Federal or state governments could limit or prohibit private contractors like us from operating or performing elements of certain government functions or programs. State or local governments could be required to operate such programs with government employees as a condition of receiving federal funding. Moreover, under current law, in order to privatize certain functions of government programs, the federal government must grant a consent and/or waiver to the petitioning state or local agency. If the federal government does not grant a necessary consent or waiver, the state or local agency will be unable to outsource that function to a private entity. Such a situation could eliminate a contracting opportunity or reduce the value of an existing contract.

          In addition, the federal government and a number of states have considered laws and/or issued rules and orders that would limit, restrict or wholly prohibit the use of non-U.S. labor in performance of government contracts, or impose sanctions for the use of such resources. Some of our clients have already chosen to contractually limit or restrict our ability to use non-U.S. resources. We employ personnel and occasionally engage vendors located outside of the United States, and while we endeavor to only employ non-U.S. personnel and vendors where appropriate and permissible, any such limitations or restrictions could require us to repatriate work currently being done outside the U.S. or prevent us from having additional work done outside the United States, raise our costs of doing business, expose us to unexpected fines or penalties, increase the prices we must charge to clients to realize a profit and eliminate or significantly reduce the value of existing contracts or potential contract opportunities, any of which could have a material adverse effect on our business, financial condition and results of operations.

Our business depends on effective information processing systems that are compliant with current HIPAA transaction and code set standards and the integrity of the data in, and operations of, our information systems, as well as those of other entities that provide us with data or receive data from us.

          Our ability to conduct our operations and accurately report our financial results depends on the integrity of the data in our information systems and the integrity of the processes performed by those systems. These information systems and applications require continual maintenance, upgrading and enhancement to meet our operational needs, satisfy client requests and handle and enable our expansion and growth. Despite our testing and quality control measures, we cannot be certain that errors or system deficiencies will not be found and that remediation can be done in a timeframe that is acceptable to our clients or that client relationships will not be impaired by the occurrence of errors or the need for remediation. In addition, implementation of upgrades and enhancements may cost more, take longer or require more testing than originally expected. Given the large amount of data we collect and manage, it is possible that hardware failures, errors or technical deficiencies in our systems could result in data loss or corruption or cause the information that we collect, utilize or disseminate to be incomplete or contain inaccuracies that our clients regard as significant.

          Moreover, because many of the services we furnish to clients involve submitting high volumes of monetary claims to third parties and processing payments from them, the efficiency and effectiveness of our own operations are to some degree dependent on the claims processing systems of these third parties and their compliance with any new transaction and code set standards. Since October 1, 2015, health plans, commercial payers and healthcare providers have

31


Table of Contents

been required to transition to the new ICD-10 coding system, which greatly expands the number and detail of diagnosis codes used for inpatient, outpatient and physician claims. The transition to the new transaction and code set standard is expensive, time-consuming and may initially result in disruptions or delays as we and other stakeholders make necessary system adjustments to be fully compliant and capable of exchanging data.

          In addition, we may experience delays in processing claims and therefore earning our fees if the third parties with whom we work are not in full compliance with these new standards in the required timeframe. Claims processing systems failures, incapacities or deficiencies internal to these third parties could significantly delay or obstruct our ability to recover money for our clients, and thereby interfere with our performance under our contracts and our ability to generate revenue from those contracts in the timeframe we anticipate, which in turn could have a material adverse effect on our business, financial condition and results of operations.

Our services could become subject to new, revised, or enhanced regulatory requirements in the future, which could result in increased costs, could delay or prevent our introduction of new solutions, or could impair the function or value of our existing solutions, which could have a material adverse effect on our business, financial condition and results of operations.

          The healthcare industry is highly regulated on the federal, state and local levels, and is subject to changing legislative, regulatory, political and other influences. Changes to existing laws and regulations, or the enactment of new federal and state laws and regulations affecting the healthcare industry, could create unexpected liabilities for us, could cause us or our clients to incur additional costs and could restrict our or our clients' operations. Many healthcare laws are complex, subject to frequent change and dependent on interpretation and enforcement decisions from government agencies with broad discretion. The application of these laws to us, our clients, or the specific services and relationships we have with our clients is not always clear. In addition, federal and state legislatures periodically have considered programs to reform or amend the U.S. healthcare system at both the federal and state level, such as the enactment of the Affordable Care Act. Our failure to anticipate accurately the application of these laws and similar or future laws and regulations, or our failure to comply with them, could create liability for us, result in adverse publicity and have a material adverse effect on our business, financial condition and results of operations.

          Our services may become subject to new or enhanced regulatory requirements and we may be required to change or adapt our services in order to comply with these regulations. For example, the introduction of the new ICD-10 coding framework in 2015, could present additional challenges for our business, including requiring us to allocate resources to training and upgrading our systems. If we fail to successfully implement the new ICD-10 coding framework, it could adversely affect our ability to offer services deemed critical by our clients, which could have a material adverse effect on our business, financial condition and results of operations. New or enhanced regulatory requirements may render our solutions obsolete or prevent us from performing certain services. Further, new or enhanced regulatory requirements could impose additional costs on us, thereby making existing solutions unprofitable, and could make the introduction of new solutions more costly or time consuming than we anticipate, which could have a material adverse effect on our business, financial condition and results of operations.

We may be precluded from bidding on and/or performing certain work due to other work that we perform, which could have a material adverse effect on our business, financial condition and results of operations.

          Various laws, regulations and administrative policies prohibit companies from performing work for government agencies in capacities that might be viewed to create an actual or perceived conflict of interest. In particular, CMS has stringent conflict of interest rules, which limit our bidding for work that might conflict, or be perceived by CMS to conflict, with contractual work for CMS. State

32


Table of Contents

governments and managed care organizations also have conflict of interest restrictions that could limit our ability to bid for certain work. Conflict of interest rules and standards change frequently and are subject to varying interpretations and varying degrees and consistency of enforcement at the federal, state and municipal levels, and we cannot provide assurance that we will be successful in navigating these restrictions.

          The expansion and diversification of our business operations increases the possibility that clients or potential clients will perceive conflicts of interest between our various subsidiaries, products, services, activities and client relationships. Such conflicts, whether real or perceived, could result in loss of contracts or require us to divest ourselves of certain existing business in order to qualify for new contract awards. We may be required to adjust our current management and personnel structure, as well as our corporate organization and entity structure, in order to appropriately mitigate conflicts and otherwise accommodate our needs as a company that is expanding in size and complexity. Our failure to devote sufficient care, attention and resources to managing these adjustments may result in technical or administrative errors that could expose us to potential liability or adverse regulatory action. If we are prevented from expanding our business due to real or perceived conflicts of interest, it could have a material adverse effect on our business, financial condition and results of operations.

We obtain a portion of our business through submitting responses to requests for proposals ("RFPs"). Future contracts may not be awarded through this process on the same level and we may not re-procure certain contracts.

          In order to market our solutions to clients, we sometimes are required to respond to RFPs to compete for a contract. This requires that we accurately estimate our cost structure for servicing a proposed contract, the time required to establish operations and the likely terms of any proposals submitted by our competitors. We also must assemble and submit a large volume of information within a RFP's rigid timetable, and our ability to provide timely and complete responses to RFPs will greatly impact our business. Should any part of our business suffer a negative event, for example, a client dispute or a government inquiry, we may be required to disclose the occurrence of that event in a RFP, which could impact our ability to win the contract at issue. We cannot provide assurance that we will continue to obtain contracts in response to RFPs, that we will be successful in reentering into contracts after they expire, or that our proposals will result in profitable contracts. In addition, if we are unable to win particular contracts, we may be precluded from entering certain markets for a number of years. If we are unable to consistently win new contract awards or renew expiring contracts over any extended period, it could have a material adverse effect on our business, financial condition and results of operations.

If we fail to accurately estimate the factors upon which we base our contract pricing, we may generate less profit than expected or incur losses on those contracts, which could have a material adverse effect on our business, financial condition and results of operations.

          Our client contracts are generally performance-fee based. We receive a fee for such contracts based on the payment inaccuracies that we prevent for our prospective solutions clients, or the recoveries received by our retrospective solutions and retail clients. Our ability to earn a profit on a performance fee contract requires that we accurately estimate the costs involved and outcomes likely to be achieved and assess the probability of completing multiple tasks and transactions within the contracted time period.

          We derive a relatively small portion of our revenue on a "fee-for-service" basis whereby billing is based upon a flat fee or a fee per hour. To earn a profit on these contracts, we must accurately estimate costs involved and assess the probability of achieving certain milestones within the contracted time period. If we do not accurately estimate the costs and timing for completing projects, or if we encounter increased or unexpected costs, delays, failures, liabilities or risks,

33


Table of Contents

including those outside of our control, our contracts could prove unprofitable for us or yield lower profit margins than anticipated. Although we believe that we have recorded adequate provisions in our financial statements for losses on our fee-for-service contracts where applicable, as required under GAAP, we cannot provide assurance that our contract provisions will be adequate to cover all actual future losses. The inability to accurately estimate the factors upon which we base our contract pricing could have a material adverse effect on business, financial condition and results of operations.

          In addition, some of our client contracts guarantee that we will achieve certain performance levels. If we are unsuccessful in reaching our committed performance thresholds, we may have to provide the client with service credits or reduce our fees for such review, which could have a material adverse effect on our business, financial condition and results of operations.

Our ability to execute on business plans will be negatively impacted if we fail to properly manage our growth, which could have a material adverse effect on our business, financial condition and results of operations.

          In recent years, our size and the scope of our business operations have expanded rapidly, particularly as a result of the Connolly iHealth Merger, and we expect that we will continue to grow and expand into new areas within the healthcare industry; however, such growth and expansion carries costs and risks that, if not properly managed, could have a material adverse effect on our business, financial condition and results of operations. To effectively manage our business plans, we must continue to improve our operations, while remaining competitive. We must also be flexible and responsive to our clients' needs and to changes in the political, economic and regulatory environment in which we operate. The greater size and complexity of our expanding business puts additional strain on our administrative, operational and financial resources and makes the determination of optimal resource allocation more difficult. A failure to anticipate or properly address the demands that our growth and diversification may have on our resources and existing infrastructure may result in unanticipated costs and inefficiencies and could negatively impact our ability to execute on our business plans and growth goals, which could have a material adverse effect on our business, financial condition and results of operations.

We may be unable to successfully complete the integration of the Connolly and iHealth Technologies businesses and realize any synergies that we anticipate, which could have a material adverse effect on our business, financial condition and results of operations.

          Our ability to achieve the anticipated benefits of the Connolly iHealth Merger and the success of our combined companies will depend in part upon whether we can complete the integration of the predecessor businesses in an effective and efficient manner. Our ability to integrate the predecessor businesses and realize the long-term synergies that we anticipate is subject to a number of uncertainties, many of which are related to conditions beyond our control, such as general negative economic trends and competition. We may also encounter ongoing difficulties in effectively implementing our combined business plan and in implementing operational, accounting and technology policies, processes and systems for the combined business, in integrating the cultures of each of the predecessor businesses, in cross-selling our solutions to the existing clients of the predecessor businesses and in the impairment of acquired intangible assets, including goodwill. An inability to effectively deal with any of the aforementioned difficulties in a timely and effective manner may result in our failing to fully realize the anticipated benefits of the Connolly iHealth Merger, including anticipated synergies, and could have a material adverse effect on our business, financial condition and results of operations. Further, the time and energy management has spent and will continue to spend in integrating Connolly and iHealth Technologies may divert the attention of management away from the core operations of the business.

34


Table of Contents

If we do not successfully integrate future acquisitions or strategic partnerships that we may enter into, we may not realize the anticipated benefits of any such acquisitions or partnerships, which could have a material adverse effect on our business, financial condition and results of operations.

          We expect to pursue future acquisitions in order to expand and diversify our business. We may also form strategic partnerships with third parties that we believe will complement or augment our existing business. We cannot, however, provide assurance that we will be able to identify any potential acquisition or strategic partnership candidates, consummate any additional acquisitions or enter into any strategic partnerships or that any future acquisitions or strategic partnerships will be successfully integrated or will be advantageous to us. Entities we acquire may not achieve the revenue and earnings we anticipate or their liabilities may exceed our expectations. We could face integration issues pertaining to the internal controls and operational functions of the acquired companies and we also could fail to realize cost efficiencies or synergies that we anticipated when selecting our acquisition candidates. Client dissatisfaction or performance problems with a particular acquired entity or resulting from a strategic partnership could have a material adverse effect on our reputation as a whole. We may be unable to profitably manage any acquired entities, or we may fail to integrate them successfully without incurring substantial expenses, delays or other problems. We may not achieve the anticipated benefits from any strategic partnerships we form. In addition, business acquisitions and strategic partnerships involve a number of risks that could affect our business, financial condition and results of operations, including but not limited to:

    our ability to integrate operational, accounting and technology policies, processes and systems and the implementation of those policies and procedures;

    our ability to integrate personnel and human resources systems as well as the cultures of each of the acquired businesses;

    our ability to implement our business plan for the acquired business;

    transition of operations, users and clients to our existing platforms or the integration of data, systems and technology platforms with ours;

    compliance with regulatory requirements and avoiding potential conflicts of interest in markets that we serve;

    diversion of management's attention and other resources;

    our ability to retain or replace key personnel;

    our ability to maintain relationships with the clients of the acquired business or a strategic partner and further develop the acquired business or the business of our strategic partner;

    our ability to cross-sell our solutions of the acquired businesses or strategic partners to our respective clients;

    entry into unfamiliar markets;

    assumption of unanticipated legal or financial liabilities and/or negative publicity related to prior acts by the acquired entity;

    litigation or other claims in connection with the acquired company, including claims from terminated employees, clients, former stockholders or third parties;

    misuse of intellectual property by our strategic partners;

    disagreements with strategic partners or a misalignment of incentives within any strategic partnership;

    becoming significantly leveraged as a result of incurring debt to finance an acquisition;

35


Table of Contents

    unanticipated operating, accounting or management difficulties in connection with the acquired entities; and

    impairment of acquired intangible assets, including goodwill, and dilution to our earnings per share.

          If we fail to successfully integrate the businesses that we acquire or strategic partnerships that we enter into, we may not realize any of the benefits we anticipate in connection with the acquisitions or partnerships, which could have a material adverse effect on our business, financial condition and results of operations.

If we fail to maintain or upgrade our operational platforms, it could have a material adverse effect on our business, financial condition and results of operation.

          We expect to make substantial investments in and changes to our operational platforms, systems and applications to compete effectively and keep up with technological advances. We may also face difficulties in integrating any upgraded platforms into our current technology infrastructure. In addition, significant technological changes could render our existing solutions obsolete. Although we have invested, and will continue to invest, significant resources in developing and enhancing our solutions and platforms, any failure to keep up with technological advances or to integrate upgraded operational platforms and solutions into our existing technology infrastructure could have a material adverse effect on our business, financial condition and results of operations.

Our business, financial condition and results of operations could be adversely affected if we fail to reprocure our Medicare RAC program contract or if the terms of the Medicare RAC program contract are substantially changed.

          Historically, CMS has been a significant client. Net revenue under our Medicare RAC contract was $18.5 million and $44.3 million for the years ended December 31, 2015 and 2014, respectively.

          In February 2013, CMS began the reprocurement process for its Medicare RAC program contracts and issued a Request for Quote ("RFQ"). After a protest was filed by potential bidders on the terms of this initial RFQ, CMS issued a group of five new RFQs for the Medicare RAC program. The terms of these new RFQs were also protested by potential bidders, causing CMS to withdraw the new RFQs and resulting in further delays in the reprocurement process. In response to these delays, CMS has allowed the current Medicare RAC contractors, including us, to continue active recovery auditing through July 31, 2016.

          On November 6, 2015, CMS announced the new terms and timeline of the RFP process for recovery audit services, including those performed by us. We intend to submit a proposal. The timing and outcome of the new Medicare RAC contract awards is uncertain.

          We are permitted to review only a small subset of CMS's claims for potential payment inaccuracies. CMS exercises its discretion with respect to the number of claims and types of concepts that Medicare RAC contractors may audit. CMS has suspended the review of certain types of claims, and, effective October 1, 2015, shifted the responsibility for initial medical reviews for certain claims, many of which were profitable to us, to Quality Improvement Organizations. There can be no assurance that CMS will lift its suspension of such reviews and CMS may determine to restrict the types of claims its payment accuracy providers review even further. The continued suspensions of these reviews by the Medicare RACs, changes to the review strategies, and any other changes to the Medicare RAC program could have a material impact on our future revenue.

          On August 29, 2014, CMS announced that it would settle with hospitals willing to withdraw inpatient status claims currently pending in the Medicare RAC appeals process by offering to pay hospitals 68% for all eligible claims that they have billed to Medicare. On July 1, 2015, CMS issued

36


Table of Contents

a Technical Direction Letter to the Medicare RACs, including ourselves, indicating that Medicare RACs will only be entitled to the contract contingency fee on the settled amounts of the claims, or 32% of the original inpatient claim amounts. Based on the initial lists of finalized settlements provided by CMS, we would be required to refund CMS approximately $22.3 million in Medicare RAC contingency fees due to these adjustments. CMS further advised that as the hospital settlement project continues, additional settlement lists will be matched to Medicare RAC claims which may result in updated refund amounts to those initially provided. While there are uncertainties in any dispute resolution and results are uncertain, we have disputed CMS's findings based on our interpretation of the terms of the Medicare RAC contract and our belief that the backup data provided by CMS is inaccurate and/or incomplete. Although we accrue an estimated liability for appeals based on the amount of fees that are subject to appeals, closures or other adjustments, which we estimate are probable of being returned to providers following a successful appeal, and we similarly accrue an allowance against accounts receivables related to fees yet to be collected, the impact of CMS' settlement offer to hospitals remains uncertain. Our financial condition and results of operations could be adversely affected if we are required to return certain fees we have already been paid under our existing Medicare RAC contract, any final determination of amounts owed by us to CMS under the current Medicare RAC contract materially exceeds our estimated liability for appeals, or we are unable to collect fees for audits we have already performed. There could be a material adverse impact on our revenue, results of operations and cash flows if we are unable to obtain full payments for properly provided services, are required to repay a portion of prior fees associated with the hospital settlement program or if future fees payable to us by CMS are reduced.

          Although we do not anticipate our Medicare RAC contract will represent a significant portion of our business following this offering, our Medicare RAC contract with CMS still represents a future business opportunity for us. If we are not awarded a new Medicare RAC contract, are awarded a contract on substantially different terms from our prior contract, if the contract awards continue to be delayed or if CMS imposes or implements other changes to the Medicare RAC program that materially reduce our revenue or profitability associated with such program, such action or delay could have a material adverse effect on our business, financial condition and results of operations.

The U.S. government's determination to award us a Medicare RAC contract may be challenged by an interested party. As a result, even if we win a bid, the Medicare RAC contract may be delayed or may never be implemented if such a challenge is successful, which could have a material adverse effect on our business, financial condition and results of operations.

          The laws and regulations governing the procurements of goods and services by the U.S. government provide procedures by which other bidders and other interested parties may challenge the award of a government contract. If any such protests are filed, the government agency may decide to withhold a contract award or suspend performance under the contract while the protest is being considered, potentially delaying the start of the contract. If we are the original awardee of a protested contract, we could be forced to expend considerable funds to defend a potential award, while also incurring expenses to maintain our ability to timely start implementation in case the protest is resolved in our favor. In addition, a contract award may be terminated or the government agency may opt to solicit new bids and award a new contract if a protest is successful or the government agency chooses not to uphold its original award. We cannot provide assurance that we will prevail if a contract we are awarded is protested. Extended implementation delays or successful challenges of our contract awards could have a material adverse effect on our business, financial condition and results of operations.

37


Table of Contents

If we are not able to expand our retail business or reduce costs of implementing our retail solutions, revenue and profitability for our retail business could remain flat or decline, which could have a material adverse effect on our business, financial condition and results of operations.

          The domestic retail payment accuracy market is a highly developed market with limited potential for growth. We have payment accuracy solution contracts with eight of the ten largest U.S. retailers and longer than 20-year relationships with many of our top retail clients, which represents a significant share of the retail payment accuracy market and, therefore, the opportunity to grow our share of the existing domestic retail market is limited. In addition, some of our clients have an internal staff that reviews the transactions before we do. As the skills, experience and resources of our retail clients' internal recovery staff improve, they will identify many overpayments themselves and reduce some of our opportunities to identify payment inaccuracies and generate related revenue. If we are not able to reduce the costs of implementing our payment accuracy solutions, our domestic retail business revenue may remain flat or decline, which could have a material adverse effect on our business, financial condition and results of operations.

Our client contracts generally contain provisions under which the client may terminate the use of our solutions prior to the completion of the agreement.

          Many of our client contracts provide that the client may terminate the contract without cause prior to the end of the term of the agreement by providing us with relatively short prior written notice of the termination. As a result, the existence of contractual relationships with our clients is not an assurance that we will continue to provide our solutions to any of our clients through the entire term of their respective agreements. If clients representing a significant portion of our revenue terminated their agreements unexpectedly, we may not, in the short-term, be able to replace the revenue and income from such contracts and this could have a material adverse effect on our business, financial condition and results of operations. In addition, client contract terminations also could harm our reputation within the industry which could negatively impact our ability to obtain new clients.

Our recent rebranding may not be successful.

          Beginning September 24, 2015, we launched a significant rebranding initiative to change our brand and corporate name to Cotiviti. There is no assurance that our rebranding initiative will be successful or result in a positive return on investment. In addition, while the Connolly and iHealth Technologies brand names had established themselves as premium brands in the payment accuracy market, we have virtually no operating history under the Cotiviti brand. We could be required to devote significant additional resources to advertising and marketing in order to increase the awareness of the Cotiviti brand. If we are unable to establish Cotiviti as a premium brand name in the payment accuracy market, or if we expend significant resources in an effort to do so, it could have a material adverse effect on our business, financial condition and results of operations.

We may be a party to litigation, regulatory, or other dispute resolution proceedings. Adverse judgments or settlements in any of these proceedings could have a material adverse effect on our business, financial condition and results of operations.

          We are subject and may be a party to lawsuits and other claims that arise from time to time in the ordinary course of our business. These may include lawsuits and claims related to, for example, contracts, subcontracts, protection of confidential information or trade secrets, wage and benefits, employment of our workforce or compliance with any of a wide array of state and federal statutes, rules and regulations that pertain to different aspects of our business. We also may be required to initiate expensive litigation or other proceedings to protect our business interests. In addition,

38


Table of Contents

because of the payments we receive from government clients, we may be subject to unexpected inquiries, investigations, legal actions or enforcement proceedings pursuant to the False Claims Act, healthcare fraud, waste and abuse laws or similar legislation. Any investigations, settlements or adverse judgments stemming from such legal disputes or other claims may result in significant monetary damages or injunctive relief against us, as well as reputational injury that could adversely affect us. In addition, litigation and other legal claims are subject to inherent uncertainties and management's view of currently pending legal matters may change in the future. Those uncertainties include, but are not limited to, costs of litigation, unpredictable judicial or jury decisions and the differing laws and judicial proclivities regarding damage awards among the states in which we operate. Unexpected outcomes in such legal proceedings, or changes in management's evaluation or predictions of the likely outcomes of such proceedings (possibly resulting in changes in established reserves), could have a material adverse effect on our business, financial condition and results of operations.

We depend on many different entities to supply information. If we are unable to successfully manage our relationships with any of these suppliers, it may harm the quality and availability of our solutions, which could have a material adverse effect on our business, financial condition and results of operations.

          We obtain data used in our solutions from many sources, including commercial insurance plans, financial institutions, managed care organizations, government entities and non-government entities. From time to time, challenges arise in managing and maintaining our relationships with entities that are not our clients and that furnish information to us pursuant to a combination of voluntary cooperation and legal obligation under laws and regulations that are often subject to differing interpretation. Our data suppliers may determine that some uses of data for our clients are not permitted by our agreements and seek to limit or end our access and use of certain data for particular purposes or clients. They may also make errors in compiling, transmitting or accurately characterizing data, or may have technological limitations that interfere with our receipt or use of the data we are relying upon them to provide. If a number of information sources or suppliers become unable or unwilling to provide us with certain data under terms of use that are acceptable to us and our clients, or if the applicable regulatory and law enforcement regime for use and protection of this data changes in a way that imposes unacceptable or unreasonable conditions or risks on us or disincentivizes our suppliers to continue to provide us with data, we cannot provide assurance that we will be able to obtain new agreements with alternative data suppliers on terms favorable to us, or at all. If we lose our data sources or access to certain data; are unable to identify and reach the requisite agreements with suitable alternative suppliers and integrate these data sources into our service offerings; or there is a lack of integrity of data that our suppliers provide, we could experience service disruptions, increased costs, reduced quality of our solutions and/or performance penalties under our client contracts, which could have a material adverse effect on our business, financial condition and results of operations.

We use software vendors, utility providers and network providers in our business and if they cannot deliver or perform as expected or if our relationships with them are terminated or otherwise change it could have a material adverse effect on our business, financial condition and results of operations.

          Our ability to service our clients and deliver and implement solutions requires that we work with certain third party providers, including software vendors, utility providers and network providers, and depends on such third parties meeting our expectations in both timeliness and quality. We might incur significant additional liabilities if the services provided by these third parties do not meet our expectations, if they terminate or refuse to renew their relationships with us or if they were to offer their services to us on less advantageous terms, which could have a material

39


Table of Contents

adverse effect on our business, financial condition and results of operations. In addition, while there are backup systems in many of our operating facilities, an extended outage of utility or network services supplied by these vendors or providers could impair our ability to deliver our solutions, which could have a material adverse effect on our business, financial condition and results of operations.

Third parties may claim that we are infringing their intellectual property, and we could suffer significant litigation or licensing expenses or be prevented from selling certain solutions, which could have a material adverse effect on our business, financial condition and results of operations.

          We could be subject to claims that we are misappropriating or infringing intellectual property or other proprietary rights of others. These claims, even if not meritorious, could be expensive to defend and divert management's attention from our operations. If we become liable to third parties for infringing these rights, we could be required to pay a substantial damage award and develop non-infringing technology, cease using the solutions or providing the services that use or contain the infringing intellectual property or obtain a license. We may be unable to develop non-infringing solutions or obtain a license on commercially reasonable terms, or at all. We may also be required to indemnify our clients if they become subject to third party claims relating to intellectual property that we license or otherwise provide to them, which could be costly. If we are subject to claims of misappropriating or infringing the intellectual property or other proprietary rights of others, it could have a material adverse effect on our business, financial condition and results of operations.

Our results of operations are subject to significant fluctuations due to a variety of factors, some of which are outside of our control. As a result, you will not be able to rely on our results of operations in any particular period as an indication of our future performance.

          Our results of operations may fluctuate and may fail to match our past or projected performance. Because we generally provide solutions under contracts that contain performance fee arrangements and generally recognize revenue only when our clients have received the economic value of the payment inaccuracies discovered using our solutions, we have experienced significant variations in our revenue between reporting periods due to the timing and delays in resolving these inaccuracies. We also occasionally face challenges in obtaining full payments for our properly provided solutions from clients and parties to whom we provide solutions, despite our right to prompt and full payment under the terms of our contracts.

          Our revenue and results of operations also have been impacted from period to period as a result of a number of factors, including:

    number of payments reviewed and changes in scope of payments reviewed;

    amount of inaccurate payments identified using our solutions and the amount of related recoveries;

    the success of our cross-selling efforts;

    fluctuations in sales activity given our lengthy sales cycle;

    the commencement, completion or termination of contracts during any particular period;

    expenses related to contracts that are incurred in periods prior to revenue being recognized;

    the timing of government contract awards;

    the time required to resolve bid protests related to government contract awards;

40


Table of Contents

    contract renewal discussions, which may result in delayed payments for previously provided services;

    the intermittent timing of periodic revenue recovery projects, particularly for our retail clients;

    non-recurring retail recovery projects;

    technological and operational issues affecting our clients, including delays in payment receipt for previously recognized revenue due to delays in certain clients processing our findings through their systems;

    adjustments to age/quality of receivables and accruals as a result of delays involving contract limitations and changes, subcontractor performance deficiencies or internal managerial decisions not to pursue identified claim revenue from clients;

    seasonality in our business; and

    regulatory changes or general economic conditions as they affect healthcare providers and payers and retailers.

          In addition, as we seek to expand the scope of solutions used by our existing clients, cross-sell our solutions to existing clients and introduce enhancements to our existing solutions or new solutions, we may not be able to accurately estimate the timing for implementing and completing contracts, making it difficult to reliably forecast revenue under those contracts. We cannot predict the extent to which future revenue variations could occur due to these or other factors. Consequently, our results of operations are subject to significant fluctuation and our results of operations for any particular quarter or fiscal year may not be indicative of results of operations for future periods.

Changes in, or interpretations of, tax rules and regulations may adversely affect our effective tax rates.

          We have operations in many states within the United States as well as in Canada, the United Kingdom and India. Accordingly, we are subject to taxation in many jurisdictions with increasingly complex tax laws, the application of which can be uncertain.

          Unanticipated changes in our tax rates could affect our future financial condition and results of operations. Our future effective tax rates could be unfavorably affected by changes in the tax rates in jurisdictions where our income is earned and taxed, by changes in, or our interpretation of, tax rules and regulations in the jurisdictions in which we do business, by increases in expenses not deductible for tax purposes including impairments of goodwill, by changes in U.S. GAAP or other applicable accounting standards or by changes in the valuation of our deferred tax assets and liabilities.

          In addition, we are subject to the continual examination of our income tax returns by the U.S. Internal Revenue Service ("IRS") and other domestic and international tax authorities. Tax authorities in various jurisdictions may disagree with and subsequently challenge the amount of profits taxed in their state or country, which may result in increased tax liability, including accrued interest and penalties, which would cause our tax expense to increase. We regularly assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our provision for income taxes and have reserved for potential adjustments that may result. There can be no assurance that the final determination of any of these examinations will not have a material adverse effect on our financial condition and results of operations.

41


Table of Contents

Because we may expand the sales of our solutions to retail clients located outside of the United States, our business is susceptible to risks associated with international operations.

          We maintain operations outside of the United States which we may expand in the future. Conducting and expanding international operations subjects us to new risks that we have not generally faced in the United States. These include:

    exposure to foreign currency exchange rate risk;

    difficulties in collecting payments internationally and managing and staffing international operations;

    establishing relationships with subcontractors and suppliers in international locations;

    the increased travel, infrastructure and legal compliance costs associated with international locations;

    the burdens of complying with a wide variety of laws associated with international operations, including data privacy and security, taxes and customs and intellectual property;

    significant fines, penalties and collateral consequences if we fail to comply with anti-bribery laws;

    heightened risk of improper, unfair or corrupt business practices in certain geographies;

    potentially adverse tax consequences, including repatriation of earnings;

    increased financial accounting and reporting burdens and complexities;

    political, social and economic instability abroad, terrorist attacks and security concerns in general; and

    reduced or varied protection for intellectual property rights in some countries.

          The occurrence of any one of these risks could negatively affect our international operations and, consequently, have a material adverse effect on our business, financial condition and results of operations.

We have operations and customer relationships outside of the United States and we could be materially adversely affected by violations of the U.S. Foreign Corrupt Practices Act (the "FCPA") and similar anti-bribery laws in non-U.S. jurisdictions.

          The FCPA and similar anti-bribery laws in non-U.S. jurisdictions generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. As we expand our international presence, we may operate in many parts of the world that have experienced governmental corruption and, in certain circumstances, strict compliance with anti-bribery laws may be at variance with local customs and practices. While our policies mandate compliance with these anti-bribery laws and we have training and compliance programs related to such laws, such policies, programs and our internal control policies and procedures may not protect us from reckless or criminal acts committed by our employees, subcontractors or agents. Violations of the FCPA or other anti-bribery laws, or allegations of such violations, could have a material adverse impact on our business, financial condition and results of operations.

42


Table of Contents

We may not be able to realize the entire book value of goodwill and other intangible assets from the Connolly iHealth Merger or from other acquisitions.

          As of March 31, 2016, we have $1,197.0 million of goodwill and $579.2 million of net intangible assets, primarily related to the Connolly iHealth Merger and from other acquisitions. We assess goodwill and other intangible assets for impairment at least annually and more frequently if certain events or circumstances warrant. In the event that the book value of goodwill or other intangible assets is impaired, any such impairment would be charged to earnings in the period of impairment. In the event that we determine that goodwill and other intangible assets are impaired in the future, it could have a material adverse effect on our business, financial condition and results of operations.

Our success may depend on the continued service and availability of key personnel.

          Our success and future growth is dependent upon the ability of our executive officers, senior managers and other key personnel to operate and manage our business and execute on our growth strategies successfully. We cannot provide assurance that we will be able to continue to retain our executive officers, senior managers or other key personnel or attract additional key personnel. We may incur increased expenses in connection with the hiring, promotion, retention or replacement of any of these individuals. The loss of the services of any of our key personnel could have a material adverse effect on our business, financial condition and results of operations.

Our business is dependent on our ability to attract and retain qualified employees.

          Our ability to operate our business and provide our solutions is dependent on our ability to recruit, employ, train and retain the skilled personnel who have relevant experience in the healthcare and retail industries as well as information technology professionals who can design, implement, operate and maintain complex information technology systems. For example, certain of our employees in our healthcare division must either have or rapidly develop a significant amount of technical knowledge with regard to medical insurance coding and procedures. In addition, certain of our retrospective claims accuracy solutions rely on a team of trained registered nurses or medical coding professionals to review medical information and provide feedback with respect to the medical appropriateness of care provided. Innovative, experienced and technologically proficient professionals, qualified nurses and experienced medical coding professionals are in great demand and are likely to remain a limited resource. Our ability to recruit and retain such individuals depends on a number of factors, including the competitive demands for employees having, or able to rapidly develop, the specialized skills we need and the level and structure of compensation required to hire and retain such employees. We may not be able to recruit or retain the personnel necessary to efficiently operate and support our business. Even if our recruitment and retention strategies are successful, our labor costs may increase significantly. In addition, our internal training programs may not be successful in providing inexperienced personnel with the specialized skills required to perform their duties. If we are unable to hire, train and retain sufficient personnel with the requisite skills without significantly increasing our labor costs, it could have a material adverse effect on our business, financial condition and results of operations.

General economic, political and market forces and dislocations beyond our control could reduce demand for our solutions, which could have a material adverse effect on our business, financial condition and results of operations.

          The demand for our solutions may be impacted by factors that are beyond our control, including macroeconomic, political and market conditions, the availability of short-term and long-term funding and capital, the level and volatility of interest rates, currency exchange rates and inflation. The United States economy recently experienced periods of contraction and both the

43


Table of Contents

future domestic and global economic environments may continue to be less favorable than those of prior years. Any one or more of these factors may contribute to reduced activity and prices in the securities markets generally and could result in a reduction in demand for our solutions, which could have a material adverse effect on our business, results of operations and financial condition.

Risks Relating to Our Indebtedness

We are a holding company and rely on dividends, distributions and other payments, advances and transfers of funds from our subsidiaries to meet our obligations.

          We are a holding company that does not conduct any business operations of our own. As a result, we are largely dependent upon cash dividends and distributions and other transfers from our subsidiaries to meet our obligations. The agreements governing the indebtedness of our subsidiaries impose restrictions on our subsidiaries' ability to pay dividends or other distributions to us. The deterioration of the earnings from, or other available assets of, our subsidiaries for any reason also could limit or impair their ability to pay dividends or other distributions to us.

Our outstanding indebtedness could adversely affect our financial condition and our ability to operate our business, and we may not be able to generate sufficient cash flows to meet our debt service obligations.

          In connection with the Connolly iHealth Merger, we and certain of our subsidiaries entered into first and second lien credit facilities. The first lien credit facilities (the "First Lien Credit Facilities") consist of a term loan (the "First Lien Term Loan") in the original principal amount of $810.0 million and a $75.0 million revolving credit facility (the "Revolver"), of which $25.0 million may, at our option, be made available for letters of credit and $20.0 million may, at our option, be made available for swingline loans. The second lien credit facility (the "Second Lien Credit Facility" and, together with the First Lien Credit Facilities, the "Secured Credit Facilities") consists of a term loan (the "Second Lien Term Loan" and, together with the First Lien Term Loan, the "Term Loans") in the original principal amount of $265.0 million.

          As of March 31, 2016, the total outstanding principal was $1.06 billion under the Secured Credit Facilities or, on a pro forma basis, giving effect to this offering and the use of proceeds thereform, $860.8 million (or $829.3 million if the underwriters exercise their option to purchase additional shares in full). Our outstanding indebtedness and any additional indebtedness we incur may have important consequences for us, including, without limitation, that:

    we may be required to use a substantial portion of our cash flow to pay the principal of and interest on our indebtedness;

    our indebtedness and leverage may increase our vulnerability to adverse changes in general economic and industry conditions, as well as to competitive pressures;

    our ability to obtain additional financing for working capital, capital expenditures, acquisitions and for general corporate and other purposes may be limited;

    expose us to the risk of increased interest rates because certain of our borrowings, including and most significantly our borrowings under our Secured Credit Facilities, are at variable rates of interest;

    prevent us from taking advantage of business opportunities as they arise or successfully carrying out our plans to expand our business; and

    our flexibility in planning for, or reacting to, changes in our business and our industry may be limited.

44


Table of Contents

          Under the terms of the agreements governing our Secured Credit Facilities, we are required to comply with specified financial and operating covenants, which may limit our ability to operate our business as we otherwise might operate it. For example, the obligations under the Secured Credit Facilities may be accelerated upon the occurrence of an event of default, which includes customary events of default including, without limitation, payment defaults, cross-defaults to certain material indebtedness, covenant defaults, material inaccuracy of representations and warranties, bankruptcy events, material judgments, certain ERISA-related events, material defects with respect to guarantees and collateral, invalidity of subordination provisions and change of control. If not cured, an event of default could result in any amounts outstanding, including any accrued interest and unpaid fees, becoming immediately due and payable, which would require us to, among other things, seek additional financing in the debt or equity markets, refinance or restructure all or a portion of our indebtedness, sell selected assets and/or reduce or delay planned capital or operating expenditures. Such measures might not be sufficient to enable us to service our debt and any such financing or refinancing might not be available on economically favorable terms or at all. If we are not able to generate sufficient cash flows to meet our debt service obligations or are forced to take additional measures to be able to service our indebtedness, it could have a material adverse effect on our business, financial condition and results of operations.

Despite our substantial indebtedness, we and our subsidiaries may still be able to incur substantially more debt. This could further exacerbate the risks associated with our substantial leverage.

          We may incur substantial additional indebtedness in the future. Although the agreements governing our Secured Credit Facilities contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions and the indebtedness we can incur in compliance with these restrictions could be substantial. For example, pursuant to incremental facilities under the Secured Credit Facilities, we may incur up to (i) an aggregate amount of $175.0 million of additional secured or unsecured debt plus (ii) an unlimited additional amount of secured debt, subject to compliance with certain leverage-based tests, as described in the agreements governing our Secured Credit Facilities. If we incur additional debt, the risks associated with our substantial leverage would increase.

Restrictive covenants in the agreements governing our Secured Credit Facilities may restrict our ability to pursue our business strategies.

          The agreements governing our Secured Credit Facilities contain a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interests. These include covenants restricting, among other things, our ability to:

    incur additional indebtedness or other contingent obligations;

    grant liens;

    enter into burdensome agreements with negative pledge clauses or restrictions on subsidiary distributions;

    pay dividends or other distributions from our subsidiaries to us;

    make payments in respect of junior lien or subordinated debt;

    make investments, acquisitions, loans and advances;

    consolidate, merge, liquidate or dissolve;

    sell, transfer or otherwise dispose of assets;

    engage in sale-leaseback transactions;

45


Table of Contents

    engage in transactions with affiliates;

    materially alter the business that we conduct;

    modify organizational documents in a manner that is materially adverse to the lenders under the agreements governing our Secured Credit Facilities; and

    amend or otherwise change the terms of the documentation governing certain restricted debt.

          The Revolver contains a financial covenant that requires compliance with a first lien leverage ratio test set at 6.75:1.00 as of the end of any fiscal quarter for which the outstanding amount of revolving loans, letter of credit disbursements and undrawn letters of credit (other than letters of credit (i) that have been fully backstopped or cash collateralized or (ii) in an amount of up to $10.0 million) on the last day of the fiscal quarter exceeds 35% of the total revolving commitment. Our ability to meet that financial ratio can be affected by events beyond our control and we cannot assure you that we will be able to meet that ratio. The covenant did not apply as of March 31, 2016, but there can be no assurance that we will be in compliance with such covenant in the future. A breach of any covenant or restriction contained in the agreements governing our Secured Credit Facilities could result in a default under those agreements. If any such default occurs, the lenders under the Term Loans or Revolver, may elect (after the expiration of any applicable notice or grace periods) to declare all outstanding borrowings, together with accrued and unpaid interest and other amounts payable thereunder, to be immediately due and payable. The lenders under the Term Loans and Revolver also have the right upon an event of default thereunder to terminate any commitments they have to provide further borrowings. Further, following an event of default under agreements governing our Secured Credit Facilities, the lenders under the Term Loans and Revolver will have the right to proceed against the collateral granted to them to secure that debt. If the debt under the Term Loans or Revolver was to be accelerated, our assets may not be sufficient to repay in full that debt or any other debt that may become due as a result of that acceleration.

We are dependent upon our lenders for financing to execute our business strategy and meet our liquidity needs. If our lenders are unable to fund borrowings under their credit commitments or we are unable to borrow, it could have a material adverse effect on our business, financial condition and results of operations.

          During periods of volatile credit markets, there is risk that lenders, even those with strong balance sheets and sound lending practices, could fail or refuse to honor their legal commitments and obligations under existing credit commitments, including but not limited to, extending credit up to the maximum permitted by the Revolver. If our lenders are unable to fund borrowings under their revolving credit commitments or we are unable to borrow, it could be difficult to obtain sufficient funding to execute our business strategy or meet our liquidity needs, which could have a material adverse effect on our business, financial condition and results of operations.

Our debt may be downgraded, which could adversely affect our ability to manage our operations and respond to changes in our business.

          A decrease in the ratings that rating agencies assign to our short and long-term debt may negatively impact our access to the debt capital markets and increase our cost of borrowing, which could have a material adverse effect on our business, financial condition and results of operations.

Volatility and weakness in bank and capital markets may adversely affect credit availability and related financing costs for us.

          Bank and capital markets can experience periods of volatility and disruption. If the disruption in these markets is prolonged, our ability to refinance, and the related cost of refinancing, some or

46


Table of Contents

all of our debt could be adversely affected. Although we currently can access the bank and capital markets, there is no assurance that such markets will continue to be a reliable source of financing for us. These factors, including the tightening of credit markets, could adversely affect our ability to obtain cost-effective financing. Increased volatility and disruptions in the financial markets also could make it more difficult and more expensive for us to refinance outstanding indebtedness and obtain financing. In addition, the adoption of new statutes and regulations, the implementation of recently enacted laws or new interpretations or the enforcement of older laws and regulations applicable to the financial markets or the financial services industry could result in a reduction in the amount of available credit or an increase in the cost of credit. Disruptions in the financial markets can also adversely affect our lenders, insurers, customers and other counterparties. Any of these results could results in a material adverse effect to our business, financial condition and results of operations.

Risks Relating to This Offering and Ownership of Our Common Stock

There is no existing market for our common stock and an active, liquid trading market for our common stock may not develop.

          Prior to this offering, there has been no public market for our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market or how liquid that market may become. If an active trading market does not develop, you may have difficulty selling any of our shares that you purchase. The initial public offering price of our common stock will be determined by negotiation between us and the underwriters and may not be indicative of prices that will prevail after the completion of this offering. The market price of our common stock may decline below the initial public offering price, and you may not be able to resell your shares at, or above, the initial public offering price.

The price of our common stock may be volatile and you could lose all or part of your investment.

          Securities markets worldwide have experienced in the past, and are likely to experience in the future, significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions could reduce the market price of our common stock regardless of our results of operations. The trading price of our common stock is likely to be highly volatile and could be subject to wide price fluctuations in response to various factors, including, among other things, the risk factors described herein and other factors beyond our control. Factors affecting the trading price of our common stock could include:

    market conditions in the broader stock market;

    actual or anticipated variations in our quarterly financial and operating results;

    developments in the healthcare industry in general or in the healthcare payment or claims processing markets in particular;

    variations in operating results of similar companies;

    introduction of new services by us, our competitors or our clients;

    issuance of new, negative or changed securities analysts' reports or recommendations or estimates;

    investor perceptions of us and the industries in which we or our clients operate;

    sales, or anticipated sales, of our stock, including sales by our officers, directors and significant stockholders;

    additions or departures of key personnel;

47


Table of Contents

    regulatory or political developments;

    the public's response to press releases or other public announcements by us or third parties, including our filings with the Securities and Exchange Commission (the "SEC");

    announcements, media reports or other public forum comments related to litigation, claims or reputational charges against us;

    guidance, if any, that we provide to the public, any changes in this guidance or our failure to meet this guidance;

    the development and sustainability of an active trading market for our common stock;

    investor perceptions of the investment opportunity associated with our common stock relative to other investment alternatives;

    other events or factors, including those resulting from system failures and disruptions, earthquakes, hurricanes, war, acts of terrorism, other natural disasters or responses to these events;

    changes in accounting principles;

    stock-based compensation expense under applicable accounting standards;

    litigation and governmental investigations; and

    changing economic conditions.

          These and other factors may cause the market price and demand for shares of our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock. In addition, in the past, when the market price of a stock has been volatile, holders of that stock sometimes have instituted securities class action litigation against the company that issued the stock. Securities litigation against us, regardless of the merits or outcome, could result in substantial costs and divert the time and attention of our management from our business, which could significantly harm our business, profitability and reputation.

We are controlled by Advent, whose interests may differ from those of our public stockholders.

          We are controlled by Advent and after this offering will continue to be controlled by Advent. After the completion of this offering, the Advent Funds will beneficially own in the aggregate 65.4% of the combined voting power of our common stock (or 64.1% if the underwriters exercise their option to purchase additional shares in full). As a result of this ownership, Advent will have effective control over the outcome of votes on all matters requiring approval by our stockholders, including the election of directors, the adoption of amendments to our charter and bylaws, mergers, consolidations, acquisitions and other significant corporate transactions, and our winding up and dissolution.

          In addition, persons associated with Advent currently serve on our board of directors (our "Board"). Following this offering, the interests of Advent may not always coincide with the interests of our other stockholders, and the concentration of effective control in Advent will limit other stockholders' ability to influence corporate matters. The concentration of ownership and voting power of Advent also may delay, defer or even prevent an acquisition by a third party or other change of control and may make some transactions more difficult or impossible without their support, even if such events are in the best interests of our other stockholders.

          Further, Advent may have an interest in having us pursue acquisitions, divestitures, financing or other transactions, including, but not limited to, the issuance of additional debt or equity and the declaration and payment of dividends, that, in its judgment, could enhance Advent's equity

48


Table of Contents

investments, even though such transactions may involve risk to us or to our creditors. Additionally, Advent may make investments in businesses that directly or indirectly compete with us, or may pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us.

          Advent may take actions that our other stockholders do not view as beneficial, which may adversely affect our business, financial condition and results of operations and cause the value of your investment to decline.

Our directors and stockholders, with certain exceptions, do not have obligations to present business opportunities to us and may compete with us.

          Our amended and restated certificate of incorporation provides that our directors and stockholders do not have any obligation to offer us an opportunity to participate in business opportunities presented to them even if the opportunity is one that we might reasonably have pursued (and therefore may be free to compete with us in the same business or similar businesses), and that, to the extent permitted by law, such directors and stockholders will not be liable to us or our stockholders for breach of any duty by reason of any such activities.

          As a result, our directors and stockholders and their respective affiliates will not be prohibited from investing in competing businesses or doing business with our clients. Therefore, we may be in competition with our directors and stockholders or their respective affiliates, and we may not have knowledge of, or be able to pursue, transactions that could potentially be beneficial to us. Accordingly, we may lose certain corporate opportunities or suffer competitive harm, which could have a material adverse effect on our business, financial condition, results of operation or prospects. See "Description of Capital Stock—Corporate Opportunities."

Future sales of our common stock, or the perception in the public markets that these sales may occur, could cause the market price for our common stock to decline.

          Upon consummation of this offering, there will be 89,731,531 shares of our common stock outstanding. All shares of common stock sold in this offering will be freely transferable without restriction or further registration under the Securities Act. At the time of this offering, we also will have 11,915,844 registered shares of common stock reserved for issuance under our equity incentive plans of which options to purchase 6,425,844 shares of common stock are outstanding and options to purchase 258,861 shares of common stock and restricted stock units representing 31,573 shares of common stock will be issued in connection with this offering, which shares may be issued upon issuance and once vested, subject to any applicable lock-up restrictions then in effect. We cannot predict the effect, if any, that market sales of shares of our common stock or the availability of shares of our common stock for sale will have on the market price of our common stock prevailing from time to time. Sales of substantial amounts of shares of our common stock in the public market, or the perception that those sales will occur, could cause the market price of our common stock to decline. Of the remaining shares of common stock outstanding, 77,231,531 will be restricted securities within the meaning of Rule 144 under the Securities Act and subject to certain restrictions on resale following the consummation of this offering. Restricted securities may be sold in the public market only if they are registered under the Securities Act or are sold pursuant to an exemption from registration such as Rule 144 or Rule 701, as described in "Shares Eligible for Future Sale." Upon consummation of this offering, certain holders of our common stock will have registration rights with respect to 72,060,756 of these restricted securities. See "Certain Relationships and Related Party Transactions—Amended and Restated Stockholders Agreement."

          We, each of our officers and directors, Advent and significantly all our existing stockholders have agreed that (subject to certain exceptions), for a period of 180 days from the date of this prospectus, we and they will not, without the prior written consent of Goldman, Sachs & Co. and

49


Table of Contents

J.P. Morgan Securities LLC, dispose of or hedge any shares or any securities convertible into or exchangeable for our common stock. Goldman, Sachs & Co. and J.P. Morgan Securities LLC, in their sole discretion may release any of the securities subject to these lock-up agreements at any time, which, in the case of officers and directors, shall be with notice. See "Underwriting." Following the expiration of the applicable lock-up period, all of the issued and outstanding shares of our common stock will be eligible for future sale, subject to the applicable volume, manner of sale, holding period and other limitations of Rule 144. See "Shares Eligible for Future Sale" for a discussion of the shares of common stock that may be sold into the public market in the future.

If you purchase shares of common stock sold in this offering, you will incur immediate and substantial dilution.

          The initial public offering price per share is substantially higher than the pro forma net tangible book value per share immediately after this offering. As a result, you will pay a price per share that substantially exceeds the book value of our assets after subtracting the book value of our liabilities. Based on our net tangible book value as of March 31, 2016 and assuming an offering price of $18.00 per share (the midpoint of the range set forth on the cover page of this prospectus), you will incur immediate and substantial dilution in the amount of $28.37 per share. See "Dilution."

We have elected to take advantage of the "controlled company" exemption to the corporate governance rules for publicly-listed companies, which could make our common stock less attractive to some investors or otherwise harm our stock price.

          Because we qualify as a "controlled company" under the corporate governance rules for publicly-listed companies, we are not required to have a majority of our Board be independent under the applicable rules of the NYSE, nor are we required to have a compensation committee or a nominating and corporate governance committee comprised entirely of independent directors. In light of our status as a controlled company, our Board has established a compensation committee and will establish a nominating and corporate governance committee that will not be comprised solely of independent members at the time of the offering. In addition, we may choose to change our Board composition. Accordingly, should the interests of Advent differ from those of other stockholders, the other stockholders may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance rules for publicly-listed companies. Our status as a controlled company could make our common stock less attractive to some investors or otherwise harm our stock price.

Anti-takeover protections in our amended and restated certificate of incorporation, our amended and restated bylaws or our contractual obligations may discourage or prevent a takeover of our company, even if an acquisition would be beneficial to our stockholders.

          Provisions contained in our amended and restated certificate of incorporation and amended and restated bylaws, as amended, as well as provisions of the Delaware General Corporation Law (the "DGCL"), could delay or make it more difficult to remove incumbent directors or could impede a merger, takeover or other business combination involving us or the replacement of our management or discourage a potential investor from making a tender offer for our common stock, which, under certain circumstances, could reduce the market value of our common stock, even if it would benefit our stockholders.

          In addition, our Board has the authority to cause us to issue, without any further vote or action by the stockholders, up to 50,000,000 shares of preferred stock, par value $0.001 per share, in one or more series, to designate the number of shares constituting any series, and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, voting rights, rights and terms of redemption, redemption price or prices and liquidation preferences of such series. The issuance of shares of preferred stock or the adoption of a stockholder rights plan may have the

50


Table of Contents

effect of delaying, deferring or preventing a change in control of our company without further action by the stockholders, even where stockholders are offered a premium for their shares. See "Description of Capital Stock—Anti-takeover Provisions."

          In addition, under the agreements governing our Secured Credit Facilities, a change of control would cause us to be in default and the lenders under our Term Loans would have the right to accelerate their loans, and if so accelerated, we would be required to repay all of our outstanding obligations under our Term Loans. In addition, from time to time we may enter into contracts that contain change of control provisions that limit the value of, or even terminate, the contract upon a change of control. These change of control provisions may discourage a takeover of our company, even if an acquisition would be beneficial to our stockholders.

We will incur increased costs and obligations as a result of being a public company.

          As a publicly traded company, and particularly after we cease to be an emerging growth company (to the extent that we take advantage of certain exceptions from reporting requirements that are available under the JOBS Act as an emerging growth company), we will incur additional legal, accounting and other expenses that we were not required to incur in the past. After this offering, we will be required to file with the SEC annual and quarterly information and other reports that are specified in Section 13 of the Exchange Act. We also will become subject to other reporting and corporate governance requirements, including the requirements of the NYSE and certain provisions of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") and the regulations promulgated thereunder, which will impose additional compliance obligations upon us. As a public company, we will, among other things:

    prepare and distribute periodic public reports and other stockholder communications in compliance with our obligations under the federal securities laws and applicable NYSE rules;

    create or expand the roles and duties of our Board and committees of the Board;

    institute more comprehensive financial reporting and disclosure compliance functions;

    enhance our investor relations function; and

    involve and retain to a greater degree outside counsel and accountants in the activities listed above.

          These changes will require a commitment of additional resources and many of our competitors already comply with these obligations. We may not be successful in implementing these requirements and the commitment of resources required for implementing them could adversely affect our business, financial condition and results of operations.

          The changes necessitated by becoming a public company require a significant commitment of resources and management oversight that has increased and may continue to increase our costs and might place a strain on our systems and resources. As a result, our management's attention might be diverted from other business concerns. If we are unable to offset these costs through other savings then it could have a material adverse effect on our business, financial condition and results of operations.

We are an "emerging growth company" and may elect to comply with reduced reporting requirements applicable to emerging growth companies, which could make our common stock less attractive to investors.

          We are an emerging growth company and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor

51


Table of Contents

attestation requirements of Section 404 of Sarbanes-Oxley, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. In addition, even if we comply with the greater obligations of public companies that are not emerging growth companies immediately after the initial public offering, we may avail ourselves of the reduced requirements applicable to emerging growth companies from time to time in the future. We cannot predict if investors will find our common stock less attractive if we choose to rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

          We will remain an emerging growth company for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenue exceeds $1 billion, (ii) the date that we become a "large accelerated filer" as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period, whether or not issued in a registered offering.

Our failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business, financial condition and results of operations.

          If we are unable to maintain adequate internal control over financial reporting, we may be unable to report our financial information accurately on a timely basis, may suffer adverse regulatory consequences or violations of applicable stock exchange listing rules, may breach the covenants under our credit facilities and incur additional costs. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements, which could have a material adverse effect on our business, financial condition and results of operations.

Because we do not intend to pay cash dividends in the foreseeable future, you may not receive any return on investment unless you are able to sell your common stock for a price greater than your purchase price.

          We do not intend in the foreseeable future to pay any dividends to holders of our common stock. We currently intend to retain our future earnings, if any, for the foreseeable future, to repay indebtedness and to support our general corporate purposes. Therefore, you are not likely to receive any dividends on your common stock for the foreseeable future and the success of an investment in shares of our common stock will depend upon any future appreciation in their value. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which investors have purchased their shares. However, the payment of future dividends will be at the discretion of our Board, subject to applicable law, and will depend on, among other things, our earnings, financial condition, capital requirements, level of indebtedness, statutory and contractual restrictions that apply to the payment of dividends and other considerations that our Board deems relevant. The agreements governing our Secured Credit Facilities limit the amounts available to us to pay cash dividends, and, to the extent that we require additional funding, financing sources may prohibit the payment of a dividend. See "Dividend Policy." As a consequence of these limitations and restrictions, we may not be able to make the payment of dividends on our common stock.

52


Table of Contents

If securities or industry analysts publish unfavorable research, about our business, the price of our common stock and our trading volume could decline.

          The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently publish research on our company. Once securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our common stock or publish unfavorable research about our business, the price of our common stock likely would decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause the price of our common stock and trading volume to decline.

Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third party claims against us and may reduce the amount of money available to us.

          Our amended and restated certificate of incorporation and bylaws that will be in effect prior to the completion of this offering provide that we will indemnify our directors and officers, in each case, to the fullest extent permitted by Delaware law. Pursuant to our charter, our directors will not be liable to the company or any stockholders for monetary damages for any breach of fiduciary duty, except (i) acts that breach his or her duty of loyalty to the company or its stockholders, (ii) acts or omissions without good faith or involving intentional misconduct or knowing violation of the law, (iii) pursuant to Section 174 of the DGCL or (iv) for any transaction from which the director derived an improper personal benefit. The bylaws also require us, if so requested, to advance expenses that such director or officer incurred in defending or investigating a threatened or pending action, suit or proceeding, provided that such person will return any such advance if it is ultimately determined that such person is not entitled to indemnification by us. Any claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third party claims against us and may reduce the amount of money available to us.

Our certificate will provide, subject to certain exceptions, that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.

          Our amended and restated certificate of incorporation will provide, subject to limited exceptions, that the Court of Chancery of the State of Delaware will, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders; (iii) any action asserting a claim against us, any director or our officers or employees arising pursuant to any provision of the DGCL, our certificate or our amended and restated by-laws; or (iv) any action asserting a claim against us, any director or our officers or employees that is governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of our certificate described above. This choice of forum provision may limit a stockholder's ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other employees or stockholders which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision that will be contained in our certificate to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially adversely affect our business, financial condition and results of operations.

53


Table of Contents


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

          This prospectus contains forward-looking statements. Forward-looking statements can be identified by words such as "anticipates," "intends," "plans," "seeks," "believes," "estimates," "expects" and similar references to future periods, or by the inclusion of forecasts or projections. Examples of forward-looking statements include, but are not limited to, statements we make regarding the outlook for our future business and financial performance, such as those contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations."

          Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, our actual results may differ materially from those contemplated by the forward-looking statements. 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;

    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;

    consolidation among healthcare payers or retailers;

    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, including HIPAA transaction and code set standards;

    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;

54


Table of Contents

    our inability to manage our growth;

    our inability to successfully integrate and realize synergies from the Connolly iHealth Merger or any future acquisitions or strategic partnerships;

    our failure to maintain or upgrade our operational platforms;

    our failure to reprocure our Medicare RAC program contract;

    litigation, regulatory or dispute resolution proceedings, including claims or proceedings related to intellectual property infringements;

    our inability to manage our relationships with information suppliers, software vendors or utility providers;

    risks associated with international operations;

    our success in attracting and retaining qualified employees and key personnel; and

    general economic, political and market forces and dislocations beyond our control.

          See "Risk Factors" for a further description of these and other factors. For the reasons described above, we caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements that are included elsewhere in this prospectus. Any forward-looking statement made by us in this speaks only as of the date on which we make it. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. 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.

55


Table of Contents


USE OF PROCEEDS

          We estimate that the net proceeds to us from our sale of 12,500,000 shares of common stock in this offering will be approximately $205.8 million, after deducting underwriting discounts and commissions and estimated expenses payable by us in connection with this offering. The underwriters also have an option to purchase up to an additional 1,875,000 shares of common stock from us. We estimate that the net proceeds to us, if the underwriters exercise their right to purchase additional shares of common stock from us in full, will be approximately $237.3 million, after deducting underwriting discounts and commissions and estimated expenses payable by us in connection with this offering. This assumes a public offering price of $18.00 per share (the midpoint of the price range set forth on the cover of this prospectus).

          We intend to use approximately $5.8 million of the net proceeds from this offering for working capital and approximately $200.0 million to repay outstanding borrowings under the Second Lien Credit Facility (or to repay approximately $231.5 million of outstanding borrowings under our Second Lien Credit Facility if the underwriters exercise their option to purchase additional shares in full).

          The Second Lien Credit Facility matures on May 14, 2022. Borrowings under the Second Lien Credit Facility bear interest at a rate per annum equal to the applicable margin, plus, at our election, either (a) a base rate determined by reference to the highest of (i) the federal funds effective rate in effect on such date plus 0.50%, (ii) the London inter-bank offered rate ("LIBOR") plus 1.00%, (iii) the prime commercial lending rate of the administrative agent as in effect on the relevant day and (iv) 2.00% or (b) LIBOR adjusted for certain additional costs, which may not be less than 1.00%. See "Description of Material Indebtedness."

          Assuming no exercise of the underwriters' option to purchase additional shares, a $1.00 increase (decrease) in the assumed initial public offering price of $18.00 per share (the midpoint of the price range set forth on the cover of this prospectus) would increase (decrease) the net proceeds to us from this offering by $11.7 million, assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated expenses payable by us.

56


Table of Contents


DIVIDEND POLICY

          We do not intend to pay cash dividends on our common stock in the foreseeable future. However, in the future, subject to the factors described below and our future liquidity and capitalization, we may change this policy and choose to pay dividends.

          We are a holding company that does not conduct any business operations of our own. As a result, our ability to pay cash dividends on our common stock is dependent upon cash dividends and distributions and other transfers from our subsidiaries. The ability of our subsidiaries to pay dividends is currently restricted by the terms of our secured credit facilities and may be further restricted by any future indebtedness we or they incur.

          In addition, under Delaware law, our Board may declare dividends only to the extent of our surplus (which is defined as total assets at fair market value minus total liabilities, minus statutory capital) or, if there is no surplus, out of our net profits for the then current and/or immediately preceding fiscal year.

          Any future determination to pay dividends will be at the discretion of our Board and will take into account:

    restrictions in our debt instruments, including our secured credit facilities;

    general economic business conditions;

    our net income, financial condition and results of operations;

    our capital requirements;

    our prospects;

    the ability of our operating subsidiaries to pay dividends and make distributions to us;

    legal restrictions; and

    such other factors as our Board may deem relevant.

          Prior to the consummation of this offering, we intend to declare and pay the Special Cash Dividend of $150.0 million to holders of record of our common stock on the dividend record date. The dividend record date for the Special Cash Dividend will precede the consummation of this offering, and investors in this offering will not be entitled to receive any payments or distributions in connection with this additional dividend on shares purchased in this offering. We do not currently intend to declare or pay any similar special dividends in the future.

          See "Risk Factors—Risks Relating to This Offering and Ownership of Our Common Stock—Because we do not intend to pay cash dividends in the foreseeable future, you may not receive any return on investment unless you are able to sell your common stock for a price greater than your purchase price." and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources."

57


Table of Contents


CAPITALIZATION

          The following table sets forth our cash and cash equivalents and our capitalization as of March 31, 2016:

    on an actual basis; and

    on a pro forma basis to give effect to (i) our amended and restated certificate of incorporation and amended and restated bylaws as they will be in effect upon the consummation of this offering, (ii) the payment of the Special Cash Dividend of $150.0 million and (iii) the sale of 12,500,000  shares of our common stock in this offering at an assumed public offering price of $18.00 per share (the midpoint of the price range set forth on the cover of this prospectus), and the application of the net proceeds received by us from this offering as described under "Use of Proceeds."

          This table should be read in conjunction with "Use of Proceeds," "Selected Historical Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Description of Capital Stock" and the consolidated financial statements and notes thereto appearing elsewhere in this prospectus.

    As of March 31, 2016
 

(dollars in thousands)

    Actual     Pro Forma (1)
 

    (unaudited)  

Cash and cash equivalents

  $ 174,252   $ 30,035 (2)

Debt:

             

First Lien Credit Facilities (3)

  $ 790,403   $ 790,403  

Second Lien Credit Facility (3)

    262,960     64,500 (4)

Less: debt issuance costs

    (19,971 )   (15,267 ) (5)

Total debt

  $ 1,033,392   $ 839,636  

Stockholders' equity:

             

Common stock, $0.001 par value per share, 122,000,000 and 600,000,000 shares authorized, actual and as adjusted, 77,238,931 shares and 77,231,531 shares issued and outstanding, actual and 89,738,931 shares and 89,731,531 shares issued and outstanding, as adjusted

    77     90  

Preferred Stock, $0.001 par value per share, 50,000,000 shares authorized, actual, and as adjusted, no shares issued and outstanding, actual and as adjusted. 

         

Additional paid-in capital

    808,509     864,279  

Accumulated deficit

    (6,851 )   (13,095 )

Accumulated other comprehensive (loss)

    (5,375 )   (5,375 )

Treasury stock, at cost (7,400 shares at March 31, 2016)

    (98 )   (98 )

Total stockholders' equity

    796,262     845,801  

Total capitalization

  $ 1,829,654   $ 1,685,437  

(1)
Each $1.00 increase or decrease in the public offering price per share would increase or decrease , as applicable, our net proceeds, after deducting the underwriting discount and estimated offering expenses payable by us, by $11.7 million (assuming no exercise of the underwriters' option to purchase additional shares). Similarly, an increase or decrease of one million shares of common stock sold in this offering by us would increase or decrease, as applicable, our net proceeds, after deducting the underwriting discount and estimated offering expenses payable by us, by

58


Table of Contents

    $16.8 million, based on an assumed initial public offering price of $18.00 per share (the midpoint of the price range set forth on the cover of this prospectus).

(2)
Pro forma cash and cash equivalents gives pro forma effect to the payment of the Special Cash Dividend of $150.0 million and the allocation of $5.8 million from the net proceeds of this offering for working capital.

(3)
For a description of the facilities, see "Description of Material Indebtedness—Secured Credit Facilities."

(4)
Pro forma Second Lien Facility gives pro forma effect to the repayment of $200.0 million of outstanding borrowings under the Second Lien Credit Facility using the net proceeds of this offering and the associated impact on the original issue discount of $1.5 million.

(5)
Pro forma debt issuance costs gives effect to the impact of the repayment of $200.0 million of outstanding borrowings under the Second Lien Credit Facility using the net proceeds of this offering which would reduce debt issuance costs by $4.7 million.

59


Table of Contents


DILUTION

          If you invest in our common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the net tangible book value per share of our common stock upon the consummation of this offering. Dilution results from the fact that the per share offering price of our common stock is in excess of the book value per share attributable to new investors.

          Our pro forma net tangible book value as of March 31, 2016, was $(1,129.9) million, or $(14.63) per share of common stock. Pro forma net tangible book value (A) represents the amount of our total assets of $2,142.8 million less (i) our total liabilities of $1,346.5 million, (ii) goodwill of $1,197.0 and (iii) intangible assets, net of $579.2 million and (B) gives pro forma effect to the payment of the Special Cash Dividend of $150.0 million. Pro forma net tangible book value per share represents pro forma net tangible book value divided by the number of shares of common stock outstanding.

          After giving effect to net proceeds of $205.8 million from the sale of 12,500,000 shares of common stock in this offering at the assumed initial public offering price of $18.00 per share (the midpoint of the price range set forth on the cover of this prospectus) and the impact of the repayment of $200.0 million of outstanding borrowings under the Second Lien Credit Facility using the net proceeds of this offering on our debt issuance costs and original issue discount of $4.7 million and $1.5 million, respectively, our pro forma as adjusted net tangible book value as of March 31, 2016 would have been $(930.3) million, or $(10.37) per share. This represents an immediate increase in pro forma as adjusted net tangible book value of $4.26 per share to our existing investors and an immediate dilution in pro forma as adjusted net tangible book value of $28.37 per share to new investors.

          The following table illustrates this dilution on a per share of common stock basis:

Assumed initial public offering price per share

                  $ 18.00  

Pro forma net tangible book value per share as of March 31, 2016

    (14.63 )                

Increase in pro forma net tangible book value per share attributable to new investors

  $ 4.26                  

Pro forma as adjusted net tangible book value per share after this offering

          (10.37 )

Dilution in net tangible book value per share to new investors in this offering

                  $ 28.37  

          The following table summarizes, on an as adjusted basis as of March 31, 2016, after giving effect to this offering, the total number of shares of common stock purchased from us, the total cash consideration paid to us, or to be paid, and the average price per share paid, or to be paid, by new investors purchasing shares in this offering, at an assumed initial public offering price of $18.00 per share (the midpoint of the range set forth on the cover of this prospectus) before deducting the estimated underwriting discounts and commissions:

    Shares     Total     Average  

    Purchased     Consideration     Price
 

    Number     %     Amount     %     Per Share
 

Existing stockholders (1)

    77,231,531     86.1 % $ 649,624,599     74.3 % $ 8.41  

New investors

    12,500,000     13.9     225,000,000     25.7     18.00  

Total

    89,731,531     100 % $ 874,624,599     100 % $ 9.75  

(1)
The expected payment of the Special Cash Dividend reduced the total consideration paid by our existing stockholders by $150 million, or $1.94 per share.

60


Table of Contents

          A $1.00 increase (decrease) in the assumed initial public offering price of $18.00 per share would increase (decrease) our pro forma as adjusted net tangible book value by $11.7 million, the pro forma as adjusted net tangible book value per share after this offering by $0.13 and the dilution per share to new investors by $0.86 assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

          If the underwriters were to fully exercise their option to purchase 1,875,000 additional shares of our common stock, the percentage of shares of our common stock held by existing investors would be 84.3%, and the percentage of shares of our common stock held by new investors would be 15.7%.

          The above discussion and tables are based on the number of shares outstanding at March 31, 2016. In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities could result in further dilution to our stockholders.

61


Table of Contents


UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

          On May 14, 2014, we acquired iHealth Technologies pursuant to the Connolly iHealth Merger. The following unaudited pro forma consolidated statement of operations has been derived from the audited consolidated financial statements of Cotiviti for the year ended December 31, 2014 and the unaudited consolidated financial statements of iHealth Technologies for the period from January 1, 2014 through the date of the Connolly iHealth Merger. We consolidated the results of operations of the acquired business of iHealth Technologies as of and from May 14, 2014. The following are unaudited pro forma results of operations for the year ended December 31, 2014 as if the Connolly iHealth Merger had occurred on January 1, 2014. The unaudited pro forma consolidated statement of operations does not give effect to any estimated and potential cost savings or other operating efficiencies that may have resulted from the Connolly iHealth Merger. The unaudited pro forma consolidated statement of operations includes pro forma adjustments to remove the impact of expenses directly related to the Connolly iHealth Merger. Additionally, the pro forma adjustments include the assumed impact of the issuance of debt and acquired intangible assets associated with the Connolly iHealth Merger as if the acquisition had occurred on January 1, 2014. In connection with the Connolly iHealth Merger, we issued 32,790,321 shares of our common stock and the pro forma earnings per share information provided assumes the issuance of common stock had occurred on January 1, 2014. See Note 4 to our consolidated financial statements included elsewhere in this prospectus for additional information regarding the Connolly iHealth Merger and the impact it had on our financial condition and results of operations.

          The pro forma adjustments are based on the best information available and certain assumptions that management believes are reasonable under the circumstances. The assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma consolidated statement of operations. The unaudited pro forma consolidated statement of operations is presented for illustrative and informative purposes only and is not intended to represent or be indicative of what our results of operations would have been had the Connolly iHealth Merger actually occurred on January 1, 2014. The unaudited pro forma consolidated statement of operations should be read in conjunction with the information contained in our consolidated financial statements and the consolidated financial statements of iHealth Technologies included elsewhere in this prospectus. The unaudited pro forma financial information also should not be considered representative of our future results of operations.

62


Table of Contents


Cotiviti Holdings, Inc.
Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 2014
(in thousands, except share and per share amounts)

    Cotiviti     iHealth     Pro Forma        

    Holdings, Inc.     Technologies, Inc. (1)     Adjustments     Pro Forma
 

Net revenue

  $ 441,372   $ 64,589   $   $ 505,961  

Cost of revenue

    179,088     39,698     (29,188 ) (2)   189,598  

Selling, general and administrative expenses

    92,537     35,408     (20,297 ) (2)   107,648  

Depreciation and amortization

    59,771     3,507     13,607 (3)   76,885  

Other operating expenses

    79,779     13,061     (18,543 ) (4)   74,297  

Income from operations

    30,197     (27,085 )   54,421     57,533  

Other expense (income)

    72,826     1,399     15,987 (5)   90,212  

(Loss) income before income taxes

    (42,629 )   (28,484 )   38,434     (32,679 )

Income tax (benefit) expense

    (16,804 )   (9,935 )   12,812 (6)   (13,927 )

Net (loss) income

  $ (25,825 ) $ (18,549 ) $ 25,622   $ (18,752 )

Earnings (loss) per share:

                         

Basic

  $ (0.40 )             $ (0.24 )

Diluted

  $ (0.40 )             $ (0.24 )

Weighted average common shares:

                         

Basic

    65,253,954                 77,202,192  

Diluted

    65,253,954                 77,202,192  

(1)
The Connolly iHealth Merger was consummated on May 14, 2014. The amounts reflected herein represent the unaudited pre-merger results of iHealth Technologies and subsidiaries.

(2)
In connection with the Connolly iHealth Merger, certain employees of iHealth Technologies received certain incentive payments related to the change in control totaling approximately $49,485.

(3)
In connection with the Connolly iHealth Merger, we acquired $543,200 in intangible assets, which are being amortized over their estimated lives. This adjustment assumes the intangible assets were acquired on January 1, 2014 and the related amortization expense was recorded for the entire year. Additionally, this adjustment assumes the intangible assets previously held by iHealth Technologies were no longer an asset as these were removed in connection with the business combination accounting associated with the Connolly iHealth Merger.

(4)
Total non-recurring transaction-related expenses related to the Connolly iHealth Merger were $18,543, of which $5,745 were incurred by us and an additional $12,798 were incurred by iHealth Technologies. Approximately $6,000 of the total transaction-related expenses were not considered deductible for tax purposes.

(5)
In connection with the Connolly iHealth Merger, we entered into a credit agreement governing our Secured Credit Facilities as described elsewhere in this filing. This resulted in annual interest expense of approximately $48,000. This pro forma adjustment assumes the additional indebtedness was entered into at the beginning of the year and replaced the previously outstanding indebtedness of iHealth Technologies.

(6)
This adjustment relates to the tax impact of adjustments (2) through (5) discussed above.

63


Table of Contents


SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

          The following tables set forth our selected historical consolidated financial data for the periods as of the dates indicated. We derived the consolidated statement of operations data for the years ended December 31, 2015 and 2014 and the balance sheet data as of December 31, 2015 and 2014 from our audited consolidated financial statements included elsewhere in this prospectus and the consolidated statement of operations data for the three months ended March 31, 2016 and 2015 and the balance sheet data as of March 31, 2016 from our unaudited consolidated financial statements and related notes hereto included elsewhere in this prospectus. The unaudited consolidated financial statements have been prepared on a basis consistent with our audited consolidated financial statements included in this prospectus and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary to fairly state our financial position as of March 31, 2016 and results of operations and cash flows for the three months ended March 31, 2016 and 2015. The interim results are not necessarily indicative of results for the year ended December 31, 2016 or for any other period.

          On May 14, 2014, we acquired the stock of iHealth Technologies, resulting in the Connolly iHealth Merger. The results of operations of iHealth Technologies have been included in our consolidated financial statements as of and since the date of the Connolly iHealth Merger. As a result, the consolidated financial statements for periods prior to such date are not comparable to subsequent periods. For further details, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting the Comparability of our Results of Operations—Connolly iHealth Merger," "Unaudited Pro Forma Consolidated Financial Statements" and Note 1 to our consolidated financial statements included elsewhere in this prospectus.

          Our historical results are not necessarily indicative of future operating results. You should read the information set forth below together with "Prospectus Summary—Summary Historical Consolidated Financial and Other Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Unaudited Pro Forma Consolidated Financial Statements," "Capitalization" and our consolidated financial statements and the related notes thereto included elsewhere in this prospectus.

64


Table of Contents

    Three Months
Ended March 31,
    Year ended
December 31,
 

(in thousands, except share and per share amounts)

    2016     2015     2015     2014
 

    (unaudited)              

Consolidated Statement of Operations Data:

                         

Net revenue

  $ 142,718   $ 119,638   $ 541,343   $ 441,372  

Cost of revenue

    58,859     46,338     204,617     179,088  

Selling, general and administrative expenses

    34,339     31,462     136,745     92,537  

Depreciation and amortization

    20,042     18,131     74,162     59,771  

Transaction-related expenses

    240         1,469     5,745  

Impairment of intangible assets

            27,826     74,034  

Operating income

    29,238     23,707     96,524     30,197  

Other expense (income)

    15,761     16,746     68,819     72,826  

Income tax expense (benefit)

    5,393     3,326     14,401     (16,804 )

Gain on discontinued operations, net of tax

        (559 )   (559 )    

Net income (loss)

  $ 8,084   $ 4,194   $ 13,863   $ (25,825 )

Total earnings per share:

                         

Basic

  $ 0.10   $ 0.05   $ 0.18   $ (0.40 )

Diluted

  $ 0.10   $ 0.05   $ 0.18   $ (0.40 )

Weighted average shares outstanding:

                         

Basic

    77,231,196     77,204,691     77,216,133     65,253,954  

Diluted

    77,757,358     77,381,121     77,641,385     65,253,954  

 

    As of
March 31,
    As of December 31,
 

(in thousands)

    2016     2015     2014
 

    (unaudited)              

Consolidated balance sheet data:

                   

Cash and cash equivalents

  $ 174,252   $ 149,365   $ 118,612  

Total assets

    2,142,819     2,147,007     2,161,091  

Total long-term debt (1)

    1,033,392     1,034,070     1,033,938  

Total liabilities

    1,346,557     1,359,411     1,387,958  

Working capital

    142,495     123,887     61,296  

Total stockholders' equity

    796,262     787,596     773,133  

(1)
Includes the current portion of our long-term debt and is net of debt issuance costs.

65


Table of Contents


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

           The following is a discussion and analysis of our financial condition and results of operations as of, and for, the periods presented. You should read the following discussion and analysis of our financial condition and results of operations together with the sections entitled "Prospectus Summary—Summary Historical Consolidated Financial and Other Data," "Risk Factors," "Cautionary Note Regarding Forward-Looking Statements," "Unaudited Pro Forma Consolidated Financial Statements," "Selected Historical Consolidated Financial Data" and our consolidated financial statements and related notes thereto included elsewhere in this prospectus. The following discussion and analysis of our historical financial statements includes periods before the Connolly iHealth Merger. See "—Factors Affecting the Comparability of our Results of Operations." As a result, our historical results of operations may not be comparable and may not be indicative of our future results of operations. In addition, this discussion and analysis contains forward-looking statements regarding the industry outlook, our expectations for the performance of our business, our liquidity and capital resources and the other non-historical statements. These forward-looking statements are subject to numerous risks and uncertainties, including but not limited to the risks and uncertainties described in "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements." Our actual results may differ materially from those contained in or implied by these forward-looking statements.

Overview

          Cotiviti is a leading provider of analytics-driven payment accuracy solutions, focused primarily on the healthcare sector. Our integrated solutions help clients enhance payment accuracy in an increasingly complex healthcare environment. We leverage our robust technology platform, configurable analytics, proprietary information assets and expertise in healthcare reimbursement to help our clients enhance their claims payment accuracy. We help our healthcare clients identify and correct payment inaccuracies, which resulted in over $2.7 billion in savings in 2015. We work with over 40 healthcare organizations, including eight of the ten largest U.S. commercial, Medicare and Medicaid managed health plans, as well as CMS. We are also a leading provider of payment accuracy solutions to over 40 retail clients, including eight of the ten largest retailers in the United States.

          We have multiple strategies for achieving our continued growth. There are significant opportunities to grow our business within our existing client base by increasing the volume of claims we review with our solutions, expanding the utilization of our solutions within these claims and cross-selling our prospective and retrospective solutions. As a result of the Connolly iHealth Merger, we have cross-sell opportunities across more than 70% of our healthcare client base. We have a long history of innovation in improving our existing solutions, developing new solutions and expanding the scope of our services. We intend to expand our client base by targeting healthcare payers who utilize competing third party or internal payment accuracy solutions. Additionally, we plan to selectively pursue acquisitions and strategic partnerships in payment accuracy and adjacent markets.

          As a result of the meaningful savings we deliver to our clients, we have increased our client base and strengthened our long-standing relationships with many of the leading healthcare payers in the United States. The average length of our relationships with our ten largest healthcare clients is approximately ten years and, since January 1, 2013, we have successfully retained all of our healthcare clients except one, who represented less than 2% of our revenue. We have also substantially increased the annual savings captured by our healthcare clients over time. As a result, we believe our revenue is highly recurring and we have strong visibility into our revenue.

66


Table of Contents

          We are also a leading provider of payment accuracy solutions to the retail market. Retailers process and validate extremely high volumes of transactions with disparate suppliers on varying terms. We work with retail clients in the United States, Canada and the United Kingdom to realize their negotiated allowances, concessions, rebates and other incentives associated with merchandise procurement, logistics and other service transactions. In 2015, we generated over $500 million in savings for our retail clients.

Our History

          We were founded as Connolly in 1979 as a provider of payment accuracy solutions to the retail industry and launched our retrospective claims accuracy solutions to the healthcare industry in 1998. Connolly was acquired by the Advent Funds in 2012, resulting in the Advent Acquisition. In May 2014, Connolly merged with iHealth Technologies, which was founded in 2001. At the time of the merger, Connolly was a leading provider of retrospective claims accuracy solutions to U.S. healthcare providers and retailers and iHealth Technologies was a leading provider of prospective claims accuracy solutions to U.S. healthcare providers. We rebranded our company as Cotiviti in September 2015.

Factors Affecting Our Results of Operations

Dollar Amount of Claims Reviewed

          Revenue in our Healthcare segment in a given period is impacted by the dollar amount of claims we review for our clients, which impacts inaccurate payments that we identify for our clients and the amount of revenue we receive under our performance fee-based contracts. The dollar amount of claims that we review is driven by the scope of claims submitted to us by our clients. The dollar amount of inaccurate payments we identify is also dependent upon the type and number of our solutions used by our clients. As a result of our long-standing relationships with our clients, we have a highly recurring revenue base.

          The following table presents the dollar amount of claims reviewed in our Healthcare segment for the periods presented (in thousands):

    Year Ended
December 31,
 

    2015     2014
 

Amount of claims/payments reviewed by our retrospective claims accuracy solutions (1) (2)

  $ 442,280,513   $ 387,899,243  

Amount of claims/payments reviewed by our prospective claims accuracy solutions (2)

  $ 65,504,316   $ 51,418,642  

(1)
Excludes our Medicare RAC contract, for which we do not track the dollar amount of claims reviewed.

(2)
Amounts reported as of April 11, 2016. Amounts of claims/payments reviewed for prior periods are reported on a rolling basis. Accordingly, amounts reflected for prior periods are subject to change.

          In our Global Retail and Other segment, our revenue is dependent on (i) the amount of payments that we review for our retail clients and (ii) the timing of our payment reviews, which typically are completed on a batch processing basis following the lapse of a period of time after payment. We do not track the dollar amount of claims reviewed in our Global Retail and Other segment.

67


Table of Contents

Healthcare Industry and General Economic Conditions

          A majority of our business is directly related to the healthcare industry and is affected by healthcare spending and complexity in the healthcare industry, as follows:

    Healthcare Spending by Payers.   Changing demographics, the shift to managed care plans within government healthcare and increased healthcare coverage may lead to an increase in healthcare spending by our payer clients. From 2004 to 2014, healthcare costs in the United States grew at a 4.8% CAGR to $3.0 trillion and are projected to total $3.2 trillion in 2015. According to CMS, healthcare costs are expected to continue to grow at an average annual rate of 5.9% through 2024. Our revenue is impacted by the expansion or contraction of healthcare coverage and spending, which directly affects the number of payments available for our review.

    Complexity in the Healthcare Industry.   We believe reimbursement models may become more complex as healthcare payers accommodate new markets and lines of business and as advancements in medical care increase the number of testing and treatment options available. The adoption of the ICD-10 coding framework in October 2015 has resulted in a nearly five times increase of possible diagnosis codes to approximately 68,000, further complicating the claims process. In addition, the Affordable Care Act has increased the number of individuals with Medicaid and private insurance coverage. As reimbursement models grow more complex and healthcare coverage increases, the complexity and number of claims may also increase, which could impact the demand for our payment accuracy solutions. Also, many of the changes promulgated by the Affordable Care Act require implementing regulations that have not yet been drafted or have been released only as proposed rules. Such changes could have a further impact on our results of operations.

          In addition, our Global Retail and Other segment is impacted by general economic conditions. For example, in a difficult economy, consumers may be willing to spend less and retailers may reduce their purchasing accordingly, thereby reducing their overall payments available for review. Alternatively, in an expanding economy, retailers may increase their purchasing to meet expected increasing demand resulting in increased payments subject to review using our solutions.

How We Assess Our Performance

Adjusted EBITDA

          We believe Adjusted EBITDA (a non-GAAP measure) is useful to investors as a supplemental measure to evaluate our overall operating performance. Management uses Adjusted EBITDA as a measurement to compare our operating performance to our peers and competitors. We define 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, stock-based compensation and loss on extinguishment of debt. See the notes to our consolidated financial statements included elsewhere in this prospectus for additional information regarding these adjustments. 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. By providing this non-GAAP financial measure, management believes we are enhancing investors' understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. Management believes that Adjusted EBITDA is frequently used by securities analysts, investors and other interested parties as a supplemental measure of financial performance within our industry. In addition, the determination of Adjusted EBITDA is

68


Table of Contents

consistent with the definition of a similar measure in our secured credit facilities other than adjustments for severance costs and non-income based taxes permitted by the secured credit facilities but not considered by management in evaluating our performance using Adjusted EBITDA. For a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable GAAP measure, see "Prospectus Summary—Summary Historical Consolidated Financial and Other Data."

Dollar Amount of Inaccurate Payments Prevented or Recovered

          Almost all of our net revenue consists of performance fees earned under our client contracts. Our performance fees generally represent a specified percentage of inaccurate payments that are either prevented prior to payment using our prospective claims accuracy solutions or recovered by our clients after they are identified using our retrospective claims accuracy solutions. For those clients where we identify any payment inaccuracies in advance of payment to the providers, the clients reduce the amount paid to the providers based upon the inaccuracies that we have identified. For those clients where we identify payment inaccuracies using our retrospective claims accuracy solutions after the client has made payment, clients generally recover claims either by taking credits against outstanding payables to healthcare providers or retail vendors, or future purchases from the related retail vendors, or receiving refund checks directly from those healthcare providers or retail vendors.

          The dollar amount of inaccurate payments prevented or recovered in a given period is impacted by the dollar amount of claims or payments reviewed, the scope of claims or payments that we review, the success of our cross-selling efforts, our ability to retain existing clients and obtain new clients and our ability to enhance our existing solutions or create new solutions.

          We believe the dollar amount of inaccurate payments prevented or recovered is useful to measure our overall operating performance and how well we are executing on our client contracts.

          The following table presents the combined dollar amount of inaccurate payments prevented or recovered in our Healthcare and Global Retail and Other segments for the periods presented (in thousands):

    Year Ended
December 31,
 

    2015     2014
 

Amount of inaccurate payments prevented or recovered (1)

  $ 3,244,535   $ 3,133,763  

Amount of inaccurate payments prevented or recovered, excluding our Medicare RAC contract (1)

  $ 3,070,738   $ 2,534,884  

(1)
Amounts reported as of April 11, 2016. Inaccurate payments prevented or recovered for prior periods are reported to us on a rolling basis. Accordingly, amounts reflected for prior periods are subject to change.

Components of Results of Operations

Net revenue

          Our net revenue is generated from contracts with our clients. Our client contracts generally provide for performance fees that are based on a percentage of the inaccurate payments that we prevent through our prospective claims accuracy solutions or the payment recoveries received by our clients that use our retrospective claims accuracy solutions. We derive less than 5% of our revenue on a "fee-for-service" basis whereby billing is based upon a flat fee or a fee per hour. Our clients may request a refund or offset if their providers or vendors ultimately reject the payment inaccuracies we find or if our clients determine not to pursue reimbursement from their providers or vendors even though we may have collected fees. We record an estimate for refund liabilities at any

69


Table of Contents

given time based on actual historical refund data by client type. In such cases, we record any such refund as a reduction of revenue. See "—Critical Accounting Policies—Revenue Recognition, Unbilled Receivables and Estimated Liability for Refunds and Appeals."

Cost of revenue

          Our cost of revenue is comprised of:

    Compensation , which includes the total compensation and benefit-related expenses, including stock-based compensation expense, for employees who provide direct revenue generating services to clients; and

    Other costs of revenue , which primarily include expenses related to the use of subcontractors, costs associated with the retrieval of medical records and facilities-related costs associated with locations that are used strictly for revenue generating activities. Cost of revenue does not include depreciation and amortization, which is stated separately in our consolidated statement of operations.

Selling, general and administrative expenses

          Our selling, general and administrative expenses are comprised of:

    Compensation , which includes total compensation and benefit-related expenses, including stock-based compensation expense, for our employees who are not directly involved in revenue generating activities including those involved with developing new service offerings; and

    Other selling, general and administrative expenses , which include all of our general operating costs. These costs include, but are not limited to, rent and occupancy costs for facilities associated with locations that are used for employees not serving in revenue generating roles, telecommunications costs, information technology infrastructure costs, software licensing costs, advertising and marketing expenses, costs associated with developing new service offerings and expenses related to the use of certain subcontractors and professional services firms. Selling, general and administrative expenses do not include depreciation and amortization, which is stated separately in our consolidated statement of operations.

          After the consummation of this offering, we expect to incur significant additional legal, accounting and other expenses associated with being a public company, including costs associated with our compliance with the Sarbanes-Oxley Act.

Depreciation and amortization of property and equipment

          Depreciation and amortization of property and equipment consists of depreciation related to our investments in property and equipment, including claims accuracy solutions software, as well as amortization of capitalized internal-use software and software development costs.

Amortization of intangible assets

          Amortization of intangible assets includes amortization of customer relationships, acquired software and certain trademarks.

Transaction-related expenses

          Transaction-related expenses consist primarily of professional services associated with the Connolly iHealth Merger and certain expenses associated with our preparation for this offering.

70


Table of Contents

Impairment of intangible assets

          Impairment of intangible assets includes charges resulting from the impairment of a customer relationship and certain trademarks as a result of their carrying value exceeding their estimated fair values.

Interest expense

          Interest expense consists of accrued interest and related payments on our outstanding long-term debt as well as the amortization of debt issuance costs. In connection with the Connolly iHealth Merger in May 2014, we issued long-term debt of $1.08 billion to fund a portion of the merger and to refinance our then outstanding long-term debt of $319.2 million. The increase in our outstanding long-term debt has significantly increased our interest expense. We expect to pay down a portion of our outstanding debt using the proceeds of this offering and, according to the terms of the credit agreement governing our Secured Credit Facilities, interest rates under our long-term debt will be reduced upon the consummation of this offering. We expect that these changes will reduce our annual interest expense by $16.2 million following this offering. See "Use of Proceeds" and "Description of Material Indebtedness."

Loss on extinguishment of debt

          Loss on extinguishment of debt consists of fees paid and write-offs of unamortized debt issuance costs and original issue discount in connection with the 2014 refinancings and 2015 repricing of our long-term debt.

Other non-operating (income) expense

          Other non-operating (income) expense primarily consists of foreign exchange gains and losses. In addition, income received for certain sub-leases and realized gains and losses, interest and dividends on available-for-sale securities are included in other non-operating (income) expense.

Income tax expense (benefit)

          Income tax expense (benefit) consists of federal, state, local and foreign taxes based on earnings in multiple jurisdictions. Our income tax expense is impacted by the pre-tax earnings in jurisdictions with varying tax rates and any related foreign tax credits or deductions that may be available to us. Our current and future provision for income taxes will vary from statutory rates due to the impact of income tax incentives and holidays, certain non-deductible expenses, valuation allowances in certain countries, withholding taxes and other discrete items.

Stock-based compensation expense

          We grant stock-based compensation awards to certain employees, officers and non-employee directors as long-term incentive compensation. We recognize the related expense for these awards ratably over the applicable vesting period. Such expense is recognized in either cost of revenue or selling, general and administrative expenses based upon the function of the optionee. The following

71


Table of Contents

table shows that allocation of stock-based compensation expense among our expense line items for the periods presented:

    Three Months
Ended
March 31,
    Year Ended
December 31,
 

    2016     2015     2015     2014
 

    (unaudited)              

Cost of revenue

  $ 289   $ 194   $ 963   $ 630  

Selling, general and administrative expenses

    785     409     2,436     1,862  

Total

  $ 1,074   $ 603   $ 3,399   $ 2,492  

          As of March 31, 2016, we had total unrecognized stock-based compensation expense related to unvested service-based awards of $13.9 million, which we expect to recognize over the next 3.7 years. Included in this amount is approximately $2.4 million of expense related to 361,547 service-based awards that will vest upon consummation of this offering resulting in incremental expense being recognized in the period in which this offering is consummated.

          Following consummation of this offering, options to purchase 2,096,183 shares of our common stock may vest upon the satisfaction of certain performance vesting criteria, which could occur as early as September 30, 2016, which would result in an aggregate expense of $12.2 million in the third quarter of 2016.

Foreign currency translation adjustments.

          The assets and liabilities of our foreign subsidiaries with a functional currency other than the U.S. Dollar are translated into U.S. Dollars using applicable exchange rates at the balance sheet date. Revenue and expenses are translated at average exchange rates effective during the year. The resulting foreign currency translation gains and losses are included as a component of other comprehensive income (loss). We had insignificant downward foreign currency translation adjustments for the three months ended March 31, 2016 compared to downward foreign currency translation adjustments of $1.1 million for the three months ended March 31, 2015 and $0.7 million and $1.3 million for the years ended December 31, 2015 and 2014, respectively. The downward translation adjustments were the result of the strengthening of the U.S. Dollar against the Canadian Dollar and British Pound over the corresponding period.

Change in fair value of derivative instruments, net of related taxes .

          We are a party to interest rate cap agreements that hedge the potential impact fluctuations in interest rates may have on payments we make pursuant to our Secured Credit Facilities. We had a downward net change in fair value of derivative instruments, net of related taxes of $0.5 million and $1.1 million for the three months ended March 31, 2016 and 2015, respectively, and $2.3 million and $0.6 million for the years ended December 31, 2015 and 2014, respectively. The downward changes were the result of declines in three-month LIBOR.

Factors Affecting the Comparability of our Results of Operations

          As a result of a number of factors, our historical results of operations may not be comparable to our results of operations in future periods and our results of operations may not be directly comparable from period to period. Set forth below is a brief discussion of the key factors impacting the comparability of our results of operations.

72


Table of Contents

Connolly iHealth Merger

          Our results of operations prior to the Connolly iHealth Merger, which was consummated in May 2014, do not include the iHealth Technologies business and, accordingly, are not comparable to subsequent periods. The following is a discussion of the major factors affecting the comparability of our results of operations resulting from the merger:

          Net Revenue.     The periods after the Connolly iHealth Merger include net revenue from the combined businesses.

          Cost of Revenue.     The periods after the Connolly iHealth Merger include cost of revenue from the combined businesses.

          Selling, General and Administrative Expenses.     The periods after the Connolly iHealth Merger include selling, general and administrative expenses from the combined businesses.

          Transaction-related Expenses.     In connection with the Connolly iHealth Merger, we incurred significant transaction costs, primarily diligence-related costs and professional fees.

          Amortization and Depreciation Expenses.     As part of the Connolly iHealth Merger, we assigned values to the iHealth Technologies assets we acquired and the liabilities we assumed based upon their fair values at the acquisition date. In the merger, we acquired intangible assets, consisting primarily of client relationships, with a value of $543.2 million. Due to the significant increase in the amount of intangible assets, our amortization expense is significantly higher for the periods following the merger.

          Goodwill.     As a result of the Connolly iHealth Merger, we recorded $829.1 million in goodwill, which represents the amount that the $1.2 billion purchase price exceeded the fair value of the net assets acquired.

          Income Taxes.     In connection with the Connolly iHealth Merger, significant book and tax differences were accounted for in deferred taxes primarily related to business combination accounting for stock acquisitions. These differences include intangible assets and transaction costs. Notwithstanding these differences, the Connolly iHealth Merger did not have a material impact on our income tax expense.

          Interest Expense and Debt Extinguishment Costs.     In May 2014, we refinanced our indebtedness and entered into new credit facilities in connection with the Connolly iHealth Merger, which increased our total outstanding long-term debt from $319.2 million to $1.08 billion, resulting in a significant increase in interest expense. In addition, we recognized a loss of $9.8 million in debt extinguishment costs primarily associated with the write-off of unamortized fees related to indebtedness that was repaid to certain lenders.

Debt Refinancings, Repayments and Repricing

          In connection with our various debt refinancings, including those associated with the Advent Acquisition and the Connolly iHealth Merger in May 2014, we incurred significant debt issuance costs, primarily associated with the new indebtedness. These debt issuance costs are amortized utilizing the effective interest method over the associated life of the related term loan and recorded as interest expense. Unamortized debt issuance costs were $20.0 million, $21.0 million and $27.2 million as of March 31, 2016, December 31, 2015 and 2014, respectively. We incurred $9.8 million and $11.7 million in debt extinguishment costs related to the May 2014 and January 2014 refinancings, respectively, primarily related to indebtedness that was repaid to certain lenders.

          In May 2015, we repriced our First Lien Credit Facilities which reduced the related interest rates. We incurred $4.1 million in debt extinguishment costs in connection with the repricing

73


Table of Contents

primarily related to accelerated recognition of the unamortized portion of debt issuance costs related to indebtedness that was repaid to certain lenders.

          In addition, upon the consummation of this offering, the interest rate on our existing credit facilities will decrease. See "—Liquidity and Capital Resources—Secured Credit Facilities."

          We intend to repay $200.0 million of our outstanding debt using the proceeds from this offering (or $231.5 million if the underwriters exercise their option to purchase additional shares in full), which will further reduce our interest expense by $16.2 million annually and result in debt extinguishment costs of approximately $6.2 million (or $18.8 million and $7.3 million, respectively, if the underwriters exercise their option to purchase additional shares in full).

Medicare RAC Contract

          Historically, one of our largest clients was CMS under our Medicare RAC contract. As a result of the cessation of the submission of claims for review by CMS for a period of two months in 2014, the continued delays with the contract renewal process, as well as reductions of the scope of claims that we review, net revenue under our Medicare RAC contract has declined. Net revenue under our Medicare RAC contract was $18.5 million and $44.3 million for the years ended December 31, 2015 and 2014, respectively.

          Our current Medicare RAC contract was originally set to expire in February 2014. CMS has suspended the review by Medicare RACs of inpatient hospital claims for a determination of whether the inpatient hospital admission and patient status was appropriate. This type of improper medical inpatient claim has historically accounted for a substantial portion of the claims we had identified related to our Medicare RAC contract. If we are awarded a new contract with CMS, the continued suspensions of these reviews and additional limitations or restrictions on the type of claims reviewed by Medicare RACs, if implemented, likely will result in a reduction of net revenue compared to prior experience under our original Medicare RAC contract and may impact results of operations in the future.

          In November 2015, CMS announced as it continues the procurement process for the next round of Medicare RAC contracts, it is important that CMS begin to close out the current contracts so the Medicare RACs can complete all outstanding claim reviews and other processes by December 31, 2015, the end date of the current contracts. It remains uncertain as to when the new Medicare RAC regions will be awarded and the ultimate timing of implementation. In the meantime, the current Medicare RACs will continue active recovery auditing through at least July 31, 2016 under the latest contract modification.

          In August 2014, CMS announced that it would allow hospitals to remove all eligible inpatient status claims currently pending in the appeals process by offering to pay hospitals 68% of the original claim amount. On July 1, 2015, CMS issued a Technical Direction Letter to us and the other Medicare RACs, indicating that Medicare RACs will only be entitled to the contract contingency fee on the settled amounts of the claims, or 32% of the original inpatient claim amounts. Based on the initial lists of finalized settlements provided by CMS, we would be required to refund CMS approximately $22.3 million in Medicare RAC contingency fees due to these adjustments. CMS further advised that as the hospital settlement project continues, additional settlement lists will be matched to Medicare RAC claims which may result in updated refund amounts to those initially provided. While there are uncertainties in any dispute resolution and results are uncertain, we have disputed CMS's findings based on our interpretation of the terms of the Medicare RAC contract and our belief that the backup data provided by CMS is inaccurate and/or incomplete. Our liability for estimated refunds and appeals includes amounts for these settled claims based on our best estimates of the amount we believe will be ultimately payable to CMS based on our interpretation of the terms of the Medicare RAC contract. We believe that it is possible that we could be required to

74


Table of Contents

pay an additional amount up to approximately $12.6 million in excess of the amount we accrued as of March 31, 2016 based on the claims data we have received from CMS to date. As CMS completes its settlement process with the providers and updated files are provided to us, the potential amount owed by us may change. Our current Medicare RAC contract has been extended to July 31, 2016, with certain scope limitations, but is subject to further review, modification or earlier termination. We do not anticipate that Medicare RAC contracts will represent a significant portion of our business following this offering.

Impairment of Intangible Assets

          As a result of our Cotiviti rebranding, we recorded an impairment of intangible assets of $27.8 million related to our Connolly and iHealth trademarks during the year ended December 31, 2015. The remaining trademark value as of December 31, 2015 of $4.2 million is related to our retail business that will continue to operate as Connolly, a division of Cotiviti.

          Based on the facts and circumstances surrounding our Medicare RAC contract, including continued delays with the contract renewal process, as well as scope reductions that have resulted in a decrease in our future revenue projections, we performed an impairment review of our customer relationship intangible asset related to our Medicare RAC contract with CMS during the year ended December 31, 2014. As a result of this review, we recognized a $74.0 million impairment charge for the year ended December 31, 2014 due to a change in the estimated fair value of the Medicare RAC contract, a customer relationship intangible asset.

Our Segments

          We report our results of operations in two segments, (i) Healthcare and (ii) Global Retail and Other. Through our Healthcare segment, we offer prospective and retrospective claims accuracy solutions to healthcare payers in the United States. We also provide analytics-based solutions unrelated to our healthcare payment accuracy solutions, on a limited basis in the United States. Through our Global Retail and Other segment, we provide retrospective claims accuracy solutions to retailers primarily in the United States, Canada and the United Kingdom, as well as solutions that improve efficiency and effectiveness of payment networks for a limited number of clients.

75


Table of Contents

          We evaluate the performance of each segment based on segment net revenue and segment operating income. The cost of revenue for each segment is based on direct expenses associated with revenue generating activities of each segment. We allocate selling, general and administrative expenses to each segment based on the segments' proportionate share of revenue and expenses directly related to the operation of the segment as determined by management. The following table sets forth the net revenue and operating income for our Healthcare and Global Retail and Other segments for the periods presented (in thousands).

    Three Months
Ended March 31,
    Year Ended
December 31,
 

    2016     2015     2015     2014
 
 
  (unaudited)
   
   
 

Net Revenue

                         

Healthcare

  $ 124,130   $ 102,189   $ 467,044   $ 359,842  

Global Retail and Other

    18,588     17,449     74,299     81,530  

Consolidated net revenue

  $ 142,718   $ 119,638   $ 541,343   $ 441,372  

Operating Income

                         

Healthcare

  $ 26,622   $ 21,011   $ 84,240   $ 23,713  

Global Retail and Other

    2,616     2,696     12,284     6,484  

Consolidated operating income

  $ 29,238   $ 23,707   $ 96,524   $ 30,197  

          The following table sets forth our segment net revenue and percentage of consolidated net revenue by product type for the periods presented:

    Three Months Ended March 31,     Year Ended December 31,
 

    2016     %     2015     %     2015     %     2014     %
 
 
  (unaudited)
   
   
   
   
 

Healthcare

                                                 

Retrospective claims accuracy

  $ 65,270     45.7   $ 54,260     45.3   $ 251,288     46.4   $ 240,544     54.5  

Prospective claims accuracy

    55,410     38.8     44,390     37.1     201,899     37.3     108,828     24.7  

Transaction services

    3,450     2.5     3,539     3.0     13,857     2.6     10,470     2.4  

Total Healthcare

    124,130     87.0     102,189     85.4     467,044     86.3     359,842     81.6  

Retail

                                                 

Retrospective claims accuracy

    17,990     12.6     17,010     14.2     72,060     13.3     80,075     18.1  

Other

    598     0.4     439     0.4     2,239     0.4     1,455     0.3  

Total Global Retail and Other

    18,588     13.0     17,449     14.6     74,299     13.7     81,530     18.4  

Consolidated net revenue

  $ 142,718     100.0   $ 119,638     100.0   $ 541,343     100.0   $ 441,372     100.0  

76


Table of Contents

Results of Operations

Three Months Ended March 31, 2016 compared to Three Months Ended March 31, 2015

    Three Months Ended March 31,
    Percentage
Change
 

(unaudited)

    2016     Percentage
of Net
Revenue (%)
    2015     Percentage
of Net
Revenue (%)
    Period to
Period
(%)
 

Net revenue

  $ 142,718     100.0   $ 119,638     100.0     19.3  

Cost of revenue (exclusive of depreciation and amortization, stated separately below):

                               

Compensation

    53,461     37.5     41,976     35.1     27.4  

Other costs of revenue

    5,398     3.8     4,362     3.6     23.8  

Total cost of revenue

    58,859     41.2     46,338     38.7     27.0  

Selling, general and administrative expenses (exclusive of depreciation and amortization, stated separately below):

                               

Compensation

    19,110     13.4     18,146     15.2     5.3  

Other selling, general and administrative expenses

    15,229     10.7     13,316     11.1     14.4  

Total selling, general and administrative expenses           

    34,339     24.1     31,462     26.3     9.1  

Depreciation and amortization of property and equipment

    4,835     3.4     2,722     2.3     77.6  

Amortization of intangible assets

    15,207     10.7     15,409     12.9     (1.3 )

Transaction-related expenses

    240     0.2              

Total operating expenses

    113,480     79.5     95,931     80.2     18.3  

Operating income

    29,238     20.5     23,707     19.8     23.3  

Other expense (income):

                               

Interest expense

    16,060     11.3     16,922     14.1     (5.1 )

Other non-operating (income) expense

    (299 )   (0.2 )   (176 )   (0.1 )   69.9  

Total other expense (income)

    15,761     11.0     16,746     14.0     (5.9 )

Income from continuing operations before income taxes

    13,477     9.4     6,961     5.8     93.6  

Income tax expense

    5,393     3.8     3,326     2.8     62.1  

Income from continuing operations

    8,084     5.7     3,635     3.0     122.4  

Gain on discontinued operations, net of tax

            559     0.5     (100.0 )

Net income

  $ 8,084     5.7   $ 4,194     3.5     92.8