Cotiviti Announces Third Quarter 2016 Results

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

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

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

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

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

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

Guidance

Cotiviti is increasing full year 2016 guidance as follows:
  • Total revenue in a range of $615 - $620 million, up from $610 to $615 million; and
  • Adjusted EBITDA in a range of $235 - $237 million, up from $233 to $235 million.

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

Conference Call Information

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

Supplemental Financial Information

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

About Cotiviti

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

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