S-1 1 y00002sv1.htm EMDEON INC. Emdeon Inc.
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As filed with the Securities and Exchange Commission on September 12, 2008
Registration No. 333-      
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
 
 
 
Emdeon Inc.
(Exact name of Registrant as specified in its charter)
 
         
Delaware   7374   20-5799664
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (IRS Employer
Identification No.)
 
 
 
 
26 Century Blvd, Suite 601
Nashville, TN 37214
(615) 886-9000
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
 
Gregory T. Stevens, Esq.
Executive Vice President, General Counsel
and Secretary
26 Century Blvd, Suite 601
Nashville, TN 37214
(615) 886-9000
(Name, address, including zip code, and telephone number, including area code, of agent for service)
 
 
 
 
Copies to:
 
     
John C. Kennedy, Esq.
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, New York 10019-6064
(212) 373-3000
  Michael Kaplan, Esq.
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
(212) 450-4000
 
 
 
 
Approximate date of commencement of proposed sale to public:  As soon as practicable after this Registration Statement becomes effective.
 
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, 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. (Check one):
             
Large accelerated filer o
  Accelerated filer o   Non-accelerated filer þ
(Do not check if a smaller reporting company)
  Smaller reporting company o
 
CALCULATION OF REGISTRATION FEE
 
             
      Proposed Maximum
    Amount of
Title of Each Class of
    Aggregate
    Registration
Securities to be Registered     Offering Price(1)(2)     Fee
Class A common stock, par value $0.01
    $460,000,000     $18,078
             
 
(1) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) of the Securities Act of 1933.
(2) Includes shares which the underwriters have the right to purchase to cover over-allotments.
 
 
 
 
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 this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
 


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. The preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
 
Subject to Completion. Dated September 12, 2008.
 
           Shares
 
Emdeon Logo
 
CLASS A COMMON STOCK
 
 
This is an initial public offering of shares of Class A common stock of Emdeon Inc. Emdeon Inc. is offering           shares of its Class A common stock and the selling stockholders are offering           shares of Class A common stock. We will not receive any proceeds from the sale of shares by the selling stockholders.
 
To the extent the underwriters sell more than           shares of Class A common stock, the underwriters have the option to purchase up to an additional           shares from us and           shares from the selling stockholders at the initial public offering price, less underwriting discounts and commissions, within 30 days from the date of this prospectus.
 
Prior to this offering, there has been no public market for the Class A common stock. We currently estimate that the initial public offering price will be between $      and $      per share.
 
Following this offering, Emdeon Inc. will have four classes of authorized common stock. The Class A common stock offered hereby and the Class D common stock will have one vote per share. Our principal stockholders, affiliates of General Atlantic LLC and Hellman & Friedman LLC, will hold Class B and Class C common stock, respectively, that will have 10 votes per share. Following consummation of this offering and the application of the net proceeds from this offering, these principal stockholders will control approximately     % of the combined voting power of our common stock and will hold     % of the economic interest in us.
 
Investing in our Class A common stock involves risks. See “Risk Factors” beginning on page 17 to read about factors you should consider before buying shares of our Class A common stock.
 
We intend to apply to have our Class A common stock listed on the New York Stock Exchange under the symbol “          .”
                 
        Underwriting
      Proceeds to
    Price to
  Discounts and
  Proceeds to
  Selling
   
Public
 
Commissions
 
us
 
Stockholders
 
Per Share
  $        $        $        $     
Total
  $        $        $        $     
 
The underwriters expect to deliver the shares to purchasers against payment in New York, New York on          , 2008.
 
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
 
MORGAN STANLEY  
  GOLDMAN, SACHS & CO.  
  UBS INVESTMENT BANK  
  MERRILL LYNCH & CO.
 
BANC OF AMERICA SECURITIES LLC  
                 CITI  
  CREDIT SUISSE
OPPENHEIMER & CO.  
   PIPER JAFFRAY  
  WACHOVIA SECURITIES   
  WILLIAM BLAIR & COMPANY
Prospectus dated          , 2008.


 

 
You should rely only on the information contained in this prospectus. Neither we nor the underwriters have authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. Neither we nor the underwriters are 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 is accurate only as of the date on the front cover of this prospectus or such other date stated in this prospectus.
 
 
 
 
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 Ex-21.1 Subsidiaries of the Registrant
 Ex-23.1 Consent of Ernst & Young LLP
 
 
 
 
Until          , 2008 (25 days after the date of this prospectus), all dealers that buy, sell or trade our Class A common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
 
INDUSTRY AND MARKET DATA
 
Industry and market data used throughout this prospectus were obtained through company research, surveys and studies conducted by third parties, and industry and general publications. The information contained in “Business” is based on studies, analyses and surveys prepared by American Hospital Association, American Health Insurance Plans, CAQH, Frost & Sullivan, Health Insurance Association of America, McKinsey & Company, PNC Financial Services Group Inc., Medical Group Management Association (MGMA) and Susquehanna Research Group. We have not independently verified any of the data from third party sources nor have we ascertained any underlying economic assumptions relied upon therein. While we are not aware of any misstatements regarding the industry data presented herein, estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors.”


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PROSPECTUS SUMMARY
 
This summary highlights all material information about us and this offering, but does not contain all of the information that you should consider before investing in our Class A common stock. You should read this entire prospectus carefully, including the “Risk Factors” and the consolidated financial statements and related notes. This prospectus includes forward looking-statements that involve risks and uncertainties. See “Forward-Looking Statements.”
 
Unless we state otherwise or the context otherwise requires, the terms “we,” “us,” “our,” “EBS,” and the “Company,” refer to Emdeon Inc., a Delaware corporation, and its subsidiaries. All information in this prospectus with respect to Emdeon Inc. gives effect to the reorganization transactions described under “Organizational Structure” as if they had occurred on November 16, 2006. Prior to November 16, 2006, the terms “we,” “us,” “our,” “EBS,” and the “Company” refer to the group of subsidiaries of HLTH Corporation that comprised its Emdeon Business Services segment, which we refer to as “Emdeon Business Services.” “EBS Master LLC” and “EBS Master” refer to EBS Master LLC, a Delaware limited liability company.
 
Our Company
 
We are a leading provider of revenue and payment cycle management solutions, connecting payers, providers and patients in the U.S. healthcare system. Our product and service offerings integrate and automate key business and administrative functions of our payer and provider customers throughout the patient encounter, including pre-care patient eligibility and benefits verification, claims management and adjudication, payment distribution, payment posting and denial management and patient billing and payment collection. Through the use of our comprehensive suite of products and services, our customers are able to improve efficiency, reduce costs, increase cash flow and more efficiently manage the complex revenue and payment cycle process. In 2007, we generated revenues from operations of $808.5 million, Adjusted EBITDA of $182.8 million, net income of $16.0 million and cash flow provided by operations of $95.1 million.
 
Our services are delivered primarily through recurring, transaction-based processes that leverage our revenue and payment cycle network, the single largest financial and administrative information exchange in the U.S. healthcare system. In 2007, we processed a total of 3.7 billion healthcare-related transactions, including approximately one out of every two commercial healthcare claims delivered electronically in the United States. We have developed our network of payers and providers over 25 years and connect virtually all private and government payers, claim-submitting providers and pharmacies, making it extremely difficult, expensive and time-consuming for competitors to replicate our market position. Compared to many of our competitors, who lack the breadth and scale of our network and who often must rely on our connectivity to provide some or all of their own services, we are uniquely positioned to facilitate seamless and timely interaction among payers and providers. Further, with the cost pressures and capital allocation decisions our customers face today, many payers and providers are reluctant to invest the time or money into supporting additional vendor connectivity and, as a result, have chosen to consolidate their business activities with us. Our network and related products and services are designed to easily integrate with our customers’ existing technology infrastructures and administrative workflow and typically require minimal capital expenditure on the part of the customer, while generating significant savings and operating efficiencies.
 
We generate greater than 90% of our revenues from products and services where we believe we have a leading market position. Our solutions are critical to the day-to-day operations of our payer and provider customers as our solutions drive consistent automated workflows and information exchanges that support key financial and administrative processes. Our market leadership is demonstrated by the long tenure of our payer and provider relationships, which for our 50 largest customers in 2007 average 11 years. We are the exclusive provider of certain electronic eligibility and benefits verification and/or claims management services under Managed Gateway Agreements (“MGAs”) for more than 300 payer customers (approximately 25% of all U.S. payers). Similarly, we are the sole provider of certain payment and remittance advice distribution services for over 600 of our payer customers (approximately 50% of all U.S. payers). These exclusive relationships provide us with a significant opportunity to expand the scope of our product and service offerings with these customers.
 
Our ubiquitous, independent platform facilitates alignment with both our payer and provider customers, thereby creating a significant opportunity for us to increase penetration of our existing solutions and drive the


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adoption of new solutions. Recently, we have significantly increased the number of products and services utilized by our existing customers through cross-selling. In addition to increasing penetration of our existing solutions, we have created a culture of innovation to develop and market new solutions that will allow us to deepen our customer relationships. Because we serve as a central point of communication and data aggregation for our customers, our network captures the most comprehensive and timely sources of U.S. healthcare information. Unlike many other data sources, our network provides us with access to data generated at, or close to, the point of care. Our access to vast amounts of healthcare data positions us to develop business intelligence solutions that provide our customers with valuable information, reporting capabilities and related data analytics to support our customers’ core business decision making. For example, because we often process all of an individual payer’s claims and capture data from that payer’s entire spectrum of providers, we are capable of developing customized solutions for our payer customers that can enable more timely and relevant information management tools relating to their inpatient, outpatient, dental and pharmacy data.
 
Our business continues to benefit from several healthcare industry trends that increase the overall number of healthcare transactions and the complexity of the reimbursement process. We believe that payers and providers will increasingly seek solutions that utilize technology and outsourced process expertise to automate and simplify the administrative and clinical processes of healthcare to enhance their profitability, while minimizing errors and reducing costs. Our mission-critical products and services enable the healthcare system to operate more efficiently and help to mitigate the continuing trend of cost escalation across the industry. We stand to benefit from the major secular trends affecting the broader healthcare sector as a result of our position at the nexus of all key healthcare constituent groups.
 
Our Industry
 
Payer & Provider Landscape
 
Healthcare expenditures are a large and growing component of the U.S. economy, representing $2.1 trillion in 2006, or 16% of GDP, and are expected to grow at 6.7% per year to $4.3 trillion, or 20% of GDP, in 2017. The cost of healthcare administration in the U.S. is estimated to be $360 billion in 2008, or 17% of total healthcare expenditures, $150 billion of which is spent by payers and providers on billing and insurance administration-related activities alone.
 
Healthcare is generally provided through a fragmented industry of providers that have, in many cases, historically under-invested in administrative and clinical solutions. The administrative portion of healthcare costs for providers is expected to continue to expand due in part to the increasing complexity in the reimbursement process and the greater administrative burden being placed on providers for reporting and documentation relating to the care they provide. These factors are compounded by the fact that many providers lack the technological infrastructure and human resources to bill, collect and obtain full reimbursement for their services, and instead rely on inefficient, labor-intensive processes to perform these functions. As a result, we believe payers and providers will continue to seek solutions that automate and simplify the administrative and clinical processes of healthcare. We benefit from this trend given our expansive suite of administrative product and service offerings.
 
Payment for healthcare services generally occurs through complex and frequently changing reimbursement mechanisms involving multiple parties. The proliferation of private-payer benefit plan designs and government mandates continue to increase the complexity of the reimbursement process. In addition, despite significant consolidation among private payers in recent years, claims systems have often not been sufficiently integrated, resulting in persistently high costs associated with administering these plans. Government payers also continue to introduce more complex rules to align payments with the appropriate care provided. Further, due to an increasing number of drug prescriptions authorized by providers and an industry-wide shortage of pharmacists, pharmacies and pharmacy benefit managers must increasingly be able to efficiently process transactions in order to maximize their productivity and better control prescription drug costs. Most payers, providers and many independent pharmacies are not equipped to handle this increased complexity and the associated administrative challenges themselves.
 
Increases in patient financial responsibility for healthcare expenses caused by, among other things, the shift towards high-deductible health plans (“HDHP”) and consumer-oriented plans, have put additional pressure on


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providers to collect payments at the patient point of care since approximately 60% of healthcare expenses not collected from individuals at the time of care are estimated to become bad debt for a typical provider. Our solutions equip providers to significantly improve collection at the point of care.
 
The Revenue and Payment Cycle
 
The healthcare revenue and payment cycle consists of all the processes and efforts that providers undertake to ensure they are compensated properly by payers for the medical services rendered to patients. These processes begin with the collection of relevant eligibility and demographic information about the patient before care is provided and end with the collection of payment from payers and patients. Providers are required to send invoices, or claims, to a large number of different payers, including government agencies, managed care companies and private individuals in order to be reimbursed for the care they provide.
 
Payers and providers spend approximately $150 billion annually on these revenue and payment cycle activities. Major steps in this process include:
 
  •  Pre-Care/Medical Treatment:  The provider verifies insurance benefits available to the patient, ensures treatment will adhere to medical necessity guidelines, confirms patient personal financial and demographic information and obtains any required pre-authorization prior to delivery of care.
 
  •  Claim Management/Adjudication:  The provider prepares and submits paper or electronic claims to a payer for services rendered directly or through a clearinghouse, such as ours. Before submission, claims are validated for payer-specific rules and corrected as necessary.
 
  •  Payment Distribution:  The payer sends payment and a payment explanation (i.e., remittance advice) to the provider and sends an explanation of benefits (“EOB”) to the patient.
 
  •  Payment Posting/Denial Management:  The provider posts payments internally, reconciles payments with accounts receivable and submits any claims to secondary insurers if secondary coverage exists.
 
  •  Patient Billing and Payment:  The provider sends a bill to the patient for any remaining balance and posts payments received.
 
Our Market Opportunity and Solutions
 
Limited financial resources have historically resulted in under-investment by providers in their internal administrative and clinical information systems. Providers’ administrative and financial processes have historically been manual and paper-based. These manual and paper-based processes are more prone to human error and administrative inefficiencies, often resulting in increased costs and uncompensated care. At the same time, payers are continually exploring new ways to increase administrative efficiencies in order to drive greater profitability due in part to their general inability to increase premiums in excess of the growth in medical costs.


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Opportunities exist to increase efficiencies and cash flow throughout many steps of the revenue and payment cycle for both payers and providers. The breadth of our revenue and payment cycle network and solutions is illustrated in the chart below:
 
(FLOW CHART)
 
Our Strengths
 
We believe that we have a number of strengths including, but not limited to, the following:
 
Largest Healthcare Revenue and Payment Cycle Network.  Our revenue and payment cycle network reaches the largest number of payers, providers and pharmacies in the U.S. healthcare system, including approximately 1,200 payers, 500,000 providers, 5,000 hospitals, 77,000 dentists and 55,000 pharmacies. The breadth and scale of our network enables us to drive consistent workflow and information exchange for all healthcare constituents using our network. The benefits of utilizing a single vendor to standardize work flows and information exchanges among our payer, provider and pharmacy customers increase the value of our product and service offerings and make the adoption of our electronic solutions more attractive to our customers. Our network ubiquity makes it difficult, expensive and time-consuming for our competitors to replicate our market position.
 
Comprehensive Suite of Market-Leading Solutions.  We provide a comprehensive suite of revenue and payment cycle solutions that address key aspects of the patient encounter, including pre-care patient eligibility and benefits verification, claims management and submission, payment and remittance advice distribution, payment posting and denial management and patient billing and payment collection. We generate greater than 90% of our revenues from products and solutions where we believe we have a leading market position. The combination of these products and services has resulted in a comprehensive solution that many of our competitors are unable to replicate because their offerings typically address only certain constituents and


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certain segments of the revenue and payment cycle and do not have comparable breadth and scale of connectivity among all key healthcare constituent groups.
 
Leverageable Platform for Future Growth.  As the single greatest point of connectivity in the U.S. healthcare system, we are uniquely positioned to leverage our platform to drive the adoption of new products and services. Our long-standing customer relationships provide us with important insights across our customers’ broad range of revenue and payment cycle needs and allow us to offer additional value-added products and services to our customers.
 
Established and Long-Standing Customer Relationships.  Our products and services are important to our customers, as demonstrated by the fact that our 50 largest customers in 2007 have been with us for an average of 11 years as of August 2008. As many of our customers have continued to rationalize their vendor relationships and simplify their internal operations, we have been able to meet their diverse business needs with our comprehensive suite of solutions. This trend has enabled us to become the exclusive provider of certain eligibility and benefits verification and/or claims management services for over 300 payers (approximately 25% of all U.S. payers) and also to serve as the sole method of distributing certain payments and remittance advice to providers for over 600 payers (approximately 50% of all U.S. payers).
 
Stable, Low-Risk Business Model.  We believe our business model is attractive and relatively low-risk due to following factors:
 
  •  Limited exposure to the broader economic cycle given that the majority of our revenues are driven by healthcare transaction volumes.
 
  •  Favorable healthcare industry trends, including demographic changes, continuing healthcare cost escalation and increasing administrative complexity.
 
  •  Stable, recurring revenue base with significant visibility. In 2007, approximately 90-95% of our revenue was recurring in nature.
 
  •  Limited customer concentration. In 2007, no single customer represented more than 6% of our total revenue.
 
  •  Limited risk associated with changes in the political and the legislative environment.
 
Strong, Predictable Cash Flow with Low Capital Requirements.  Our business generates strong, stable cash flows as a result of the revenue we generate from our recurring, transactions-based business model, our significant operating leverage, our relatively low working capital requirements and the moderate capital expenditures needed to support our network.
 
Experienced Management Team.  We have assembled a highly experienced management team. Our senior management team averages more than seven years of service with us or with companies that we have acquired and 13 years of healthcare industry experience. Our management team and board of directors include a balance of internally developed leaders and experienced managers from the industry and from our customers (including large payer customers), which provides us with a deep understanding of the complex needs of our customer base. In addition, our management team has significant experience in successfully identifying, executing and integrating acquisitions, as well as driving organic growth.
 
Our Strategy
 
We are pursuing the following growth strategies:
 
Continue to Drive Healthcare’s Transition from Paper-Based to Electronic Transactions.  We are well positioned to further drive the healthcare industry’s adoption of automated, cost-saving processes through our comprehensive network of payers and providers. Currently, less than 10% of commercial healthcare payer payment processes are electronic, leaving significant room for us to help our customers achieve deeper electronic penetration. We believe we benefit from the credibility and reputation we have earned for leading the healthcare industry’s migration from paper to electronic claims submissions, which represented 75% of all claims submitted in 2006 but represented only 2% of claims in 1990. Further, unlike many of our competitors


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that lack an electronic network to facilitate conversion to electronic solutions, our incentives are properly aligned with those of our customers and are not compromised by a motivation to protect legacy, paper-based solutions.
 
Increase Customer Penetration by Executing on Significant Cross-Selling Opportunity.  We believe we have significant opportunities to sell additional value-added products and services to our existing payer and provider customers. Our broad network of payers and providers, combined with our strong customer relationships, represents a significant cross-selling opportunity for us.
 
Develop New High-Value Solutions for our Customers’ Revenue and Payment Cycle Needs.  We have fostered a culture of innovation and continually seek to develop and market new solutions for our customers. We are uniquely positioned to develop solutions that utilize our network and our access to all key healthcare constituent groups to complement our current product and service offerings.
 
Continue to Capitalize on Efficiencies of Scale and Rationalize Costs to Improve Profitability.  We expect to generate growth in profitability in excess of our revenue growth by increasing the number of transactions we facilitate among payers, providers and patients. We have significant operating leverage as we spread our fixed costs over a steadily increasing volume of transactions. In addition, our management team evaluates and implements initiatives on an ongoing basis to improve our financial and operating performance through cost savings and productivity improvements.
 
Leverage Our Expansive Data to Create Business Intelligence and Analytics Solutions.  We have extensive access to data associated with financial and administrative interactions across a range of different payers and providers that we plan to leverage in order to develop information-based business intelligence solutions and data analytics products and services.
 
Pursue Selective Acquisitions.  In addition to our internal development efforts, we regularly evaluate opportunities to improve and expand our solutions and profitability through strategic acquisitions. Our expansive customer footprint affords us the important advantage of being able to deploy acquired products and services into our installed base, which, in turn, can help to accelerate growth of our acquired business.
 
Corporate History and Organizational Structure
 
Our predecessors have been in the healthcare information solutions business for approximately 25 years. Prior to November 2006, our business was owned by HLTH Corporation (“HLTH”). We currently conduct our business through EBS Master and its subsidiaries. EBS Master was formed by HLTH to act as a holding company for the group of subsidiaries of HLTH that comprised its Emdeon Business Services segment. In September 2006, we were formed by General Atlantic, LLC, or “General Atlantic,” as a Delaware limited liability company for the purpose of making an investment in EBS Master. In November 2006, we purchased a 52% interest in EBS Master from HLTH (the “2006 Transaction”). In February 2008, HLTH sold its remaining 48% interest in EBS Master (the “2008 Transaction”) to affiliates of General Atlantic and Hellman & Friedman LLC, or “H&F.” As a result, prior to giving effect to the reorganization transactions described below in “Organizational Structure,” EBS Master was owned 65.77% by affiliates of General Atlantic, who we refer to as the “General Atlantic Equityholders,” and 34.23% by affiliates of H&F, who we refer to as the “H&F Equityholders.” We refer to the General Atlantic Equityholders and the H&F Equityholders collectively as our “Principal Equityholders.”
 
We were converted into a Delaware corporation in September 2008 and changed our name to Emdeon Inc. We have not engaged in any business or other activities except in connection with our investment in EBS Master and the reorganization transactions described under “Organizational Structure” and have no material assets other than our membership interests in EBS Master.
 
In the reorganization transactions, we will, through a series of transactions, acquire, directly or indirectly, interests (“EBS Units”) in EBS Master currently held by certain affiliates of General Atlantic and H&F (or their successors) in exchange for shares of our Class B common stock. Certain other affiliates of H&F (or their successors) will continue to hold their interests in EBS Master (the “H&F Continuing LLC Members”) and certain members of our senior management team will have their indirect interests in EBS Master converted into EBS Units (the “EBS Equity Plan Members” and, together with the H&F Continuing LLC Members, the “EBS Post-IPO


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Members”). In addition, the board of directors of EBS Master will cause the accumulated appreciation in EBS Master of the outstanding phantom awards granted to our employees (the “EBS Phantom Plan Participants”) to be converted into either shares of our Class A common stock or restricted stock units.
 
Following the reorganization transactions, this offering and the application of net proceeds from this offering, we will hold directly or indirectly     % of the EBS Units and will be the sole managing member of EBS Master. As the sole managing member of EBS Master, we will control all of the business and affairs of EBS Master and its subsidiaries. We will consolidate the financial results of EBS Master and our net income (loss) will be reduced by a minority interest expense to reflect the entitlement of the members of EBS Master to a portion of its net income (loss). See “Organizational Structure” for further details.
 
Upon consummation of the reorganization transactions, there will be several types of economic and/or voting interests in Emdeon Inc. and EBS Master:
 
  •  Class A Common Stock.  We will issue Class A common stock in this offering. Each share of Class A common stock will generally be entitled to one vote on matters submitted to our stockholders.
 
  •  Class B Common Stock.  Certain of our Principal Equityholders will be the only holders of our Class B common stock. Each share of Class B common stock will generally be entitled to 10 votes on matters submitted to our stockholders.
 
  •  Class C Common Stock.  Upon completion of the reorganization transactions, we will issue the H&F Continuing LLC Members a number of shares of our Class C common stock equal to the number of EBS Units they hold. Each share of Class C common stock will generally be entitled to 10 votes on matters submitted to our stockholders but will not have any of the economic rights (including rights to dividends and distributions upon liquidation) associated with our Class A common stock or Class B common stock.
 
  •  Class D Common Stock.  Upon completion of the reorganization transactions, we will issue the EBS Equity Plan Members a number of shares of our Class D common stock equal to the number of EBS Units they will hold. Each share of Class D common stock will generally be entitled to one vote on matters submitted to our stockholders but will not have any of the economic rights (including rights to dividends and distributions upon liquidation) associated with our Class A common stock or Class B common stock.
 
  •  EBS Units.  Upon completion of this offering and the application of the net proceeds from this offering, the H&F Continuing LLC Members will hold           EBS Units and the EBS Equity Plan Members will hold           EBS Units (based on the midpoint of the estimated public offering price range set forth on the cover page of this prospectus). EBS Units held by the H&F Continuing LLC Members (along with a corresponding number of shares of our Class C common stock) may be exchanged with EBS Master for shares of our Class B common stock on an one-for-one basis and EBS Units held by the EBS Equity Plan Members (along with a corresponding number of shares of our Class D common stock) may be exchanged with EBS Master for shares of our Class A common stock on a one-for-one basis.
 
  •  Subject to limited exceptions, in connection with any transfer or sale by our Principal Equityholders of shares of Class B common stock, the shares transferred or sold will, immediately prior to transfer, automatically convert into shares of our Class A common stock on a one-for-one basis. In addition, subject to the terms of the Stockholders Agreement (as defined below), holders of our Class B common stock may convert their shares into shares of Class A common stock at any time. Each share of our Class C common stock will automatically convert into one share of our Class D common stock upon the conversion of all shares of our Class B common stock into Class A common stock. In this prospectus, we refer to the date on which all shares of our Class B common stock and Class C common stock are converted into Class A common stock and Class D common stock, respectively, as the “conversion date.” After the conversion date, EBS Units held by the H&F Continuing LLC Members (along with a corresponding number of shares of Class D common stock) may be exchanged for shares of our Class A common stock. See “Organizational Structure — Effect of the Reorganization Transactions and this Offering” and “Certain Relationships and Related Party Transactions — Stockholders Agreement — Restrictions on Transfer.”


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The diagram below depicts our organizational structure immediately after the consummation of this offering and the application of the use of proceeds from this offering (assuming an initial public offering price of $      per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus)):
 
(FLOW CHART)
 
Shares of our Class A common stock, Class B common stock, Class C common stock and Class D common stock, which we collectively refer to as our “common stock,” will generally vote together as a single class on all matters submitted to stockholders.
 
Upon the closing of this offering, we will enter into a tax receivable agreement with an entity controlled by the Principal Equityholders (the “Tax Receivable Entity”) that will provide for the payment by us to it of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we actually realize in periods after this offering as a result of (i) any step-up in tax basis in EBS Master’s assets resulting from (a) the purchases by us and our subsidiaries of membership interests in EBS Master, (b) exchanges by the H&F Continuing LLC Members of EBS Units (along with the corresponding shares of our Class C common stock (or, after the conversion date, Class D common stock)) for shares of our Class B common stock (or, after the conversion date, Class A common stock) or (c) payments under the tax receivable agreement to the Tax Receivable Entity; (ii) tax benefits related to imputed interest deemed to be paid by us as a result of this tax receivable agreement; and (iii) net operating loss carryovers from prior periods (or portions thereof).
 
We will also enter into a tax receivable agreement with the EBS Equity Plan Members which will provide for the payment by us to the EBS Equity Plan Members of 85% of the amount of the cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we actually realize in periods after this offering as a result of (i) any step-up in tax basis in EBS Master’s assets resulting from (a) the exchanges by the EBS Equity Plan Members of EBS Units (along with the corresponding shares of our Class D common stock) for shares of our Class A common stock or (b) payments under this tax receivable agreement to the EBS Equity Plan Members; and (ii) tax benefits related to imputed interest deemed to be paid by us as a result of this tax receivable agreement.


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See “Organizational Structure — Holding Company Structure and Tax Receivable Agreements” and “Certain Relationships and Related Transactions — Tax Receivable Agreements.”
 
Our Principal Equityholders
 
Our Principal Equityholders currently own 100% of EBS Master and following this offering and the application of the net proceeds from this offering will control     % of the combined voting power of our common stock. Our Principal Equityholders are affiliates of General Atlantic and H&F.
 
In connection with the reorganization transactions, we will enter into a stockholders agreement (the “Stockholders Agreement”) with the General Atlantic Equityholders, the H&F Equityholders and the EBS Equity Plan Members. The Stockholders Agreement will contain provisions related to the composition of our board of directors and the committees of our board of directors and our corporate governance, certain restrictions and priorities with respect to the transfer of shares of our capital stock and will grant certain persons registration rights. Upon consummation of this offering, our board of directors will initially consist of eight directors and is expected to be increased to nine directors after the offering. Under the Stockholders Agreement, (i) the General Atlantic Equityholders will be entitled to nominate five members of our board of directors, two of whom will be subject to the consent of the H&F Equityholders (which consent may not be unreasonably withheld), (ii) the H&F Equityholders will be entitled to nominate three members of our board of directors, one of whom will be subject to the consent of the General Atlantic Equityholders (which consent may not be unreasonably withheld) and (iii) our Principal Equityholders will be entitled to jointly nominate one independent member of our board of directors. Each of our Principal Equityholders will agree to vote its shares in favor of the directors nominated in accordance with the terms of the Stockholders Agreement. See “Management — Board Structure” and “Certain Relationships and Related Transactions — Stockholders Agreement.”
 
General Atlantic, LLC is a leading global growth equity firm providing capital and strategic support for growth companies. The firm was founded in 1980 and has approximately $17 billion in capital under management. General Atlantic has invested in over 160 companies, including us. General Atlantic has offices in Greenwich, New York, Palo Alto, London, Düsseldorf, Mumbai, São Paulo, Hong Kong and Beijing.
 
Hellman & Friedman LLC is a leading private equity investment firm with offices in San Francisco, New York and London. H&F focuses on investing in superior business franchises and serving as a value-added partner to management in select industries including business services, financial services, information services, media, healthcare and energy. Since its founding in 1984, H&F has raised and, through its affiliated funds, managed over $16 billion of committed capital and is currently investing its sixth partnership, Hellman & Friedman Capital Partners VI, L.P., with over $8 billion of committed capital.
 
Corporate Information
 
We were formed as a Delaware limited liability company in September 2006 and converted into a Delaware corporation in September 2008. Our corporate headquarters are located at 26 Century Blvd, Suite 601, Nashville, TN 37214, and our telephone number is (615) 886-9000. Our website address is www.emdeon.com. Information contained on our website does not constitute a part of this prospectus.


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THE OFFERING
 
Class A common stock outstanding before this offering
           shares.
 
Class A common stock offered by us
           shares.
 
Class A common stock offered by the selling stockholders
           shares.
 
Class A common stock to be outstanding immediately after this offering
           shares. If, immediately after this offering and the application of the net proceeds from this offering, all of the H&F Continuing LLC Members and the EBS Equity Plan Members elected to exchange their EBS Units for shares of our Class B common stock or Class A common stock, respectively, and all shares of our Class B common stock were converted into shares of Class A common stock,           shares of Class A common stock would be outstanding.
 
Class B common stock to be outstanding immediately after this offering
           shares.
 
Class C common stock to be outstanding immediately after this offering
           shares. Shares of our Class C common stock have voting but no economic rights (including rights to dividends and distributions upon liquidation) and will be issued in an amount equal to the number of EBS Units held by the H&F Continuing LLC Members. When an EBS Unit is exchanged by an H&F Continuing LLC Member for a share of Class B common stock, the corresponding share of our Class C common stock will be cancelled.
 
Class D common stock to be outstanding immediately after this offering
           shares. Shares of our Class D common stock have voting but no economic rights (including rights to dividends and distributions upon liquidation) and will be issued in an amount equal to the number of EBS Units held by the EBS Equity Plan Members. When an EBS Unit is exchanged by an EBS Equity Plan Member for a share of Class A common stock, the corresponding share of our Class D common stock will be cancelled.
 
Voting Rights
• Each share of our Class A common stock entitles its holder to one vote per share, representing an aggregate of     % of the combined voting power of our common stock upon completion of this offering and the application of the net proceeds from this offering.
 
• Each share of our Class B common stock entitles its holder to 10 votes per share, representing an aggregate of     % of the combined voting power of our common stock upon completion of this offering and the application of the net proceeds from this offering.
 
• Each share of our Class C common stock entitles its holder to 10 votes per share, representing an aggregate of     % of the combined voting power of our common stock upon completion of this offering and the application of the net proceeds from this offering.


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• Each share of our Class D common stock entitles its holder to one vote per share, representing an aggregate of     % of the combined voting power of our common stock upon completion of this offering and the application of the net proceeds from this offering.
 
All classes of our common stock generally vote together as a single class on all matters submitted to a vote of our stockholders. Upon completion of this offering our Class B common stock and Class C common stock will be held exclusively by our Principal Equityholders.
 
See “Description of Capital Stock.”
 
Exchange/Conversion
EBS Units held by the H&F Continuing LLC Members (along with a corresponding number of shares of our Class C common stock ) may be exchanged with EBS Master for shares of our Class B common stock on a one-for-one basis.
 
EBS Units held by the EBS Equity Plan Members (along with a corresponding number of shares of our Class D common stock) may be exchanged with EBS Master for shares of our Class A common stock on a one-for-one basis.
 
Subject to limited exceptions, in connection with any transfer or sale by our Principal Equityholders of shares of our Class B common stock, the shares transferred or sold will, immediately prior to transfer, automatically convert into shares of our Class A common stock on a one-for-one basis. In addition, subject to the terms of the Stockholders Agreement, holders of shares of Class B common stock may convert their shares into Class A common stock at any time. Each share of our Class C common stock will automatically convert into one share of our Class D common stock upon the conversion of all shares of our Class B common stock into Class A common stock.
 
After the conversion date, EBS Units held by the H&F Continuing LLC Members (together with a corresponding number of shares of our Class D common stock) may be exchanged for shares of our Class A common stock. See “Organizational Structure — Effect of the Reorganization Transactions and this Offering” and “Certain Relationships and Related Party Transactions — Stockholders Agreement — Restrictions on Transfer.”
 
Use of proceeds
We estimate that the net proceeds from the sale of our Class A common stock in this offering, after deducting offering expenses and underwriting discounts and commissions, will be approximately $      million ($      million if the underwriters exercise their over-allotment option in full) based on an assumed initial public offering price of $      per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus). Based on an assumed initial offering price of $      per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus), we intend to use $      of the proceeds from this offering to purchase           EBS Units held by the H&F Continuing LLC Members (or $      and           EBS Units if the underwriters exercise their over-allotment option in full) and will use any remaining


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proceeds for working capital and general corporate purposes, which may include the repayment of indebtedness and future acquisitions.
 
We will not receive any proceeds from the sale of our Class A common stock by the selling stockholders.
 
See “Use of Proceeds.”
 
Proposed New York Stock Exchange symbol
“          .”
 
Risk Factors
You should read the “Risk Factors” section of this prospectus for a discussion of factors that you should consider carefully before deciding to invest in shares of our Class A common stock.
 
Unless we indicated otherwise, the number of shares of our Class A common stock outstanding after this offering excludes:
 
  •             shares issuable under options to purchase shares of Class A common stock or restricted stock units that may be granted in connection with this offering under the Emdeon Inc. 2008 Equity Incentive Plan (the “2008 Equity Plan”). See “Executive Compensation — 2008 Equity Plan;”
 
  •             shares of Class A common stock reserved for issuance upon the exchange of EBS Units (along with the corresponding shares of our Class D common stock); and
 
  •             shares of our Class A common stock reserved for issuance upon the conversion of our Class B common stock (including shares of Class B common stock that may be issued upon exchange of EBS Units, along with the corresponding shares of our Class C common stock) into Class A common stock.
 
Unless we indicate otherwise (i) all information in this prospectus assumes that the underwriters do not exercise their option to purchase up            to shares of our Class A common stock from us and up to           shares from the selling stockholders to cover over-allotments, (ii) all information in this prospectus assumes an initial public offering price of $      per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus) and (iii) all ownership percentages and unit information of EBS Master prior to the reorganization transactions does not reflect any profits interests in EBS Master.


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SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL AND OTHER DATA
 
The following table sets forth our summary historical consolidated financial and other data for periods beginning on and after November 16, 2006. For periods prior to November 16, 2006, the tables below present the summary historical consolidated financial and other data of the group of subsidiaries of HLTH that comprised its Emdeon Business Services segment. For periods on and after November 16, 2006, the summary historical financial and other data gives effect to the reorganization transactions described under “Organizational Structure” as if they occurred on November 16, 2006. See “— Corporate History and Organizational Structure.”
 
Our statements of operations data for the year ended December 31, 2007 and the period from November 16, 2006 through December 31, 2006 and summary balance sheet data as of December 31, 2007 have been derived from our audited financial statements included elsewhere in this prospectus. The statements of operations data of Emdeon Business Services for the period from January 1, 2006 through November 15, 2006 and the year ended December 31, 2005 have been derived from Emdeon Business Services’ audited financial statements included elsewhere in this prospectus.
 
Our consolidated statements of operations data for the six months ended June 30, 2008 and 2007 and the balance sheet data as of June 30, 2008, have been derived from our unaudited consolidated financial statements that are included elsewhere in this prospectus and have been prepared on the same basis as our audited financial statements. In the opinion of management, the unaudited consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information. Our results of operations for the six months ended June 30, 2008 are not necessarily indicative of the results that can be expected for the full year or any future period.
 
The following table presents summary pro forma consolidated statement of operations data for the fiscal year ended December 31, 2007 and for the six months ended June 30, 2008, that gives effect to the step-up in the value of certain assets as a result of the 2008 Transaction as if the 2008 Transaction had occurred at January 1, 2007. The following table also presents summary pro forma as adjusted consolidated balance sheet data as of June 30, 2008 that gives effect to (i) the creation or acquisition of certain tax assets in connection with this offering and the reorganization transactions and the creation of related liabilities in connection with entering into the tax receivable agreements, (ii) the conversion of the EBS Equity Plan Members’ indirect interests of EBS Master into EBS Units in the reorganization transactions and (iii) this offering and the estimated use of proceeds from this offering, as if each had occurred on June 30, 2008. Such data has been derived from our unaudited pro forma financial information included elsewhere in this prospectus.


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You should read the following information in conjunction with “Capitalization,” “Unaudited Pro Forma Financial Information,” “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our and Emdeon Business Services’ respective audited and unaudited consolidated financial statements and related notes thereto included elsewhere in this prospectus.
 
                                                                   
    Emdeon Business Services
      Emdeon Inc.
 
    (Predecessor)(1)       (Successor)(1)  
          Period
                                    Pro Forma
 
          from
      Period
          Pro Forma
    Six
    Six
    Six
 
    Year
    January 1,
      November 16,
    Year
    Year
    Months
    Months
    Months
 
    Ended
    2006-
      2006-
    Ended
    Ended
    Ended
    Ended
    Ended
 
    December 31,
    November 15,
      December 31,
    December 31,
    December 31,
    June 30,
    June 30,
    June 30,
 
    2005     2006       2006     2007     2007     2007     2008     2008  
    (in thousands, except per share data)  
Statement of Operations Data:
                                                                 
Revenues
  $ 690,094     $ 663,186       $ 87,903     $ 808,537     $ 803,689     $ 399,635     $ 422,858     $ 425,410  
Costs and expenses:
                                                                 
Cost of operations
    449,065       426,337         56,801       518,757       518,893       253,997       271,845       271,856  
Development and engineering
    20,970       19,147         2,411       23,130       23,137       11,171       12,559       12,560  
Sales, marketing, general and administrative
    90,785       77,560         12,960       95,556       95,763       48,896       46,797       46,818  
Depreciation and amortization
    32,273       30,440         7,127       62,811       86,929       30,287       46,269       48,833  
Other expense, net
          4,198                                        
                                                                   
Total costs and expenses
    593,093       557,682         79,299       700,254       724,722       344,351       377,470       380,067 .  
                                                                   
Operating income
    97,001       105,504         8,604       108,283       78,967       55,284       45,388       45,343  
Interest income
    (74 )     (67 )       (139 )     (1,567 )     (1,567 )     (731 )     (577 )     (577 )
Interest expense
    56       25         10,173       74,940       83,470       38,052       29,023       29,189  
                                                                   
Income (loss) before income taxes and minority interest
    97,019       105,546         (1,430 )     34,910       (2,936 )     17,963       16,942       16,731  
Income tax provision
    31,526       42,004         1,337       18,862       3,788       9,663       7,646       7,562  
                                                                   
Net income (loss) before minority interest
    65,493       63,542         (2,767 )     16,048       (6,724 )     8,300       9,296       9,169  
Minority interest
                              (232 )           1,988       3,216  
                                                                   
Net income (loss)
  $ 65,493     $ 63,542       $ (2,767 )   $ 16,048     $ (6,492 )   $ 8,300     $ 7,308     $ 5,953  
                                                                   
Basic and diluted earnings (loss) per share to Class A and Class B common stockholders:
                                                                 
Basic
                                                             
                                                                   
Diluted
                                                             
                                                                   
Weighted average number of shares used in computing earnings per share:
                                                                 
Basic
                                                             
                                                                   
Diluted
                                                             
                                                                   
Unaudited Financial Data:
                                                                 
Adjusted EBITDA(2)
  $ 130,509     $ 146,286       $ 18,540     $ 182,826     $ 182,476     $ 92,066     $ 99,696     $ 99,663  
                                                                   
 
                   
            Emdeon Inc.
 
    Emdeon Inc.
      Pro Forma As Adjusted
 
    At June 30, 2008       At June 30, 2008  
    (in thousands)  
Balance Sheet Data:
                 
Cash and cash equivalents
  $ 63,581            
Total assets
  $ 1,968,160            
Total debt (net of unamortized debt discount of $61.9 million related to the 2008 Transaction)
  $ 821,778            
Total equity
  $ 676,984            
 
 
(1) Our financial results prior to November 16, 2006 represent the financial results of the group of subsidiaries of HLTH that comprised its Emdeon Business Services segment. On November 16, 2006, HLTH sold a 52% interest in EBS Master (which was formed as a holding company for our business in connection with that transaction) to us. Accordingly, the financial information presented reflects the results of
 
 
(footnotes continued on next page)


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operations and financial condition of Emdeon Business Services before the 2006 Transaction (Predecessor) and of us after the 2006 Transaction (Successor).
(2) We define Adjusted EBITDA as net income (loss) before net interest expense, income tax expense (benefit), depreciation and amortization, and certain other non-recurring, non-cash or nonoperating items. We use Adjusted EBITDA to facilitate a comparison of our operating performance on a consistent basis from period to period that, when viewed in combination with our U.S. generally accepted accounting principles, or “GAAP” results and the following reconciliation, we believe provides a more complete understanding of factors and trends affecting our business than GAAP measures alone. We believe Adjusted EBITDA assists our board of directors, management and investors in comparing our operating performance on a consistent basis because it removes the impact of our capital structure (such as interest expense and 2006 Transaction costs), asset base (such as depreciation and amortization) and items outside the control of our management team (such as income taxes), as well as other non-cash (such as purchase accounting adjustments, share-based compensation expense and lease termination costs) and non-recurring items (such as litigation expenses and failed acquisition charges), from our operations.
 
Our board of directors and management use Adjusted EBITDA as one of the primary measures for planning and forecasting overall expectations and for evaluating, on at least a quarterly and annual basis, actual results against such expectations. Adjusted EBITDA is also used as a performance evaluation metric in determining achievement of certain executive incentive compensation programs, as well as for incentive compensation plans for employees generally. See “Executive Compensation — Compensation Discussion and Analysis.” Finally, adjusted EBITDA, or a similar non-GAAP measure, is used by research analysts, investment bankers and lenders to assess our operating performance.
Despite the importance of this measure in analyzing our business, measuring and determining incentive compensation and evaluating our operating performance, as well as the use of adjusted EBITDA measures by securities analysts, lenders and others in their evaluation of companies, Adjusted EBITDA has 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 GAAP; nor is Adjusted EBITDA intended to be a measure of liquidity or free cash flow for our discretionary use. Some of the limitations of Adjusted EBITDA 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;
• Adjusted EBITDA does not reflect the interest expense, or the cash requirements to service interest or principal payments under our credit agreements;
• Adjusted EBITDA does not reflect income tax payments we are required to make; and
• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements.
 
To properly and prudently evaluate our business, we encourage you to review the financial statements included elsewhere in this prospectus, and not rely on any single financial measure to evaluate our business. We also strongly urge you to review the reconciliation of net income to Adjusted EBITDA. The Adjusted EBITDA, as presented in this prospectus, may differ from and may not be comparable to similarly titled measures used by other companies, because Adjusted EBITDA is not a measure of financial performance under GAAP and is susceptible to varying calculations.
 
The following table sets forth a reconciliation of Adjusted EBITDA to net income, a comparable GAAP-based measure. All of the items included in the reconciliation from net income to Adjusted EBITDA are either (i) non-cash items (such as depreciation and amortization, share-based compensation expense and purchase accounting adjustments) or (ii) items that management does not consider in assessing our on-going operating performance (such as income taxes and interest expense). In the case of the non-cash items, management believes that investors can better assess our comparative operating performance because the measures without such items are less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and more reflective of other factors that affect operating performance. In the case of the other items, management believes that investors can better assess our operating performance if the measures are presented without these items because their financial impact does not reflect ongoing operating performance.
 
 
 
(footnotes continued on next page)


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    Emdeon Business Services
    Emdeon Inc.
    (Predecessor)     (Successor)
                January 1,
    November 16,
  Fiscal Year
  Pro Forma Fiscal
           
                2006 to
    2006 to
  Ended
  Year Ended
  Six Months Ended June 30,
    Fiscal Year Ended December 31,   November 15,
    December 31,
  December 31,
  December 31,
          Pro Forma
    2003   2004   2005   2006     2006   2007   2007   2007   2008   2008
    (in thousands)
Net income (loss)
  $ 30,214     $ 50,553     $ 65,493     $ 63,542       $ (2,767 )   $ 16,048     $ (6,492 )   $ 8,300     $ 7,308     $ 5,953  
Depreciation
    15,696       15,921       17,469       17,488         2,169       23,645       29,294       10,165       19,506       20,107  
Amortization of intangibles
    26,799       17,470       14,804       12,952         4,958       39,166       57,635       20,122       26,763       28,726  
Amortization of non-cash advertising services(a)
    3,904       2,351       939                                                
Interest expense (income), net
    45       80       (18 )     (42 )       10,034       73,373       81,903       37,321       28,446       28,612  
Income tax provision (benefit)
    11,950       26,686       31,526       42,004         1,337       18,862       3,788       9,663       7,646       7,562  
Minority interest
                                          (232 )           1,988       3,216  
                                                                                   
EBITDA
    88,608       113,061       130,213       135,944         15,731       171,094       165,896       85,571       91,657       94,176  
Stock-based compensation(b)
                                    4,486       4,486       1,553       4,715       4,715  
HLTH stock compensation(c)
    2,044       1,384       296       6,144         310       2,107       2,107       798              
Compensation and other expense funded by HLTH(d)
                              1,694       1,694       1,694       1,694              
Purchase accounting adjustments(e)
                              805       3,445       8,293       2,450       3,324       772  
2006 Transaction costs(f)
                      4,198                                        
                                                                                   
Adjusted EBITDA
  $ 90,652     $ 114,445     $ 130,509     $ 146,286       $ 18,540     $ 182,826     $ 182,476     $ 92,066     $ 99,696     $ 99,663  
                                                                                   
 
(a) Represents non-cash advertising services arising from an asset that originated in a barter transaction between HLTH and a media company. This asset was charged against income over the beneficial period of the services. We do not believe that the costs of this transaction are representative of our on-going operations.
(b) Represents non-cash share-based compensation of EBS Master to both employees and directors. We believe excluding this non-cash expense allows us to compare our operating performance without regard to the impact of share-based compensation expense, which varies from period to period based on the amount and timing of grants.
(c) Represents non-cash share-based compensation of HLTH to employees. We believe excluding this non-cash expense allows us to compare our operating performance without regard to the impact of share-based compensation expense, which varies from period to period based on the amount and timing of grants.
(d) Represents cash compensation to employees paid in conjunction with the 2006 Transaction that was subsequently funded by HLTH through a capital contribution. We believe it is appropriate to exclude these charges which are not considered an ongoing component of our operations.
(e) Represents adjustments that arose out of purchase accounting related to business combinations. Historically, these adjustments have primarily related to the revaluation of deferred revenue to fair value at the dates of the 2006 Transaction and the 2008 Transaction and the subsequent reduction to revenue recognized. As the related revenue stream is an on-going component of our business, we believe it is appropriate to consider these items as revenue which would have been recorded had purchase accounting not been performed. We also believe that this reduction of the deferred revenue affects period-to-period financial performance comparability and is not indicative of the changes in our underlying results of operations. In the future, purchase method adjustments affecting other items in addition to deferred revenue may be reflected in our Adjusted EBITDA computation.
(f) Represents charges imputed to us by HLTH related to the 2006 Transaction. We believe it is appropriate to exclude these charges which are not considered an ongoing component of our operations.

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RISK FACTORS
 
Investing in our Class A common stock involves substantial risks. In addition to the other information in this prospectus, you should carefully consider the following factors before investing in our Class A common stock. Any of the risk factors we describe below could adversely affect our business, financial condition or results of operations. The market price of our Class A common stock could decline if one or more of these risks and uncertainties develop into actual events, causing you to lose all or part of the money you paid to buy our shares. While we believe these risks and uncertainties are most important for you to consider, we may face other risks or uncertainties which may adversely affect our business. Certain statements in “Risk Factors” are forward-looking statements. See “Forward-looking Statements.”
 
Risks Related to our Business
 
We face significant competition for our products and services.
 
The markets in which we operate are intensely competitive, continually evolving and, in some cases, subject to rapid technological change. We face competition from many healthcare information systems companies and other technology companies, as well as certain of our customers that provide internally some of the same products and services that we offer. Our key competitors include: (i) healthcare transaction processing companies, including those providing electronic data interchange (“EDI”) and/or Internet-based services and those providing services through other means, such as paper and fax; (ii) healthcare information system vendors that support providers, including physician practice management system and electronic medical record system vendors; (iii) large information technology consulting service providers; and (iv) health insurance companies, pharmacy benefit management companies and pharmacies that provide or are developing electronic transaction services for use by providers and/or by their members and customers. In addition, major software, hardware, information systems and business process outsourcing companies, both with and without healthcare companies as their partners, offer or have announced their intention to offer products or services that are competitive with those of ours.
 
Many of our competitors are significantly larger and have greater financial resources than we do and have established reputations for success in implementing healthcare electronic transaction processing systems. Other companies have targeted this industry for growth, including by developing new technologies utilizing Internet-based systems. We may not be able to compete successfully with these companies, and these or other competitors may commercialize products, services or technologies that render our products, services or technologies obsolete or less marketable.
 
Some of our customers compete with us and some, instead of using a third party provider, perform internally some of the same services that we offer.
 
Some of our existing payer and provider customers compete with us or may plan to do so or belong to alliances that compete with us or plan to do so, either with respect to the same products and services we provide to them or with respect to some of our other lines of business. For example, some of our payer customers currently offer, through affiliated clearinghouses, through Web portals and other means, electronic data transmission services to providers that allow the provider to bypass third party EDI service providers such as us, and additional payers may do so in the future. The ability of payers to replicate our products and services may adversely affect the terms and conditions we are able to negotiate in our agreements with them and our transaction volume with them, which directly relates to our revenues. We may not be able to maintain our existing relationships for connectivity services with payers or develop new relationships on satisfactory terms, if at all. In addition, some of our products and services allow payers to outsource business processes that they have been or could be performing internally and, in order for us to be able to compete, use of our products and services must be more efficient for them than use of internal resources.
 
If we are unable to retain our existing customers, our business, financial condition and results of operations could suffer.
 
Our success depends substantially upon the retention of our customers, particularly due to our transaction-based, recurring revenue model. We may not be able to retain some of our existing customers if we are unable to


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continue to provide products and services that our payer customers believe enable them to achieve improved efficiencies and cost-effectiveness, and that our provider customers believe allow them to more effectively manage their revenue cycle, increase reimbursement rates and improve cash flows. We also may not be able to retain customers if our electronic and/or paper-based solutions contain errors or otherwise fail to perform properly or if our pricing structure is no longer competitive. Historically, we have enjoyed high customer retention rates; however, we may not be able to maintain high retention rates in the future. Our transaction-based, recurring revenues depend in part upon maintaining this high customer retention rate, and if we are unable to maintain our historically high customer retention rate, our business, financial condition and results of operations could be adversely impacted.
 
If we are unable to connect to a large number of payers and providers, our product and service offerings would be limited and less desirable to our customers.
 
Our business largely depends upon our ability to connect electronically to a substantial number of payers, such as insurance companies, Medicare and Medicaid agencies and pharmacy benefit managers, and providers, such as hospitals, physicians, dentists and pharmacies. The attractiveness of some of the solutions we offer to providers, such as our claims management and submission services, depends in part on our ability to connect to a large number of payers, which allows us to streamline and simplify workflows for providers. These connections may either be made directly or through a clearinghouse. We may not be able to maintain our links with a large number of payers on terms satisfactory to us and we may not be able to develop new connections, either directly or through other clearinghouses, on satisfactory terms. The failure to maintain these connections could cause our products and services to be less attractive to our provider customers. In addition, our payer customers view our connections to a large number of providers as essential in allowing them to receive a high volume of transactions and realize the resulting cost efficiencies through the use of our products and services. Our failure to maintain existing connections with payers, providers and other clearinghouses or to develop new connections as circumstances warrant, or an increase in the utilization of direct links between payers and providers, could cause our electronic transaction processing system to be less desirable to healthcare constituents, which would reduce the number of transactions that we process and for which we are paid, resulting in a decrease in revenues and an adverse effect on our financial condition and results of operations.
 
The failure to maintain our relationships with our channel partners or significant changes in the terms of the agreements we have with them may have an adverse effect on our ability to successfully market our products and services.
 
We have entered into contracts with other companies (“channel partners”), including healthcare information system vendors and electronic medical record vendors, to market and sell some of our products and services. Most of these contracts are on a non-exclusive basis. However, in certain instances, we may be bound by contractual provisions with certain of these channel partners that restrict our ability to market and sell our products and services to potential customers. Our arrangements with some of these channel partners involve negotiated payments to them based on percentages of revenues they generate. If the payments prove to be too high, we may be unable to realize acceptable margins, but if the payments prove to be too low, the channel partners may not be motivated to produce a sufficient volume of revenues. The success of these contractual arrangements will depend in part upon the channel partners’ own competitive, marketing and strategic considerations, including the relative advantages of using alternative products being developed and marketed by them or our competitors. If any of these channel partners are unsuccessful in marketing our products and services or seek to amend the financial or other terms of the contracts we have with them, we will need to broaden our marketing efforts to increase focus on the solutions they sell and alter our distribution strategy, which may divert our planned efforts and resources from other projects. In addition, as part of the packages these channel partners sell, they may offer a choice to their customers between products and services that we supply and similar products and services offered by our competitors or by the channel partners directly. For example, one large payer customer terminated an MGA with us last year in order to allow certain of our channel partners and provider customers to directly submit transactions to the payer. If our products and services are not chosen for inclusion in vendor packages, the revenues we earn from these relationships will decrease. Lastly, we could be subject to claims and liability, as a result of the activities, products or services of these channel partners or other resellers of our products and services. Even if these claims do not result in liability to us, investigating and


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defending these claims could be expensive, time-consuming and result in adverse publicity that could harm our business.
 
Our business and future success may depend on our ability to cross-sell our products and services.
 
Our ability to generate revenue and growth partly depends on our ability to cross-sell our products and services to our existing customers and new customers. We expect our ability to successfully cross-sell our products and services will be one of the most significant factors influencing our growth. We may not be successful in cross-selling our products and services because our customers may find our additional products and services unnecessary or unattractive. Our failure to sell additional products and services to existing customers could affect our ability to grow our business.
 
We have faced and will continue to face increasing pressure to reduce our prices, which may cause us to no longer be competitive.
 
As electronic transaction processing further penetrates the healthcare market or becomes highly standardized, competition among electronic transaction processors is increasingly focused on pricing. This competition has placed, and could place further, intense pressure on us to reduce our prices in order to retain market share. If we are unable to reduce our costs sufficiently to offset declines in our prices, or if we are unable to introduce new, innovative product and service offerings with higher margins, our results of operations could decline.
 
In addition, many healthcare industry constituents are consolidating to create integrated healthcare delivery systems with greater market power. As provider networks, such as hospitals, and payer organizations, such as private insurance companies, consolidate, competition to provide the types of products and services we provide will become more intense, and the importance of establishing and maintaining relationships with key industry constituents will become greater. These industry constituents have, in the past, and may, in the future, try to use their market power to negotiate price reductions for our products and services. If we are forced to reduce prices, our margins will decrease and our results of operations will decline, unless we are able to achieve corresponding reductions in expenses.
 
Our ability to generate revenue could suffer if we do not continue to update and improve our existing products and services and develop new ones.
 
We must improve the functionality of our existing products and services in a timely manner and introduce new and valuable healthcare information technology and service solutions in order to respond to technological and regulatory developments and, thereby, retain existing customers and attract new ones. For example, from time to time, government agencies may alter format and data code requirements applicable to electronic transactions. We may not be successful in responding to technological and regulatory developments and changing customer needs. The pace of change in the markets we serve is rapid, and there are frequent new product and service introductions by our competitors and by channel partners who use our products and services in their offerings. If we do not respond successfully to technological and regulatory changes and evolving industry standards, our products and services may become obsolete. Technological changes may also result in the offering of competitive products and services at lower prices than we are charging for our products and services, which could result in our losing sales unless we lower the prices we charge. If we do lower our prices on some of our products and services, we will need to increase our margins on these products and services in order to increase our overall profitability. In addition, the products and services we develop or license may not be able to compete with the alternatives available to our customers.
 
Achieving market acceptance of new or updated products and services is necessary in order for them to become profitable and will likely require significant efforts and expenditures.
 
Our future financial results will depend in part on whether our new or updated products and services receive sufficient customer acceptance. These products and services include:
 
  •  electronic billing, payment and remittance services for payers and providers that complement our existing paper-based patient billing and payment and payment distribution services;


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  •  electronic prescriptions from healthcare providers to pharmacies and pharmacy benefit managers;
 
  •  our other pre- and post-adjudication services for payers and providers; and
 
  •  decision support or business intelligence solutions.
 
Achieving market acceptance for new or updated products and services is likely to require substantial marketing efforts and expenditure of significant funds to create awareness and demand by constituents in the healthcare industry. In addition, deployment of new or updated products and services may require the use of additional resources for training our existing sales force and customer service personnel and for hiring and training additional salespersons and customer service personnel. Failure to achieve broad penetration in target markets with respect to new or updated products and services could have an adverse effect on our business prospects and financial results.
 
There are increased risks of performance problems during times when we are making significant changes to our products and services or to systems we use to provide services. In addition, implementation of our products and services may cost more or take longer than anticipated.
 
In order to respond to technological and regulatory changes and evolving industry standards, our products and services must be continually updated and enhanced. The software and systems that we sell and that we use to provide services are inherently complex and, despite testing and quality control, we cannot be certain that errors will not be found in any enhancements, updates and new versions that we market or use. Even if new products and services do not have performance problems, our technical and customer service personnel may have difficulties in installing them or in their efforts to provide any necessary training and support to customers.
 
Implementation of changes in our technology and systems may cost more or take longer than originally expected and may require more testing than originally anticipated. While the new hardware and software will be tested before it is used in production, we cannot be sure that the testing will uncover all problems that may occur in actual use. If significant problems occur as a result of these changes, we may fail to meet our contractual obligations to customers, which could result in claims being made against us or in the loss of customer relationships. In addition, changes in our technology and systems may not provide the additional functionality and other benefits that were originally expected.
 
Disruptions in service or damages to our data or other operation centers, or other software or systems failures, could adversely affect our business.
 
Our data centers and operation centers are essential to our business. Our operations depend on our ability to maintain and protect our computer systems, many of which are located in data centers that we operate in Memphis and Nashville, Tennessee, and one operated by a third party in Florida. Any system failure, including network, software or hardware failure that causes interruption or an increase in response time of our products and services, could reduce the attractiveness of our products and services to our customers. Our business and results of operations are also highly dependent on our print and mail operations, which are primarily conducted in print and mail operations centers in Bridgeton, Missouri, Toledo, Ohio and Scottsdale, Arizona. If our print and mail operations are interrupted, even for a short period of time, these products and services could become less attractive to our customers.
 
We rely on a limited number of suppliers to provide us with a variety of products and services, including telecommunications and data processing services necessary for our transaction services and processing functions and software developers for the development and maintenance of certain software products we use to provide our solutions. If these suppliers do not fulfill their contractual obligations or choose to discontinue their products or services, our business and operations could be disrupted, our brand and reputation could be harmed and our financial condition and operating results could be adversely affected.
 
Despite the implementation of security measures, our infrastructure, data centers or systems that we interface with, including the Internet and related systems, may be vulnerable to physical break-ins, hackers, improper employee or contractor access, computer viruses, programming errors, denial-of-service attacks, terrorist attacks or


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other attacks by third parties or similar disruptive problems. We may be required to expend significant capital and other resources to protect against security breaches and hackers or to alleviate problems caused by such breaches.
 
We maintain insurance against fires, floods, other natural disasters and general business interruptions, the amount of coverage may not be adequate in any particular case. The occurrence of any of these events could result in interruptions, delays or cessations in service to users of our products and services, which could impair or prohibit our ability to provide our products and services and adversely impact our business.
 
We may be liable to our customers and may lose customers if we provide poor service, if our products and services do not comply with our agreements or if our software products or transmission systems contain errors or experience failures.
 
We must meet our customers’ service level expectations and our contractual obligations with respect to our products and services. Failure to do so could subject us to liability, as well as cause us to lose customers. In some cases, we rely upon third party contractors to assist us in providing our products and services. Our ability to meet our contractual obligations and customer expectations may be impacted by the performance of our third party contractors and their ability to comply with applicable laws and regulations. For example, our new electronic payment and remittance services depend in part on the ability of our vendors to comply with applicable banking and financial service requirements and their failure to do so could have an adverse impact on our financial condition and results of operations.
 
Errors in the software and systems we provide to customers or the software and systems we use to provide our products and services also could cause serious problems for our customers. In addition, because of the large amount of data we collect and manage, it is possible that hardware failures and errors in our systems would result in data loss or corruption or cause the information that we collect to be incomplete or contain inaccuracies that our customers regard as significant. For example, errors in our transaction processing systems can result in payers paying the wrong amount, making payments to the wrong payee or delaying payments. Since some of our products and services relate to laboratory ordering and reporting and electronic prescriptions, an error in our systems also could result in injury to a patient. If problems like these occur, our customers may seek compensation from us or may seek to terminate their agreements with us, withhold payments due to us, seek refunds from us of part or all of the fees charged under our agreements, a loan or advancement of funds, or initiate litigation or other dispute resolution procedures. In addition, we may be subject to claims against us by others affected by any such problems.
 
In addition, our activities and the activities of our third party contractors involve the storage, use and transmission of personal health information. Accordingly, security breaches of our computer systems or at print and mail operation centers could expose us to a risk of loss or litigation, government enforcement actions and contractual liabilities. We cannot assure you that contractual provisions attempting to limit our liability in these areas will be successful or enforceable, or that other parties will accept such contractual provisions as part of our agreements. Any security breaches also could impact our ability to provide our products and services, as well as impact the confidence of our customers in our products and services, either of which could have an adverse effect on our business, financial condition and results of operations.
 
We attempt to limit, by contract, our liability for damages arising from our negligence, errors, mistakes or security breaches. However, contractual limitations on liability may not be enforceable in certain circumstances or may otherwise not provide sufficient protection to us from liability for damages. We maintain liability insurance coverage, including coverage for errors and omissions. It is possible, however, that claims could exceed the amount of our applicable insurance coverage, if any, or that this coverage may not continue to be available on acceptable terms or in sufficient amounts. Even if these claims do not result in liability to us, investigating and defending against them could be expensive and time consuming and could divert management’s attention away from our operations. In addition, negative publicity caused by these events may delay market acceptance of our products and services, including unrelated products and services, or may harm our reputation and our business.


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Our business will suffer if we fail to successfully integrate acquired businesses and technologies or to appropriately assess the risks in particular transactions.
 
We have in the past acquired, and may in the future acquire, businesses, technologies, services, product lines and other assets. The successful integration of the acquired businesses and assets into our operations, on a cost-effective basis, can be critical to our future performance. The amount and timing of the expected benefits of any acquisition, including potential synergies between our current business and the acquired business, are subject to significant risks and uncertainties. These risks and uncertainties include, but are not limited to, those relating to:
 
  •  our ability to maintain relationships with the customers of the acquired business;
 
  •  our ability to cross-sell products and services to customers with which we have established relationships and those with which the acquired businesses have established relationships;
 
  •  our ability to retain or replace key personnel;
 
  •  potential conflicts in payer, provider, vendor or marketing relationships;
 
  •  our ability to coordinate organizations that are geographically diverse and may have different business cultures; and
 
  •  compliance with regulatory requirements.
 
We cannot guarantee that any acquired businesses will be successfully integrated with our operations in a timely or cost-effective manner, or at all. Failure to successfully integrate acquired businesses or to achieve anticipated operating synergies, revenue enhancements or cost savings could have an adverse effect on our business, financial condition and results of operations.
 
Although our management attempts to evaluate the risks inherent in each transaction and to evaluate acquisition candidates appropriately, we may not properly ascertain all such risks and the acquired businesses and assets may not perform as we expect or enhance the value of our company as a whole. In addition, acquired companies or businesses may have larger than expected liabilities that are not covered by the indemnification, if any, that we are able to obtain from the sellers.
 
Developments in the healthcare industry could adversely affect our business.
 
Developments that result in a reduction of expenditures by customers or potential customers in the healthcare industry could have an adverse effect on our business. General reductions in expenditures by healthcare industry constituents could result from, among other things:
 
  •  government regulation or private initiatives that affect the manner in which providers interact with patients, payers or other healthcare industry constituents, including changes in pricing or means of delivery of healthcare products and services;
 
  •  reductions in governmental funding for healthcare; and
 
  •  adverse changes in business or economic conditions affecting payers or providers, pharmaceutical companies, medical device manufacturers or other healthcare industry constituents.
 
Even if general expenditures by industry constituents remain the same or increase, developments in the healthcare industry may result in reduced spending on information technology and services or in some or all of the specific markets we serve or are planning to serve. In addition, our customers’ expectations regarding pending or potential industry developments may also affect their budgeting processes and spending plans with respect to the types of products and services we provide. For example, use of our products and services could be affected by:
 
  •  changes in the billing patterns of providers;
 
  •  changes in the design of health insurance plans;
 
  •  changes in the contracting methods payers use in their relationships with providers; and


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  •  decreases in marketing expenditures by pharmaceutical companies or medical device manufacturers, including as a result of governmental regulation or private initiatives that discourage or prohibit promotional activities by pharmaceutical or medical device companies.
 
There are currently numerous federal, state and private initiatives and studies seeking ways to increase the use of information technology in healthcare as a means of improving care and reducing costs. These initiatives may result in additional or costly legal and regulatory requirements that are applicable to us and our customers, may encourage more companies to enter our markets, may provide advantages to our competitors and may result in the development of technology solutions that compete with ours.
 
The healthcare industry has changed significantly in recent years and we expect that significant changes will continue to occur. The timing and impact of developments in the healthcare industry are difficult to predict. We cannot be sure that the markets for our products and services will continue to exist at current levels or that we will have adequate technical, financial and marketing resources to react to changes in those markets.
 
Government regulation creates risks and challenges with respect to our compliance efforts and our business strategies.
 
The healthcare industry is highly regulated and is subject to changing political, legislative, regulatory and other influences. Many healthcare laws are complex, and their application to specific services and relationships may not be clear. In particular, many existing healthcare laws and regulations, when enacted, did not anticipate the healthcare information products and services that we provide, and these laws and regulations may be applied to our products and services in ways that we do not anticipate. Federal and state legislatures and agencies periodically consider proposals to reform or revise aspects of the healthcare industry or to revise or create additional statutory and regulatory requirements. Such proposals, if implemented, could impact our operations, the use of our products or services and our ability to market new products and services, or could create unexpected liabilities for us. We may also be impacted by non-healthcare laws as a result of some of our products and services. For example, laws regulating the banking and financial services industry may impact our operations as a result of services and products we plan to offer through an electronic payment vendor. We are unable to predict what changes to laws or regulations might be made in the future or how those changes could affect our business or the costs of compliance.
 
We have attempted to structure our operations to comply with legal requirements applicable to us directly and to our clients and third party contractors, but there can be no assurance that our operations will not be challenged or impacted by enforcement initiatives. Any determination by a court or agency that our products and services violate, or cause our customers to violate, these laws or regulations could subject us or our customers to civil or criminal penalties. Such a determination could also require us to change or terminate portions of our business, disqualify us from serving customers who are or do business with government entities, or cause us to refund some or all of our service fees or otherwise compensate our customers. In addition, failure to satisfy laws or regulations could adversely affect demand for our products and services and could force us to expend significant capital, research and development and other resources to address the failure. Even an unsuccessful challenge by regulatory authorities or private whistleblowers could result in loss of business, exposure to adverse publicity and injury to our reputation and could adversely affect our ability to retain and attract clients. Laws and regulations impacting our operations include the following:
 
  •  HIPAA and Other Privacy and Security Requirements.  There are numerous federal and state laws and regulations related to the privacy and security of personal health information. In particular, regulations promulgated pursuant to the Health Insurance Portability and Accountability Act of 1996, or “HIPAA,” established privacy and security standards that limit the use and disclosure of individually identifiable health information and that require the implementation of administrative, physical and technological safeguards to ensure the confidentiality, integrity and availability of individually identifiable health information in electronic form. Our operations as a healthcare clearinghouse are directly subject to the HIPAA privacy and security standards. In addition, our payer and provider customers are directly subject to the standards and are required to enter into written agreements with us, known as business associate agreements, which require us to safeguard individually identifiable health information and restrict how we may use and disclose such information.


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In addition to the HIPAA privacy and security standards, most states have enacted patient confidentiality laws that protect against the disclosure of confidential medical information, and many states have adopted or are considering further legislation in this area, including privacy safeguards, security standards and data security breach notification requirements. Such state laws and regulations, if more stringent than the HIPAA standards, are not preempted by the federal requirements and may be applicable to us.
 
  •  HIPAA Transaction and Identifier Standards.  HIPAA and its implementing regulations also mandate certain format, data content and provider identifier standards that must be used in certain electronic transactions, such as claims, payment advice and eligibility inquiries. Although our systems are fully capable of transmitting transactions that comply with these requirements, some payers and healthcare clearinghouses with which we conduct business interpret HIPAA transaction requirements differently than we do or may require us to use legacy formats or include legacy identifiers as they transition to full compliance. Where payers or healthcare clearinghouses require conformity with their interpretations or require us to accommodate legacy transactions or identifiers as a condition of successful transactions, we seek to comply with their requirements, but may be subject to enforcement actions as a result. In August 2008, the Center for Medicare and Medicaid Services proposed adopting updated standard code sets for certain diagnoses and procedures known as the ICD-10 code sets and making related changes to the formats used for certain electronic transactions. If these or other changes impacting electronic transactions become final, we will be required to update our software and may be required to implement other related changes to our systems. We may not be successful in responding to these changes and any responsive changes we make to our transactions and software may result in errors and otherwise negatively impact our service levels. We may also experience complications related to supporting customers that are not fully compliant with the revised requirements as of the applicable compliance date.
 
  •  Anti-Kickback and Anti-Bribery Laws.  A number of federal and state laws govern patient referrals, financial relationships with physicians and other referral sources and inducements to providers and patients. For example, the federal anti-kickback law prohibits any person or entity from offering, paying, soliciting or receiving, directly or indirectly, anything of value with the intent of generating referrals of patients covered by Medicare, Medicaid or other federal healthcare programs. Many states also have similar anti-kickback laws that are not necessarily limited to items or services for which payment is made by a federal healthcare program. Moreover, both federal and state laws forbid bribery and similar behavior. Any determination by a state or federal regulatory agency that any of our activities or those of our customers or vendors violate any of these laws could subject us to civil or criminal penalties, could require us to change or terminate some portions of our business, could require us to refund a portion of our service fees, could disqualify us from providing services to customers doing business with government programs and could have an adverse effect on our business. Even an unsuccessful challenge by regulatory authorities of our activities could result in adverse publicity and could require a costly response from us.
 
  •  False or Fraudulent Claim Laws.  There are numerous federal and state laws that prohibit false or fraudulent claims. False or fraudulent claims include, but are not limited to, billing for services not rendered, failing to refund known overpayments, misrepresenting actual services rendered, improper coding and billing for medically unnecessary items or services. We rely on our customers to provide us with accurate and complete information. Errors and the unintended consequences of data manipulations by us or our systems with respect to entry, formatting, preparation or transmission of claim information may be determined or alleged to be in violation of these laws and regulations or could adversely impact the compliance of our customers.
 
  •  Banking and Financial Services Industry Laws.  The banking and financial services industry is subject to numerous laws and regulations, some of which may impact our operations and subject us, our vendors or our customers to liability as a result of the payment distribution products and services we offer or may offer in the future. Although we do not act as a bank, we plan to provide products and services that involve vendors who are licensed as, or contract with, banks and other regulated providers of financial services. As a result, we may be impacted by banking and financial services industry laws and regulations, such as licensing requirements, solvency standards, requirements to maintain privacy of nonpublic personal financial information and Federal Deposit Insurance Corporation (“FDIC”) deposit insurance limits. Further, our payment


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  distribution products and services may impact the ability of our payer customers to comply with state prompt payment laws. These laws require payers to pay healthcare claims meeting the statutory or regulatory definition of a “clean claim” to be paid within a specified time frame.
 
Legislative changes may impede our ability to utilize our off-shore service capabilities.
 
In our operations, we have employees in Costa Rica and contractors in India who may have access to patient health information in order to assist us in performing services to our customers. In recent sessions, the U.S. Congress has considered legislation that would restrict the transmission of personally identifiable information regarding a U.S. resident to any foreign affiliate, subcontractor or unaffiliated third party without adequate privacy protections or without providing notice of the transmission and an opportunity to opt out. Some of the proposals considered would have required patient consent and imposed liability on healthcare businesses arising from the improper sharing or other misuse of personally identifiable information. Congress also has considered creating a private civil cause of action that would allow an injured party to recover damages sustained as a result of a violation of these proposed restrictions. A number of states have also considered, or are in the process of considering, prohibitions or limitations on the disclosure of medical or other information to individuals or entities located outside of the United States. If legislation of this type is enacted, our ability to utilize off-shore resources may be impeded, and we may be subject to sanctions for failure to comply with the new mandates of the legislation. Further, as a result of concerns regarding the possible misuse of personally identifiable information, some of our customers have contractually limited our ability to use our off-shore resources. Use of off-shore resources may increase our risk of violating our contractual obligations to our customers to protect the privacy and security of individually identifiable health information provided to us, which could adversely impact our reputation and operating results.
 
Failure by our customers to obtain proper permissions or provide us with accurate and appropriate data may result in claims against us or may limit or prevent our use of data which could harm our business.
 
We require our customers to provide necessary notices and to obtain necessary permissions for the use and disclosure of the information that we receive. If they do not provide necessary notices or obtain necessary permissions, then our use and disclosure of information that we receive from them or on their behalf may be limited or prohibited by state or federal privacy laws or other laws. Such failures by our customers could impair our functions, processes and databases that reflect, contain or are based upon such data. For example, as part of our claims submission services, we rely on our customers to provide us with accurate and appropriate data and directives for our actions. While we have implemented certain features and safeguards designed to maximize the accuracy and completeness of claims content, these features and safeguards may not be sufficient to prevent inaccurate claims data from being submitted to payers. In addition, such failures by our customers could interfere with or prevent creation or use of rules, analyses or other data-driven activities that benefit us. Accordingly, we may be subject to claims or liability for inaccurate claims data submitted to payers or for use or disclosure of information by reason of lack of valid notice or permission. These claims or liabilities could damage our reputation, subject us to unexpected costs and adversely affect our financial condition and operating results.
 
Certain of our products and services present the potential for embezzlement, identity theft or other similar illegal behavior by our employees or contractors with respect to third parties.
 
Among other things, our products and services include printing and mailing checks and/or facilitating electronic funds transfers for our payer customers, and handling mail and payments from payers and from patients for many of our customers which frequently includes original checks and/or credit card information, and occasionally, may include currency. Even in those cases in which we do not facilitate payments or handle original documents or mail, our services also involve the use and disclosure of personal and business information that could be used to impersonate third parties or otherwise gain access to their data or funds. If any of our employees or contractors takes, converts or misuses such funds, documents or data, we could be liable for damages, and our business reputation could be damaged or destroyed. In addition, we could be perceived to have facilitated or participated in illegal misappropriation of funds, documents or data and therefore be subject to civil or criminal liability. Federal and state regulators may take the position that a data breach or misdirection of data constitutes an


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unfair or deceptive act or trade practice. We may also be subject to laws and regulations requiring us to maintain security safeguards and notify individuals affected by data breaches.
 
Contractual relationships with customers that are governmental agencies or are funded by government programs may impose special burdens on us and provide special benefits to those customers.
 
A portion of our revenues comes from customers that are governmental agencies or are funded by government programs. Our contracts and subcontracts may be subject to some or all of the following:
 
  •  termination when appropriated funding for the current fiscal year is exhausted;
 
  •  termination for the governmental customer’s convenience, subject to a negotiated settlement for costs incurred and profit on work completed, along with the right to place contracts out for bid before the full contract term, as well as the right to make unilateral changes in contract requirements, subject to negotiated price adjustments;
 
  •  compliance and reporting requirements related to, among other things, agency specific policies and regulations, equal employment opportunity, affirmative action for veterans and workers with disabilities and accessibility for the disabled;
 
  •  broad audit rights; and
 
  •  specialized remedies for breach and default, including setoff rights, retroactive price adjustments and civil or criminal fraud penalties, as well as mandatory administrative dispute resolution procedures instead of state contract law remedies.
 
In addition, certain violations of federal law may subject us to having our contracts terminated and, under certain circumstances, suspension and/or debarment from future government contracts. We are also subject to conflict-of-interest rules that may affect our eligibility for some government contracts, including rules applicable to all U.S. government contracts, as well as rules applicable to the specific agencies with which we have contracts or with which we may seek to enter into contracts.
 
The protection of our intellectual property requires substantial resources.
 
We rely upon a combination of patent, trade secret, copyright and trademark laws, license agreements, confidentiality procedures, nondisclosure agreements and technical measures to protect the intellectual property used in our business. The steps we have taken to protect and enforce our proprietary rights and intellectual property may not be adequate. For instance, we may not be able to secure trademark or service mark registrations for marks in the U.S. or in foreign countries or take similar steps to secure patents for our proprietary applications. Third parties may infringe upon or misappropriate our patents, copyrights, trademarks, service marks and similar proprietary rights, which could have an adverse affect on our business, financial condition and results of operations. If we believe a third-party has misappropriated our intellectual property, litigation may be necessary to enforce and protect those rights, which would divert management resources, would be expensive and may not effectively protect our intellectual property. As a result, if anyone misappropriates our intellectual property, it may have an 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 products or services.
 
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 to develop non-infringing technology, obtain a license or cease selling the products or services that use or contain the infringing intellectual property. We may be unable to develop non-infringing products or services or obtain a license on commercially reasonable terms, or at all. We may also be required to indemnify our customers if they become subject to third-party claims relating to intellectual property that we license or otherwise provide to them, which could be costly.


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We have a substantial amount of indebtedness which could affect our financial condition.
 
As of June 30, 2008, we had an aggregate of $883.7 million of outstanding indebtedness (before deduction of unamortized debt discount of $61.9 million recorded in connection with the 2008 Transaction) and we had the ability to borrow an additional $44.2 million under our revolving credit facility. If we cannot generate sufficient cash flow from operations to service our debt, we may need to refinance our debt, dispose of assets or issue equity to obtain necessary funds. We do not know whether we will be able to take any of such actions on a timely basis or on terms satisfactory to us or at all.
 
Our substantial amount of indebtedness could limit our ability to:
 
  •  obtain necessary additional financing for working capital, capital expenditures or other purposes in the future;
 
  •  plan for, or react to, changes in our business and the industries in which we operate;
 
  •  make future acquisitions or pursue other business opportunities; and
 
  •  react in an extended economic downturn.
 
Despite our substantial indebtedness, we may still be able to incur significantly more debt. The incurrence of additional debt could increase the risks associated with our substantial leverage, including our ability to service our indebtedness. In addition, because borrowings under our credit agreements bear interest at a variable rate, our interest expense could increase, exacerbating these risks. For instance, assuming an aggregate principal balance of $883.7 million outstanding under our credit agreements, which was the amount outstanding as of June 30, 2008, a 1% increase in the interest rate we are charged on our debt would have increased our annual interest expense by $2.3 million, after including the effect of our interest rate swap agreement.
 
The terms of our credit agreements may restrict our current and future operations, which would adversely affect our ability to respond to changes in our business and to manage our operations.
 
Our credit agreements contain, and any future indebtedness of ours would likely contain, a number of restrictive covenants that impose significant operating and financial restrictions on us, including restrictions on our ability to, among other things:
 
  •  incur additional debt;
 
  •  issue preferred stock;
 
  •  create liens;
 
  •  create or incur contingent obligations;
 
  •  engage in sales of assets and subsidiary stock;
 
  •  enter into sale-leaseback transactions;
 
  •  make investments and acquisitions;
 
  •  enter into certain hedging arrangements;
 
  •  make capital expenditures;
 
  •  pay dividends and make other restricted payments;
 
  •  enter into transactions with affiliates; and
 
  •  transfer all or substantially all of our assets or enter into merger or consolidation transactions.
 
Our credit agreements also require us to maintain certain financial ratios. A failure by us to comply with the covenants or financial ratios contained in our credit agreements could result in an event of default under the applicable facility which could adversely affect our ability to respond to changes in our business and manage our operations. A change of control of our company is also an event of default under our credit agreements. Under our


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credit agreements, a change of control of our company will occur if we fail to own at least 55% of EBS Master or General Atlantic or its affiliates fail to control us. In the event of any default under our first lien credit agreement, the lenders under that agreement will not be required to lend any additional amounts to us. In addition, upon the occurrence of an event of default under either of our credit agreements, the lenders under both credit agreements could elect to declare all amounts outstanding to be due and payable and require us to apply all of our available cash to repay these amounts. If the indebtedness under our credit agreements were to be accelerated, there can be no assurance that our assets would be sufficient to repay this indebtedness in full.
 
We have agreed that upon the request of our Principal Equityholders, we will use our reasonable best efforts to amend our credit agreements to modify the change of control provisions or to refinance our credit agreements. See “Certain Relationships and Related Transactions — Stockholders Agreement.” Any amended credit agreements or new credit agreements may impose even greater operating and financial restrictions on us or bear a higher interest rate.
 
A write-off of all or a part of our identifiable intangible assets or goodwill would hurt our operating results and reduce our net worth.
 
We have significant identifiable intangible assets and goodwill, which represents the excess of the total purchase price of our acquisitions over the estimated fair value of the net assets acquired. As of June 30, 2008, we had $989.5 million of identifiable intangible assets and $622.9 million of goodwill on our balance sheet, which represented in excess of 80% of our total assets. We amortize identifiable intangible assets over their estimated useful lives which range from 2 to 20 years. We also evaluate our identifiable intangible assets and goodwill for impairment at least annually. We are not permitted to amortize goodwill under U.S. accounting standards. In the event impairment of either the identifiable intangible assets or goodwill is identified, a charge to earnings would be recorded. Although it does not affect our cash flow, a write-off in future periods of all or a part of these assets would adversely affect our operating results and financial condition. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies — Long-Lived Assets.”
 
We are dependent on the continued service of key executives, the loss of any of whom could adversely affect our business.
 
Our performance is substantially dependent on the performance of our senior management team. We have entered into employment and/or severance protection agreements with certain members of our senior management team that restrict their ability to compete with us should they decide to leave our company. Even though we have entered into these agreements, we cannot be sure that any member of our senior management team will remain with us or that they will not compete with us in the future. The loss of any member of our senior management team could impair our ability to execute our business plan and growth strategy, cause us to lose customers and reduce revenues, or lead to employee morale problems and/or the loss of key employees.
 
Our success depends in part on our ability to identify, recruit and retain skilled management and technical personnel. If we fail to recruit and retain suitable candidates or if our relationship with our employees changes or deteriorates, there could be an adverse effect on our business
 
Our future success depends upon our continuing ability to identify, attract, hire and retain highly qualified personnel, including skilled technical, management, product and technology and sales and marketing personnel, all of whom are in high demand and are often subject to competing offers. Competition for qualified personnel in the healthcare information technology and services industry is intense, and we cannot assure you that we will be able to hire or retain a sufficient number of qualified personnel to meet our requirements, or that we will be able to do so at salary, benefit and other compensation costs that are acceptable to us. A loss of a substantial number of qualified employees, or an inability to attract, retain and motivate additional highly skilled employees required for expansion of our business, could have an adverse effect on our business. In addition, while none of our employees are currently unionized, unionization of our employees is possible in the future. Such unionizing activities could be costly to address and, if successful, would likely adversely impact our operations.


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Lengthy sales, installation and implementation cycles for some of our applications may result in delays or an inability to generate revenues from these applications.
 
Sales of complex revenue cycle management and electronic medical records applications may result in longer sales, contracting and implementation cycles for our customers. These sales may be subject to delays due to customers’ internal procedures for deploying new technologies and processes and implementation may be subject to delays based on the availability of the internal customer resources needed. The use of our solutions may also be delayed due to reluctance to change or modify existing procedures. We are unable to control many of the factors that will influence the timing of the buying decisions of potential customers or the pace at which installation and training may occur. If we experience longer sales, contracting and implementation cycles for our applications, we may experience delays in generating, or an inability to generate revenue from these applications, which could have an adverse effect on our financial results.
 
Risks Related to our Organization and Structure
 
We are a holding company and our principal asset after completion of this offering will be our equity interests in EBS Master, and we are accordingly dependent upon distributions from EBS Master to pay dividends, if any, taxes and other expenses.
 
We are a holding company and, upon completion of the reorganization transactions and this offering, our principal asset will be our ownership of equity interests in EBS Master in the form of EBS Units. See “Organizational Structure.” We have no independent means of generating revenue. We intend to cause EBS Master to make distributions to its unitholders, including us, in an amount sufficient to cover all applicable taxes payable but are limited in our ability to cause EBS Master to make these and other distributions to us (including for purposes of paying corporate and other overhead expenses and dividends) due to the terms of our credit agreements. To the extent that we need funds and EBS Master is restricted from making such distributions under applicable law or regulation, as a result of the terms in our credit agreements or is otherwise unable to provide such funds, it could adversely affect our liquidity and financial condition.
 
We are controlled by our Principal Equityholders whose interest in our business may be different than yours, and certain statutory provisions afforded to stockholders are not applicable to us.
 
Together, our Principal Equityholders will control approximately      % of the combined voting power of our common stock (or     % if the underwriters exercise their over-allotment option in full) after the completion of this offering and the application of the net proceeds from this offering. In connection with the reorganization transactions, we will enter into the Stockholders Agreement with the General Atlantic Equityholders, the H&F Equityholders and the EBS Equity Plan Members. Under the Stockholders Agreement, our Principal Equityholders will be entitled to nominate all members of our board of directors and each of the Principal Equityholders will agree to vote for all of the nominees. See “Management — Corporate Governance — Board Structure” and “Certain Relationships and Related Party Transactions — Stockholders Agreement” for additional detail on the composition of our board of directors and the rights of our Principal Equityholders under the Stockholders Agreement.
 
Accordingly, our Principal Equityholders can exercise significant influence over our business policies and affairs, including the power to nominate our board of directors. In addition, the Principal Stockholders can control any action requiring the general approval of our stockholders, including the adoption of amendments to our certificate of incorporation and bylaws and the approval of mergers or sales of substantially all of our assets. The concentration of ownership and voting power of our Principal Equityholders may also delay, defer or even prevent an acquisition by a third party or other change of control of our company and may make some transactions more difficult or impossible without the support of our Principal Equityholders, even if such events are in the best interests of minority stockholders. The concentration of voting power among the Principal Equityholders may have an adverse effect on the price of our Class A common stock. In addition, because shares of our Class B common stock and Class C common stock each have 10 votes per share on matters submitted to stockholders, our Principal Equityholders will be able to exert significant influence over us even after they have sold a significant amount of the equity they own in our company.


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We have opted out of section 203 of the General Corporation Law of the State of Delaware, which we refer to as the “Delaware General Corporation Law,” which, subject to certain exceptions, prohibits a publicly held Delaware corporation from engaging in a business combination transaction with an interested stockholder for a period of three years after the interested stockholder became such. Therefore, after the lock-up period expires, the General Atlantic Equityholders and the H&F Equityholders are able to transfer control of us to a third party by transferring their common stock (subject to the restrictions in the Stockholders Agreement), which would not require the approval of our board of directors or our other stockholders.
 
Our amended and restated certificate of incorporation will provide that the doctrine of “corporate opportunity” will not apply against the General Atlantic Equityholders or the H&F Equityholders and their respective affiliates, in a manner that would prohibit them from investing in competing businesses or doing business with our customers. To the extent they invest in such other businesses, our Principal Equityholders may have differing interests than our other stockholders.
 
For additional information regarding the share ownership of, and our relationship with, General Atlantic and H&F, you should read the information under the headings “Principal and Selling Stockholders” and “Certain Relationships and Related Transactions.”
 
We will be exempt from certain corporate governance requirements since we will be a “Controlled Company” within the meaning of the NYSE Rules and, as a result, our stockholders will not have the protections afforded by these corporate governance requirements.
 
Together, our Principal Equityholders will continue to control more than 50% of the voting power of our common stock upon completion of this offering. As a result, we will be considered a “controlled company” for the purposes of the NYSE listing requirements and therefore we will be permitted to, and we intend to, opt out of the NYSE listing requirements that would otherwise require our board of directors to have a majority of independent directors and our compensation and nominating and corporate governance committees to be comprised entirely of independent directors. Accordingly, our stockholders will not have the same protection afforded to stockholders of companies that are subject to all of the NYSE governance requirements and the ability of our independent directors to influence our business policies and affairs may be reduced. See “Management — Corporate Governance — Controlled Company.”
 
We will be required to pay an affiliate of our Principal Equityholders and the EBS Equity Plan Members for certain tax benefits we may claim arising in connection with this offering and related transactions.
 
Prior to this offering, we and two of our subsidiaries have purchased membership interests in EBS Master. Also, as described under “Use of Proceeds,” we intend to use a portion of the proceeds from this offering to purchase additional membership interests in EBS Master from the H&F Continuing LLC Members. The purchases of these membership interests resulted, and will result in, tax basis adjustments to the assets of EBS Master, and these basis adjustments have been allocated to us and two of our subsidiaries. In addition, the EBS Units (along with the corresponding shares of our Class C common stock (or, after the conversion date, Class D common stock)) held by the H&F Continuing LLC Members will be exchangeable in the future for shares of our Class B common stock (or, after the conversion date, Class A common stock) and the EBS Units (along with the corresponding shares of our Class D common stock) held by the EBS Equity Plan Members will be exchangeable in the future for shares of our Class A common stock. These future exchanges are likely to result in tax basis adjustments to the assets of EBS Master, which adjustments would also be allocated to us. Both the existing and the anticipated basis adjustments are expected to reduce the amount of tax that we would otherwise be required to pay in the future.
 
We intend to enter into a tax receivable agreement with the Tax Receivable Entity that will provide for the payment by us to the Tax Receivable Entity of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we actually realize in periods after this offering as a result of (i) any step-up in tax basis in EBS Master’s assets resulting from (a) the purchases by us and our subsidiaries of EBS Units, (b) exchanges by the H&F Continuing LLC Members of EBS Units (along with the corresponding shares of our Class C common stock (or, after the conversion date, Class D common stock)) for shares of our Class B common


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stock (or, after the conversion date, Class A common stock), or (c) payments under this tax receivable agreement to the Tax Receivable Entity; (ii) tax benefits related to imputed interest deemed to be paid by us as a result of this tax receivable agreement and (iii) net operating loss carryovers from prior periods (or portions thereof).
 
We will also enter into a tax receivable agreement with the EBS Equity Plan Members which will provide for the payment by us to the EBS Equity Plan Members of 85% of the amount of the cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we actually realize in periods after this offering as a result of (i) any step-up in tax basis in EBS Master’s assets resulting from (a) the exchanges by the EBS Equity Plan Members of EBS Units (along with the corresponding shares of our Class D common stock) for shares of our Class A common stock or (b) payments under this tax receivable agreement to the EBS Equity Plan Members and (ii) tax benefits related to imputed interest deemed to be paid by us as a result of this tax receivable agreement.
 
The actual increase in tax basis, as well as the amount and timing of any payments under the tax receivable agreements, will vary depending upon a number of factors, including the timing of exchanges by the H&F Continuing LLC Members or the EBS Equity Plan Members, as applicable, the price of our Class A common stock at the time of the exchange, the extent to which such exchanges are taxable, the amount and timing of the taxable income we generate in the future and the tax rate then applicable, our use of net operating loss carryovers and the portion of our payments under the tax receivable agreements constituting imputed interest or amortizable basis. We expect that, as a result of the amount of the increases in the tax basis of the tangible and intangible assets of EBS Master, assuming no material changes in the relevant tax law and that we earn sufficient taxable income to realize in full the potential tax benefit described above, future payments under the tax receivable agreements in respect of the purchases will aggregate $      and range from approximately $      to $      per year over the next 15 years (or $      and range from approximately $      to $      per year over the next 15 years if the underwriters exercise in full their option to purchase additional Class A common stock). Future payments under the tax receivable agreements in respect of subsequent acquisitions of EBS Units would be in addition to these amounts and would, if such exchanges took place at the initial public offering price, be of comparable magnitude.
 
In addition, although we are not aware of any issue that would cause the Internal Revenue Service (“IRS”) to challenge the tax basis increases or other benefits arising under the tax receivable agreements, the Tax Receivable Entity and the EBS Equity Plan Members will not reimburse us for any payments previously made if such basis increases or other benefits are subsequently disallowed, except that excess payments made to the Tax Receivable Entity or the EBS Equity Plan Members will be netted against payments otherwise to be made, if any, after our determination of such excess. As a result, in such circumstances, we could make payments under the tax receivable agreements that are greater than our actual cash tax savings.
 
Finally, because we are a holding company with no operations of our own, our ability to make payments under the tax receivable agreements is dependent on the ability of our subsidiaries to make distributions to us. Our credit agreements restrict the ability of our subsidiaries to make distributions to us, which could affect our ability to make payments under the tax receivable agreements. To the extent that we are unable to make payments under the tax receivable agreements for any reason, such payments will be deferred and will accrue interest until paid.
 
Risks Related to This Offering and our Class A Common Stock
 
Substantial future sales of shares of our Class A common stock in the public market could cause our stock price to fall.
 
Upon consummation of this offering, we will have           shares of Class A common stock outstanding, excluding           shares of Class A common stock underlying outstanding options and restricted stock units, assuming the underwriters do not exercise their option to purchase additional shares and assuming all shares of our outstanding Class B common stock are converted into Class A common stock. Of these shares, the           shares sold in this offering (or           shares if the underwriters exercise their option in full) will be freely tradable without further restriction under the Securities Act of 1933, as amended (the “Securities Act”). Upon completion of this offering, approximately           of our outstanding shares of Class A common stock (including           shares of Class A common stock that may be issued upon conversion of our Class B common stock) will be deemed “restricted securities,” as that term is defined under Rule 144. Immediately following the consummation of this offering, the holders of approximately           shares of our Class A common stock


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(including           shares of our Class A common stock that may be issued upon conversion of our Class B common stock) will be entitled to dispose of their shares following the expiration of an initial 180-day underwriter “lock-up” period pursuant to the holding period, volume and other restrictions of Rule 144 (or           shares if the underwriters exercise their option in full).
 
In addition, upon consummation of the offering and the application of the net proceeds from this offering, the H&F Continuing LLC Members will own an aggregate of           EBS Units and           shares of our Class C common stock (or           EBS Units and           shares of our Class C common stock if the underwriters exercise their over-allotment option in full) and the EBS Equity Plan Members will own an aggregate of           EBS Units and           shares of our Class D common stock. Pursuant to the terms of the EBS LLC Agreement and our amended and restated certificate of incorporation, each of the EBS Post-IPO Members will be able to exchange its EBS Units (and corresponding shares of our Class C common stock or Class D common stock) for shares of our Class A common stock or Class B common stock, as applicable, on a one-for-one basis. Shares of our Class A common stock issuable to the EBS Post-IPO Members upon an exchange of EBS Units as described above and the shares of Class A common stock that may be issued to the H&F Continuing LLC Members upon the conversion of Class B common stock would be considered “restricted securities,” as that term is defined in Rule 144.
 
We intend to file a registration statement under the Securities Act registering           shares of our Class A common stock reserved for issuance under our 2008 Equity Plan and we will enter into the Stockholders Agreement under which we will grant demand and piggyback registration rights to our Principal Equityholders and the EBS Equity Plan Members. See the information under the heading “Shares Eligible for Future Sale” for a more detailed description of the shares that will be available for future sale upon completion of this offering.
 
We do not intend to pay dividends in the foreseeable future, and, because we are a holding company, we may be unable to pay dividends.
 
For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock. Any future determination to pay dividends will be at the discretion of our board of directors and will be dependent on then-existing conditions, including our financial condition and results of operations, capital requirements, contractual restrictions, business prospects and other factors that our board of directors considers relevant. Furthermore, because we are a holding company, any dividend payments would depend on the cash flow of our subsidiaries. However, our credit agreements limit the amount of distributions our subsidiaries (including EBS Master) can make to us and the purposes for which distributions could be made. Accordingly, we may not be able to pay dividends even if our board of directors would otherwise deem it appropriate. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” and “Description of Capital Stock.” For the foregoing reasons, you will not be able to rely on dividends on our Class A common stock to receive a return on your investment.
 
Provisions in our organizational documents may delay or prevent our acquisition by a third party.
 
Our amended and restated certificate of incorporation and by-laws will contain several provisions that may make it more difficult or expensive for a third party to acquire control of us without the approval of our board of directors. These provisions also may delay, prevent or deter a merger, acquisition, tender offer, proxy contest or other transaction that might otherwise result in our stockholders receiving a premium over the market price for their Class A common stock. The provisions include, among others:
 
  •  The 10 vote per share feature of our Class B common stock and Class C common stock;
 
  •  provisions relating to the number of directors on our board of directors and the appointment of directors upon an increase in the number of directors or vacancy on our board of directors;
 
  •  provisions requiring a 662/3% stockholder vote for the amendment of certain provisions of our certificate of incorporation and for the adoption, amendment and repeal of our by-laws;
 
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  •  elimination of the right of our stockholders to act by written consent; and
 
  •  provisions that set forth advance notice procedures for stockholders’ nominations of directors and proposals for consideration at meetings of stockholders.
 
These provisions of our amended and restated certificate of incorporation and by-laws could discourage potential takeover attempts and reduce the price that investors might be willing to pay for shares of our Class A common stock in the future which could reduce the market price of our Class A common stock. For more information, see “Description of Capital Stock.”
 
The stock price may be volatile, and you may be unable to resell your shares at or above the offering price or at all.
 
Prior to this offering, there has been no public market for our Class A common stock, and an active trading market may not develop or be sustained upon the completion of this offering. The initial public offering price of the Class A common stock offered hereby was determined through our negotiations with the underwriters and may not be indicative of the market price of the Class A common stock after this offering. The market price of our Class A common stock after this offering will be subject to significant fluctuations in response to, among other factors, variations in our operating results, research and reports that securities analysts publish about us or our business and market conditions specific to our business.
 
Because the initial public offering price per common share is substantially higher than our book value per common share, purchasers in this offering will immediately experience a substantial dilution in net tangible book value.
 
Purchasers of our Class A common stock will experience immediate and substantial dilution in net tangible book value per share from the initial public offering price per share. After giving effect to the reorganization transactions described under “Organizational Structure,” the sale of the           shares of Class A common stock offered hereby and after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and the application of the net proceeds therefrom, our pro forma net tangible book value as of June 30, 2008, would have been $      million, or $      per share of Class A common stock and Class B common stock (assuming that the EBS Post-IPO Members exchange all of their EBS Units (and corresponding shares of Class C common stock or Class D common stock) for shares of our Class A common stock and Class B common stock, as applicable, on a one-for-one basis). This represents an immediate dilution in net tangible book value of $      per share to new investors purchasing shares of our Class A common stock in this offering. A calculation of the dilution purchasers will incur is provided below under “Dilution.”
 
We will incur increased costs as a result of being a public company.
 
As a public company, we will incur significant levels of legal, accounting and other expenses that we did not incur as a privately-owned corporation. The Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and related rules of the Securities and Exchange Commission (the “Commission”) and the NYSE corporate governance practices for public companies, impose significant requirements relating to disclosure controls and procedures and internal control over financial reporting. We expect that compliance with these public company requirements will increase our costs, require additional resources and make some activities more time consuming than they have been in the past when we were privately-owned. We will be required to expend considerable time and resources complying with public company regulations.
 
Failure to establish and maintain effective internal controls over financial reporting could have an adverse effect on our business, operating results and stock price.
 
Maintaining effective internal control over financial reporting is necessary for us to produce reliable financial reports and is important in helping to prevent financial fraud. To date, we have not identified any material deficiencies related to our internal control over financial reporting or disclosure controls and procedures, although we have not conducted an audit of our controls. If we are unable to maintain adequate internal controls, our business and operating results could be harmed. We are also beginning to evaluate how to document and test our internal


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control procedures to satisfy the requirements of Section 404 of Sarbanes-Oxley and the related rules of the Commission, which require, among other things, our management to assess annually the effectiveness of our internal control over financial reporting and our independent registered public accounting firm to issue a report on our internal control over financial reporting beginning with our Annual Report on Form 10-K for the year ending December 31, 2009. During the course of this documentation and testing, we may identify deficiencies that we may be unable to remedy before the requisite deadline for those reports. Our auditors have not conducted an audit of our internal control over financial reporting. Any failure to remediate material deficiencies noted by us or our independent registered public accounting firm or to implement required new or improved controls or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. If our management or our independent registered public accounting firm were to conclude in their reports that our internal control over financial reporting was not effective, investors could lose confidence in our reported financial information, and the trading price of our Class A common stock could drop significantly. Failure to comply with Section 404 of Sarbanes-Oxley could potentially subject us to sanctions or investigations by the Commission, the Financial Industry Regulatory Authority or other regulatory authorities.


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FORWARD-LOOKING STATEMENTS
 
This prospectus contains forward-looking statements. You should not place undue reliance on those statements because they are subject to numerous uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business strategy. These statements often include words such as “may,” “will,” “should,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate” or similar expressions. These statements are based on assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you read and consider this prospectus, you should understand that these statements are not guarantees of performance or results. They involve known and unknown risks, uncertainties and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements. These factors include but are not limited to:
 
  •  competition for our products and services;
 
  •  the failure to maintain our customer relationships, including connections with our existing payers and providers;
 
  •  difficulties in maintaining relationships with our channel partners;
 
  •  the inability to effectively cross-sell our products and services to existing customers and to develop and successfully deploy new or updated products or services;
 
  •  pricing pressures on our products and services;
 
  •  disruptions in our services, damages to our data center operations or other software or system failures;
 
  •  the anticipated benefits from acquisitions not being fully realized or not being realized within the expected time frames;
 
  •  general economic, business or regulatory conditions affecting the healthcare and information technology and services industries;
 
  •  governmental regulation of our industry;
 
  •  errors by us, our customers or our contractors in processing and transmitting transaction information;
 
  •  the protection of our intellectual property;
 
  •  our substantial amount of indebtedness;
 
  •  covenants in our credit agreements;
 
  •  loss of key executives and technical personnel;
 
  •  control by our Principal Equityholders;
 
  •  payments under the tax receivable agreements to our Principal Equityholders and the EBS Equity Plan Members;
 
  •  compliance with certain corporate governance requirements and costs incurred in connection with becoming a public company; and


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  •  failure to establish and maintain internal controls over financial reporting.
 
These and other factors are more fully discussed in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this prospectus. These risks could cause actual results to differ materially from those implied by forward-looking statements in this prospectus.
 
All information contained in this prospectus is materially accurate and complete as of the date of this prospectus. You should keep in mind, however, that any forward-looking statement made by us in this prospectus, or elsewhere, speaks only as of the date on which we make it. New risks and uncertainties come up from time to time, and it is impossible for us to predict these events or how they may affect us. We have no obligation to update any forward-looking statements in this prospectus after the date of this prospectus, except as required by federal securities laws. In light of these risks and uncertainties, you should keep in mind that any event described in a forward-looking statement made in this prospectus or elsewhere might not occur.


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ORGANIZATIONAL STRUCTURE
 
Structure Prior to the Reorganization Transactions
 
Prior to November 2006, our business was owned by HLTH. We currently conduct our business through EBS Master and its subsidiaries. EBS Master was formed by HLTH to act as a holding company for the group of wholly-owned subsidiaries of HLTH that comprised its Emdeon Business Services segment. In November 2006, we purchased a 52% interest in EBS Master from HLTH. Our current stockholders consist of investment funds organized and controlled by General Atlantic. In February 2008, HLTH sold its remaining 48% interest in EBS Master to affiliates of General Atlantic and H&F. As a result, prior to giving effect to the reorganization transactions, EBS Master was owned 65.77% by the General Atlantic Equityholders and 34.23% by the H&F Equityholders.
 
Presently, EBS Master is authorized to issue 110 million EBS Units. The 100 million outstanding EBS Units are owned as follows:
 
  •  We own 52.0% of the outstanding EBS Units;
 
  •  EBS Acquisition II LLC (“EBS Acquisition” and, together with us, the “General Atlantic Unitholders”), an entity whose members consist of investment funds organized and controlled by General Atlantic, owns 13.77% of the outstanding EBS Units;
 
  •  HFCP VI Domestic AIV, L.P. (“HFCP Domestic”), an investment fund organized and controlled by H&F, owns 22.35% of the outstanding EBS Units;
 
  •  H&F Harrington AIV I, L.P. (“H&F Harrington”), an entity whose partners consist of investment funds organized and controlled by H&F, owns 11.77% of the outstanding EBS Units;
 
  •  Hellman & Friedman Capital Executives VI, L.P. (“H&F Capital Executives”), an investment fund organized and controlled by H&F, owns 0.10% of the outstanding EBS Units; and
 
  •  Hellman & Friedman Capital Associates VI, L.P. (“H&F Capital Associates” and, together with HFCP Domestic, H&F Harrington and H&F Capital Executives, the “H&F Unitholders”), an investment fund organized and controlled by H&F, owns 0.01% of the outstanding EBS Units.
 
In addition, participants in the Amended and Restated EBS Executive Equity Incentive Plan (the “EBS Equity Plan”) hold indirect interests in EBS Master in the form of Grant A Units (the “Grant A Units”) and Grant B Units (the “Grant B Units” and, together with the Grant A Units, the “Grant Units”). The Grant Units were issued directly to, and are currently held by, EBS Incentive Plan LLC (“EBS Plan LLC”). Currently, 12 members of our senior management, including our executive officers and the Chairman of our board of directors, participate in the EBS Equity Plan and hold direct interests in EBS Plan LLC. Each Grant Unit represents an equity interest in EBS Master that entitles the holder to a percentage of the profits and appreciation in the equity value of EBS Master’s principal operating subsidiary arising after the date of grant. Generally, the Grant Units vest ratably over a five year period from the date of grant.
 
We have also issued awards (the “EBS Phantom Awards”) to certain of our employees under the Amended and Restated EBS Incentive Plan (the “EBS Phantom Plan”). EBS Phantom Awards represent the right to payments based on the appreciation in the equity value of EBS Master since the date of grant. Currently, 74 of our employees participate in the EBS Phantom Plan, none of whom are participants in the EBS Equity Plan. Generally, the EBS Phantom Awards vest over a period of five years.
 
The Reorganization Transactions
 
Prior to the effectiveness of the registration statement of which this prospectus forms a part, we intend to commence an internal restructuring, which we refer to in this prospectus as the “reorganization transactions.”
 
We have not engaged in any business or other activities, except in connection with our investment in EBS Master and the reorganization transactions, and currently have no assets other than our interest in EBS Master. Following this offering, EBS Master and its subsidiaries will continue to operate the historical business. This structure is being implemented because certain of EBS Master’s current members desire that it maintain its existing


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tax treatment as a partnership for U.S. federal income tax purposes and, therefore, will continue to hold their ownership interests in EBS Master until such time in the future as they may elect to exchange their EBS Units (and corresponding shares of our Class C common stock or Class D common stock) with us for shares of our Class A common stock or Class B common stock, as applicable, on a one-for-one basis.
 
We are currently authorized to issue a single class of common stock. In connection with the reorganization transactions, we will amend and restate our certificate of incorporation and will be authorized to issue four classes of common stock: Class A common stock, Class B common stock, Class C common stock and Class D common stock. The Class A common stock and Class D common stock will each provide holders with one vote on all matters submitted to a vote of stockholders and the Class B common stock and Class C common stock will each provide holders with 10 votes on all matters submitted to a vote of stockholders; however, the holders of Class C common stock and Class D common stock will not have any of the economic rights (including rights to dividends and distributions upon liquidation) provided to holders of Class A common stock or Class B common stock. All shares of our common stock will generally vote together, as a single class, on all matters submitted to a vote of stockholders.
 
Prior to the effectiveness of the registration statement of which this prospectus forms a part:
 
  •  EBS Master will undertake a           for           unit split.
 
  •  We will amend and restate our certificate of incorporation and will reclassify the common stock held by our current stockholders into an aggregate of           shares of our Class B common stock;
 
  •  EBS Acquisition will merge with a newly-formed subsidiary of ours and the newly formed subsidiary will be the surviving entity in the merger; EBS Acquisition’s current members, all of whom are investment funds organized and controlled by General Atlantic, will receive an aggregate of           shares of our Class B common stock and we will hold, indirectly, an additional 13.77% interest in EBS Master;
 
  •  H&F Harrington will dissolve and distribute 1.06% of its interests in EBS Master to Hellman & Friedman Investors VI, L.P., its general partner (“H&F GP”), and 98.94% of its interests in EBS Master to H&F Harrington, Inc.; H&F Harrington, Inc. will then merge with a newly-formed subsidiary of ours and the newly formed subsidiary will be the surviving entity in the merger; H&F Harrington, Inc.’s sole stockholder, H&F Harrington AIV II, L.P. (“H&F AIV”), an investment fund organized and controlled by H&F, will receive an aggregate of           shares of our Class B common stock and we will hold, indirectly, an additional 11.65% interest in EBS Master; and
 
  •  Each of HFCP Domestic, H&F GP, H&F Capital Executives and H&F Capital Associates will continue to hold an aggregate of           EBS Units (or 22.58% of the outstanding EBS Units prior to this offering and the reorganization transactions) and will be issued an aggregate of          shares of our Class C common stock.
 
In addition, EBS Master will amend the EBS Master LLC limited liability company agreement (the “EBS LLC Agreement”) so that prior to the completion of this offering, the accumulated appreciation in the value of the Grant Units since the date of grant will be converted into           EBS Units (assuming an initial public offering price of           per share (the midpoint of the estimated public offering price range set forth on the cover of this prospectus)). These EBS Units will maintain the vesting schedule of the Grant Units. EBS Plan LLC will then liquidate and the participants in the EBS Equity Plan will receive their share of the vested and unvested EBS Units held by EBS Plan LLC prior to liquidation. Each EBS Equity Plan Member will also be issued a number of shares of our Class D common stock equal to the number of EBS Units that he or she receives in the liquidation.
 
In connection with the reorganization transactions, and in accordance with the terms of the EBS Phantom Plan, the Board of EBS Master also will cause the accumulated appreciation in the value of vested EBS Phantom Awards since the date of grant to be converted into           shares of our Class A Common Stock (assuming an initial public offering price of           per share (the midpoint of the estimated public offering price range set forth on the cover of this prospectus)). The accumulated appreciation in the value of unvested EBS Phantom Awards will be converted into unvested restricted stock unit awards (“RSUs”) under the our 2008 Equity Plan, based on the price of


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the Class A common stock issued in this offering. The RSUs will entitle the holder to receive shares of Class A Common Stock upon vesting.
 
In addition, as a part of the reorganization transactions, we expect to, among other things, amend and restate the Fourth Amended and Restated EBS Master LLC limited liability company agreement, enter into tax receivable agreements with the Tax Receivable Entity and the EBS Equity Plan Members and enter into the Stockholders Agreement. See “— Holding Company Structure and Tax Receivable Agreements” and “Certain Relationships and Related Transactions.”
 
Effect of the Reorganization Transactions and this Offering
 
Upon completion of the transactions described above, this offering and the application of the net proceeds from this offering:
 
  •  We will be the sole managing member of EBS Master, will control EBS Master, and will directly or indirectly hold EBS Units, or     % of the outstanding equity interests in EBS Master (     % if the underwriters exercise their over-allotment option in full). We will consolidate the financial results of EBS Master and our net income (loss) will be reduced by a minority interest expense to reflect the entitlement of the EBS Post-IPO Members to a portion of EBS Master’s net income (loss);
 
  •  the General Atlantic Equityholders will hold an aggregate of          shares of our Class B common stock (or           shares if the underwriters exercise their over-allotment option in full), representing     % of the combined voting power in us (or     % if the underwriters exercise their over-allotment option in full) and     % of the economic interest in us (or     % if the underwriters exercise their over-allotment option in full);
 
  •  the H&F Equityholders will hold an aggregate of           shares of our Class B common stock (or           shares if the underwriters exercise their over-allotment option in full), an aggregate of           shares of our Class C common stock (           shares if the underwriters exercise their over-allotment option in full) and an aggregate of           EBS Units, or     % of the outstanding equity interests in EBS Master (     % if the underwriters exercise their over-allotment option in full), collectively representing     % of the combined voting power in us (or     % if the underwriters exercise their over-allotment option in full) and     % of the economic interest in us (or     % if the underwriters exercise their over-allotment option in full);
 
  •  the EBS Equity Plan Members will hold an aggregate of           vested and unvested EBS Units or     % of the outstanding equity interests in EBS Master (     % if the underwriters exercise their over-allotment in full) and an aggregate of           shares of our Class D common stock, representing     % of the combined voting power in us (or     % if the underwriters exercise their over-allotment option in full);
 
  •  our public stockholders will collectively hold           shares of our Class A common stock (or           shares if the underwriters exercise their over-allotment option in full), representing     % of the combined voting power in us (or     % if the underwriters exercise their over-allotment option in full) and     % of the economic interest in us (or     % if the underwriters exercise their over-allotment option in full);
 
  •  the EBS Units held by the H&F Continuing LLC Members (together with the corresponding shares of our Class C common stock) may be exchanged for shares of our Class B common stock on a one-for-one basis. The exchange of EBS Units for shares of our Class B common stock will not affect H&F’s aggregate voting power since the votes represented by the exchanged shares of our Class C common stock will be replaced with the votes represented by the shares of Class B common stock for which EBS Units are exchanged; and
 
  •  any vested EBS Units held by the EBS Equity Plan Members (together with the corresponding shares of our Class D common stock) may be exchanged for shares of our Class A common stock on a one-for-one basis. The exchange of EBS Units for shares of our Class A common stock will not affect the holder’s aggregate voting power since the votes represented by the exchanged shares of our Class D common stock will be


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  replaced with the votes represented by the shares of Class A common stock for which EBS Units are exchanged.
 
Subject to certain limited exceptions, immediately prior to the transfer of a share of Class B common stock by one of our Principal Equityholders, such share of Class B common stock will automatically convert into a share of Class A common stock. In addition, after the date on which all Class B common stock and Class C common stock convert into shares of Class A common stock and Class D common stock, respectively, EBS Units held by the H&F Continuing LLC Members (together with the corresponding shares of our Class D common stock) may be exchanged for shares of our Class A common stock.
 
Upon the consummation of this offering, we will use $     million of net proceeds from the sale of shares of Class A common stock sold by us in this offering to purchase           EBS Units from the H&F Continuing LLC Members, will use approximately $      to pay fees and expenses related to this offering and will invest the remaining proceeds in EBS Master. EBS Master will then use such proceeds as described under “Use of Proceeds.”
 
Holding Company Structure and Tax Receivable Agreements
 
We are a holding company and, immediately after the consummation of the reorganization transactions and this offering, our principal asset will be our interest in EBS Master, which we will hold directly and indirectly through two of our subsidiaries. The number of EBS Units we will own, directly and indirectly, at any time will equal the aggregate number of outstanding shares of our Class A common stock and Class B common stock. The economic interest represented by each EBS Unit that we will own will correspond to one share of our Class A common stock or Class B common stock, and the total number of EBS Units owned directly or indirectly by us and the holders of our Class C common stock and Class D common stock at any given time will equal the sum of outstanding shares of all classes of our common stock. Shares of our Class C common stock and Class D common stock cannot be transferred except in connection with an exchange of an EBS Unit.
 
We do not intend to list our Class B common stock, Class C common stock or Class D common stock on any stock exchange.
 
We intend to enter into a tax receivable agreement with the Tax Receivable Entity that will provide for the payment by us to it of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we actually realize in periods after this offering as a result of (i) any step-up in tax basis in EBS Master’s assets resulting from (a) the purchases by us and our subsidiaries of membership interests in EBS Master, (b) exchanges by the H&F Continuing LLC Members of EBS Units (along with the corresponding shares of our Class C common stock (or, after the conversion date, Class D common stock)) for shares of our Class B common stock (or, after the conversion date, Class A common stock) or (c) payments under the tax receivable agreement to the Tax Receivable Entity; (ii) tax benefits related to imputed interest deemed to be paid by us as a result of the tax receivable agreement; and (iii) net operating loss carryovers from prior periods (or portions thereof).
 
We will also enter into a tax receivable agreement with the EBS Equity Plan Members which will provide for the payment by us to the EBS Equity Plan Members of 85% of the amount of the cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we actually realize in periods after this offering as a result of (i) any step-up in tax basis in EBS Master’s assets resulting from (a) the exchanges by the EBS Equity Plan Members of EBS Units (along with the corresponding shares of our Class D common stock) for shares of our Class A common stock or (b) payments under this tax receivable agreement to the EBS Equity Plan Members and (ii) tax benefits related to imputed interest deemed to be paid by us as a result of this tax receivable agreement.
 
Although we are not aware of any issue that would cause the IRS to challenge the tax basis increases or other benefits arising under the tax receivable agreements, the Tax Receivable Entity and the EBS Equity Plan Members will not reimburse us for any payments previously made if such basis increases or other benefits are subsequently disallowed, except that excess payments made to the Tax Receivable Entity or the EBS Equity Plan Members will be netted against payments otherwise to be made, if any, after our determination of such excess. As a result, in such circumstances we could make payments to the Tax Receivable Entity or the EBS Equity Plan Members under the tax receivable agreements that are greater than our actual cash tax savings. See “Certain Relationships and Related Transactions — Tax Receivable Agreements.”


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As a member of EBS Master, we will incur U.S. federal, state and local income taxes on our allocable share of any net taxable income of EBS Master. As authorized by the EBS LLC Agreement and to the extent permitted under our credit agreements, we intend to cause EBS Master to continue to distribute cash, generally, on a pro rata basis, to its members (which after consummation of the reorganization transactions and this offering will consist of us, our two subsidiaries, and the EBS Post-IPO Members) at least to the extent necessary to provide funds to pay the members’ tax liabilities, if any, with respect to the taxable income of EBS Master. In addition, to the extent permitted under our credit agreements, EBS Master may make distributions to us without pro rata distributions to any other member in order to pay (i) consideration, if any, for redemption, repurchase, acquisition, cancellation or termination of our Class A common stock or Class B common stock and (ii) payments in respect of indebtedness, preferred stock, the tax receivable agreements, operating expenses, overhead and certain other fees and expenses. See “Certain Relationships and Related Transactions — Fifth Amended and Restated EBS Master LLC Limited Liability Company Agreement” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Credit Facilities.”
 
We will account for the reorganization transactions using a carryover basis as the reorganization transactions are premised on a non-substantive exchange in order to facilitate our initial public offering. This is consistent with Financial Accounting Standards Board (“FASB”) Technical Bulletin 85-5, “Issues Relating to Accounting for Business Combinations, including Costs of Closing Duplicate Facilities of an Acquirer; Stock Transactions between Companies under Common Control; Down-Stream Mergers, Identical Common Shares for a Pooling of Interests; and Pooling of Interests by Mutual and Cooperative Enterprises.” The management and governance rights and economic interests that the General Atlantic Equityholders and the H&F Equityholders held in EBS Master before the reorganization transactions will not change as a result of the reorganization transactions until the consummation of this offering.
 
The obligations resulting from the tax receivable agreements that will be entered into are expected to be offset in part by the tax benefits that were transferred to us as a result of the reorganization transactions. Although not assured, we expect that the consideration that we will remit under the tax receivable agreements will not exceed the tax liability that we otherwise would have been required to pay absent the transfers of tax attributes to us as a result of the reorganization transactions and subsequent exchanges.


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USE OF PROCEEDS
 
We estimate that our net proceeds from this offering will be approximately $      million (or $      million if the underwriters exercise their over-allotment option in full), after deducting underwriting discounts and commissions and estimated offering expenses of approximately $      million, based on an assumed initial offering price of $      per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus).
 
Based on an assumed initial offering price of $      per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus), we intend to use $      of the proceeds from this offering to purchase           EBS Units held by the H&F Continuing LLC Members (or $      and           EBS Units if the underwriters exercise their over-allotment option in full) and will use any remaining proceeds for working capital and general corporate purposes, which may include the repayment of indebtedness and future acquisitions.
 
We have broad discretion as to the application of the proceeds to be used for working capital and general corporate purposes. Prior to application, we may hold any net proceeds in cash or invest them in short term securities or investments. You will not have an opportunity to evaluate the economic, financial or other information on which we base our decisions regarding the use of these proceeds.
 
A $1.00 increase (decrease) in the assumed initial public offering price of $      per share would increase (decrease) the amount of proceeds to us from this offering available to purchase EBS Units by $      million and for working capital and general corporate purposes by $      million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
 
We will not receive any proceeds from the sale of our Class A common stock by the selling stockholders, including any proceeds resulting from the underwriters’ exercise of their option to purchase additional shares from the selling stockholders.
 
DIVIDEND POLICY
 
For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock. Any future determination to pay dividends will be at the discretion of our board of directors and will be dependent upon then-existing conditions, including our financial condition and results of operations, capital requirements, contractual restrictions, including restrictions contained in our credit agreements, business prospects and other factors that our board of directors considers relevant.


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CAPITALIZATION
 
The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2008 on an actual basis; on a pro forma basis to reflect the estimated impact of the tax receivable agreements and the conversion of the accumulated appreciation in the value of the EBS Equity Plan Members’ Grant Units since the date of grant into           EBS Units (assuming an initial public offering price of           per share (the mid point of the estimated public offering price range set forth on the cover of this prospectus) in the reorganization transactions); and as further adjusted to reflect:
 
  •  the sale of           shares of our Class A common stock in this offering at an assumed public offering price of $     , after deducting the underwriters’ discounts and commissions and the estimated offering expenses, and
 
  •  the application of the net proceeds of this offering as described under “Use of Proceeds.”
 
                         
    As of June 30, 2008  
                Pro Forma
 
    Actual     Pro Forma     As Adjusted(2)  
    (in thousands-except share data)  
         (Unaudited)  
 
Cash and cash equivalents
  $ 63,581     $           $        
Total indebtedness(1)
    821,778       821,778       821,778  
Minority interest
    203,616                  
Shareholders’ equity:
                       
Class A common stock, $0. 01 par value per share (as adjusted, authorized          shares,          shares issued and outstanding)
                     
Class B common stock, $0. 01 par value per share (as adjusted, authorized          shares,          shares issued and outstanding)
                     
Class C common stock, $0. 01 par value per share (as adjusted, authorized          shares,          shares issued and outstanding)
                     
Class D common stock, $0. 01 par value per share (as adjusted, authorized          shares,          shares issued and outstanding)
                     
Additional paid-in capital
    674,579                  
Accumulated other comprehensive income (loss)
    (18,184 )                
Retained earnings
    20,589                  
                         
Total shareholders’ equity
    676,984                  
                         
Total capitalization
  $ 1,765,959     $       $  
                         
 
 
(1) Total indebtedness is reflected net of purchase accounting adjustments to discount the debt to fair value made in conjunction with the 2008 Transaction. Also, under the revolving portion of our first lien credit agreement we may borrow up to $50 million. As of June 30, 2008, there were approximately $5.8 million of outstanding but undrawn letters of credit issued under our revolving credit facility and we had the ability to borrow an additional $44.2 million.
(2) A $1.00 increase (decrease) in the assumed initial public offering price of $      per share, would increase (decrease) each of additional paid-in capital, total shareholders’ equity and total capitalization by $     , assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.


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DILUTION
 
If you invest in our Class A common stock, you will experience dilution to the extent of the difference between the initial public offering price per share of our Class A common stock and the pro forma net tangible book value per share of our Class A common stock and Class B common stock after this offering. Dilution results from the fact that the per share offering price of the Class A common stock is substantially in excess of the book value per share attributable to the shares of Class A common stock and Class B common stock held by existing equity holders.
 
Our pro forma net tangible book value as of June 30, 2008 was approximately $      million, or $      per share of our Class A common stock and Class B common stock. Pro forma net tangible book value represents the amount of total tangible assets less total liabilities and pro forma net tangible book value per share represents pro forma net tangible book value divided by the number of shares of Class A common stock outstanding, in each case, after giving effect to (i) the reorganization transactions described under “Organization Structure,” (ii) the 2008 Transaction, (iii) the conversion of Grant Units held by the EBS Equity Plan Members into EBS Units in the reorganization transactions and (iv) the estimated impact of the tax receivable agreements assuming that the EBS Post-IPO Members exchange all of their EBS Units (and corresponding shares of our Class C common stock or Class D common stock) for newly-issued shares of our Class A common stock or Class B common stock, as applicable, on a one-for-one basis.
 
After giving effect to the sale of           shares of Class A common stock in this offering at the assumed initial public offering price of $      per share (the midpoint of the range on the cover page of this prospectus) and the application of the net proceeds from this offering, our pro forma as adjusted net tangible book value would have been $      million, or $      per share. This represents an immediate increase in net tangible book value (or a decrease in net tangible book deficit) of $      per share to existing equityholders and an immediate dilution in net tangible book value of $      per share to new investors.
 
The following table illustrates the per share dilution:
 
         
Assumed initial public offering price per share
  $        
Pro forma net tangible book value per share as of June 30, 2008
  $    
Increase in pro forma net tangible book value per share attributable to new investors
  $    
Pro Forma adjusted net tangible book value per share after this offering
  $        
         
Dilution per share to new investors
  $  
         
 
Dilution is determined by subtracting pro forma net tangible book value per share of Class A common stock and Class B common stock after the offering from the initial public offering price per share of Class A common stock.
 
A $1.00 increase (decrease) in the assumed initial public offering price of $      per share, would increase (decrease) our pro forma net tangible book value after this offering by $      and the dilution per share to new investors by $     , in each case assuming the number of shares offered, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.


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The following table summarizes, on the same pro forma basis as of June 30, 2008, the total number of shares of Class A common stock and Class B common stock purchased from us, the total cash consideration paid to us and the average price per share paid by the existing equityholders and by new investors purchasing shares in this offering, assuming that all EBS Units (and corresponding shares of our Class C common stock and Class D common stock) held by the EBS Post-IPO Members have been exchanged for shares of our Class A common stock or Class B common stock, as applicable (amounts in thousands, except percentages and per share data):
 
                                         
    Shares of Class A and Class B Common Stock Purchased     Total Consideration     Average Price
 
    Number     Percent     Amount     Percent     per Share  
 
Existing stockholders
            %   $             %   $        
New investors
                                       
Total
                100.0 %           $ 100.0 %   $  
                                         


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UNAUDITED PRO FORMA FINANCIAL INFORMATION
 
The unaudited pro forma consolidated balance sheet as of June 30, 2008 gives effect to (i) the creation or acquisition of certain tax assets in connection with this offering and the reorganization transactions and the creation of related liabilities in connection with entering into the tax receivable agreements and (ii) the conversion of the accumulated appreciation in the value of the EBS Equity Plan Members’ Grant Units since the date of grant into EBS Units (assuming an initial public offering price range of           per share (the midpoint of the estimated public offering price range set forth on the cover of this prospectus)) in the reorganization transactions as if they had occurred on June 30, 2008. The unaudited pro forma consolidated statements of operations data for the year ended December 31, 2007 and the six months ended June 30, 2008 give effect to the step-up in the value of certain assets as a result of the 2008 Transaction as if the 2008 Transaction had occurred on January 1, 2007. The presentation of the unaudited pro forma financial information is prepared in conformity with U.S. generally accepted accounting principles.
 
The unaudited pro forma financial information has been prepared by our management and is based on our historical financial statements and the assumptions and adjustments described herein and in the notes to the unaudited pro forma financial information below.
 
Our historical financial information for the year ended December 31, 2007 has been derived from our audited consolidated financial statements and accompanying notes included elsewhere in this prospectus. Our historical financial information as of and for the six months ended June 30, 2008 has been derived from our unaudited consolidated financial statements and accompanying notes included elsewhere in this prospectus.
 
We based the pro forma adjustments on available information and on assumptions that we believe are reasonable under the circumstances. See “— Notes to Unaudited Pro Forma Financial Information” for a discussion of assumptions made. The unaudited pro forma financial information is presented for informational purposes and is based on management’s estimates. The unaudited pro forma consolidated statements of operations do not purport to represent what our results of operations actually would have been if the transactions set forth above had occurred on the dates indicated or what our results of operations will be for future periods.


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Emdeon Inc.
 
Unaudited Pro Forma Consolidated Balance Sheet
June 30, 2008
(in thousands)
 
                                 
          Pro Forma
             
    Actual(1)     Adjustments(2)(3)     Notes     Pro Forma  
    (unaudited)  
 
Assets
                               
Current assets:
                               
Cash and cash equivalents
  $ 63,581                     $        
Accounts receivable, net of allowance for doubtful accounts
    130,585                          
Deferred income tax assets
    3,625               (2 )        
Prepaid expenses and other current assets
    15,984                          
                                 
Total current assets
    213,775                        
Property and equipment, net
    133,442                          
Goodwill
    622,869                          
Intangible assets, net
    989,506                          
Other assets, net
    8,568                          
                                 
Total assets
  $ 1,968,160     $      —             $  
                                 
Liabilities and shareholders’ equity
                               
Current liabilities:
                               
Accounts payable
  $ 3,006                     $  
Accrued expenses
    73,961                          
Deferred revenues
    12,603                          
Current portion of long-term debt
    6,792                          
                                 
Total current liabilities
    96,362                        
Long-term debt excluding current portion
    814,986                          
Due under tax receivable agreements
                  (2 )        
Deferred income tax liabilities
    149,832               (2 )        
Other long-term liabilities
    26,380               (3 )        
Commitments and contingencies:
                               
Minority interest
    203,616               (3 )        
Shareholders’ equity
    676,984                          
                                 
Total liabilities and shareholders’ equity
  $ 1,968,160     $             $  
                                 
 
See accompanying notes to the unaudited pro forma financial information.


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Emdeon Inc.
 
Unaudited Pro Forma Consolidated Statement of Operations Data
For the Six Months Ended June 30, 2008
(in thousands)
 
                                 
    For the Six Months Ended June 30, 2008  
          Pro Forma
             
    Actual(1)     Adjustments(4)     Notes     Pro Forma  
 
Revenues
  $ 422,858     $ 2,552       (a )   $ 425,410  
Costs and expenses:
                               
Cost of operations
    271,845       11       (b )     271,856  
Development and engineering
    12,559       1       (b )     12,560  
Sales, marketing, general and administrative
    46,797       21       (b )     46,818  
Depreciation and amortization
    46,269       2,564       (c )     48,833  
                                 
Total costs and expenses
    377,470       2,597               380,067  
                                 
Operating income
    45,388       (45 )             45,343  
Interest income
    (577 )                     (577 )
Interest expense
    29,023       166       (d )     29,189  
                                 
Income before income tax provision and minority interest
    16,942       (211 )             16,731  
Income tax provision (benefit)
    7,646       (84 )     (e )     7,562  
                                 
Net income before minority interest
    9,296       (127 )             9,169  
Minority interest
    1,988       1,228       (f )     3,216  
                                 
Net income
  $ 7,308     $ (1,355 )           $ 5,953  
                                 
Net income per share of Class A and Class B common stock:
                               
Basic
  $                       $    
                                 
Diluted
  $                       $    
                                 
Weighted average common shares outstanding:
                               
Basic
                               
                                 
Diluted
                               
                                 
 
See accompanying notes to the unaudited pro forma financial information.


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Emdeon Inc.
 
Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 2007
(in thousands)
 
                                 
    For the Year Ended December 31, 2007  
          Pro Forma
             
    Actual(1)     Adjustments(4)     Notes     Pro Forma  
 
Revenue
  $ 808,537     $ (4,848 )     (a )   $ 803,689  
Costs and expenses:
                               
Cost of operations
    518,757       136       (b )     518,893  
Development and engineering
    23,130       7       (b )     23,137  
Sales, marketing, general and administrative
    95,556       207       (b )     95,763  
Depreciation and amortization
    62,811       24,118       (c )     86,929  
                                 
Total costs and expenses
    700,254       24,468               724,722  
                                 
Operating income
    108,283       (29,316 )             78,967  
Interest income
    (1,567 )                     (1,567 )
Interest expense
    74,940       8,530       (d )     83,470  
                                 
Income (loss) before income taxes
    34,910       (37,846 )             (2,936 )
Income tax provision (benefit)
    18,862       (15,074 )     (e )     3,788  
                                 
Net income (loss) before minority interest
    16,048       (22,772 )             (6,724 )
Minority interest
          (232 )     (f )     (232 )
                                 
Net income (loss)
  $ 16,048     $ (22,540 )           $ (6,492 )
                                 
Net income per share of Class A and Class B common stock:
                               
Basic
  $                       $    
                                 
Diluted
  $                       $    
                                 
Weighted average common shares outstanding:
                               
Basic
                               
                                 
Diluted
                               
                                 
 
See accompanying notes to the unaudited pro forma financial information.


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Emdeon Inc.
Notes to Unaudited Pro Forma Financial Information
 
Basis of Presentation
 
In February 2008, HLTH sold its remaining 48% interest in EBS Master to affiliates of General Atlantic and H&F for $575 million. The affiliates of General Atlantic and H&F were deemed to be a collaborative group under EITF Topic No. D-97, Push Down Accounting, and the 48% step up in the basis of the net assets of EBS Master recorded at the General Atlantic and H&F acquiror level was pushed down to our financial statements in accordance with Staff Accounting Bulletin No. 54, Application of “Pushdown” Basis of Accounting in Financial Statements of Subsidiaries Acquired by Purchase and replaces the historical basis held by HLTH.
 
Transaction costs of $3.4 million were incurred in connection with this transaction. The total 2008 Transaction price was allocated as follows (in millions):
 
         
Current assets
  $ 88.0  
Property and equipment
    60.7  
Other assets
    0.3  
Identifiable intangible assets:
       
Customer contracts
    571.7  
Tradename
    81.9  
Non-compete agreements
    6.9  
Goodwill
    277.7  
Current liabilities
    (46.7 )
Long term debt
    (356.6 )
Deferred tax liability
    (91.0 )
Long term liabilities
    (14.5 )
         
Total transaction price
  $ 578.4  
         
 
Pro Forma Adjustments
 
(1) The amounts in this column represent our actual results for the periods reflected.
 
(2) Reflects adjustments to give effect to the tax receivable agreements (as described in “Certain Relationships and Related Party Transactions — Tax Receivable Agreements”) based on the following assumptions:
 
  •   we will record an increase in deferred tax assets for estimated income tax effects of the increase in the tax basis of the purchased interests, based on an effective income tax rate of     % (which includes a provision for U.S. federal, state and/or local taxes);
 
  •   we will record 85% of the estimated realizable tax benefit as an increase to the liability due under tax receivable agreements and the remaining 15% of the estimated realizable tax benefit as an increase to total shareholders’ equity;
 
  •   payments under the tax receivable agreements will give rise to additional tax benefits and therefore to additional potential payments under the tax receivable agreements, which are reflected in the calculation of the deferred tax assets; and
 
  •   that there are no material changes in the relevant tax law and that we earn sufficient taxable income in each year to realize the full tax benefit of the amortization of our assets.
 
(3) Reflects adjustments to give effect to the reclassification of other long term liabilities into minority interest as a result of the conversion of the accumulated appreciation in the value of Grant Units held by the Equity Plan Members into                EBS Units in the reorganization transactions.


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Emdeon Inc.
Notes to Unaudited Pro Forma Financial Information (continued)
 
 
(4) The amounts in this column represent the pro forma adjustments made to reflect the 2008 Transaction as if it occurred on January 1, 2007 as follows:
 
(a) Reflects an adjustment to reduce deferred revenue on January 1, 2007 in connection with the 2008 Transaction. The impact of this adjustment was to reduce revenue for the year ended December 31, 2007, and to increase revenue for the six month period ended June 30, 2008.
 
(b) Reflects an adjustment to reduce our rent expense as a result of reducing our liability established for escalating lease payments in connection with Statement of Financial Accounting Standard No. 13, Accounting for Leases, in connection with the 2008 Transaction. Rent expense will not be offset by the amortization of the liability, and therefore, will be higher for the indicated periods.
 
(c) Reflects an adjustment for additional depreciation and amortization arising due to the step-up in 48% of our certain identifiable intangible and technology assets to fair value as of the date of the 2008 Transaction.
 
(d) Reflects an adjustment to record 48% of our debt at fair value in connection with the 2008 Transaction. The adjustment resulted in a discount on our debt of $66.4 million that is being amortized to interest expense over the remaining term of the debt. In addition, 48% of our debt issuance costs were written off in connection with the 2008 Transaction, which resulted in a reduction of the related amortization for the period.
 
(e) Reflects an adjustment for additional income taxes due to the proforma adjustments presented in notes a-d above applying statutory tax rates for the applicable periods.
 
(f) Reflects an adjustment in minority interest (22.58%) related to net income for January 1, 2008 through February 8, 2008 and for the year ended December 31, 2007.


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SELECTED CONSOLIDATED FINANCIAL DATA
 
The following table sets forth our selected historical consolidated financial data for periods beginning on and after November 16, 2006. For periods prior to November 16, 2006, the tables below present the selected historical consolidated financial data of the group of wholly-owned subsidiaries of HLTH that comprised its Emdeon Business Services segment. For periods on and after November 16, 2006, the selected consolidated financial data gives effect to the reorganization transactions described under “Organizational Structure” as if they occurred on November 16, 2006. See “Organizational Structure.”
 
Our selected statement of operations data for the period from November 16, 2006 through December 31, 2006 and for the year ended December 31, 2007 and the selected balance sheet data as of December 31, 2006 and 2007 have been derived from our consolidated financial statements that have been audited by Ernst & Young LLP, our independent registered public accounting firm, and are included elsewhere in this prospectus.
 
The selected statement of operations data of Emdeon Business Services for the years ended December 31, 2003, 2004 and 2005 and the selected balance sheet data as of December 31, 2004 and 2005 have been derived from Emdeon Business Services’ consolidated financial statements that have been audited by Ernst & Young LLP, Emdeon Business Services’ independent registered public accounting firm.
 
Our consolidated statements of operations data for the six months ended June 30, 2008 and 2007 and the balance sheet data as of June 30, 2008, have been derived from our unaudited consolidated financial statements that are included elsewhere in this prospectus and have been prepared on substantially the same basis as the audited financial statements. In the opinion of management, our unaudited consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information. Our results of operations for the six months ended June 30, 2008 are not necessarily indicative of the results that can be expected for the full year or any future period.
 
The information set forth below should be read in conjunction with “Capitalization,” “Unaudited Pro Forma Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our and Emdeon Business Services’ consolidated financial statements and related notes included elsewhere in this prospectus.
 
                                                                   
    Emdeon Business Services
      Emdeon Inc.
 
    (Predecessor)(1)       (Successor)(1)  
                      Period from
      Period from
          Six
    Six
 
          Year
          January 1,
      November 16,
          Months
    Months
 
    Year Ended
    Ended
    Year Ended
    2006 -
      2006 to
    Year Ended
    Ended
    Ended
 
    December 31,
    December 31,
    December 31,
    November 15,
      December 31,
    December 31,
    June 30,
    June 30,
 
    2003     2004     2005     2006       2006     2007     2007     2008  
    (in thousands, except per share data)  
Statement of Operations Data:
                                                                 
Revenues
  $ 525,276     $ 679,258     $ 690,094     $ 663,186       $ 87,903     $ 808,537     $ 399,635     $ 422,858  
Costs and Expenses:
                                                                 
Cost of operations
    354,061       454,009       449,065       426,337         56,801       518,757       253,997       271,845  
Development and engineering
    16,622       21,948       20,970       19,147         2,411       23,130       11,171       12,559  
Sales, marketing, general and administrative
    69,889       92,591       90,785       81,758         12,960       95,556       48,896       46,797  
Depreciation and amortization
    42,495       33,391       32,273       30,440         7,127       62,811       30,287       46,269  
                                                                   
Total costs and expenses
    483,067       601,939       593,093       557,682         79,299       700,254       344,351       377,470  
                                                                   
Operating income
    42,209       77,319       97,001       105,504         8,604       108,283       55,284       45,388  
Interest income
    (9 )     (33 )     (74 )     (67 )       (139 )     (1,567 )     (731 )     (577 )
Interest expense
    54       113       56       25         10,173       74,940       38,052       29,023  
                                                                   
Income (loss) before income taxes and minority interest
    42,164       77,239       97,019       105,546         (1,430 )     34,910       17,963       16,942  
Income tax provision
    11,950       26,686       31,526       42,004         1,337       18,862       9,663       7,646  
                                                                   
Net income (loss) before minority interest
    30,214       50,553       65,493       63,542         (2,767 )     16,048       8,300       9,296  


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    Emdeon Business Services
      Emdeon Inc.
 
    (Predecessor)(1)       (Successor)(1)  
                      Period from
      Period from
          Six
    Six
 
          Year
          January 1,
      November 16,
          Months
    Months
 
    Year Ended
    Ended
    Year Ended
    2006 -
      2006 to
    Year Ended
    Ended
    Ended
 
    December 31,
    December 31,
    December 31,
    November 15,
      December 31,
    December 31,
    June 30,
    June 30,
 
    2003     2004     2005     2006       2006     2007     2007     2008  
    (in thousands, except per share data)  
Minority interest
                                                1,988  
                                                                   
Net income (loss)
  $ 30,214     $ 50,553     $ 65,493     $ 63,542       $ (2,767 )   $ 16,048     $ 8,300     $ 7,308  
                                                                   
Basic and diluted earnings (loss) per share to Class A and Class B common stockholders:
                                                                 
Basic
                                                         
                                                                   
Diluted
                                                         
                                                                   
Weighted average number of shares used in computing earnings per share:
                                                                 
Basic
                                                         
                                                                   
Diluted
                                                         
                                                                   
 
                                                   
    Emdeon Business Services
      Emdeon Inc.
 
    (Predecessor)(1)       (Successor)(1)  
    December 31,
    December 31,
    December 31,
      December 31,
    December 31,
    June 30,
 
    2003     2004     2005       2006     2007     2008  
    (in thousands)  
Balance Sheet Data:
                                                 
Cash and cash equivalents
  $ 5,213     $ 8,668     $ 6,930       $ 29,337     $ 29,590     $ 63,581  
Total assets
    1,140,307       1,230,723       1,245,128         1,379,436       1,367,849       1,968,160  
Total debt
                        925,000       887,450       821,778 (2)
Total equity
  $ 1,038,651     $ 1,094,150     $ 1,121,637       $ 291,837     $ 298,112     $ 676,984  
 
 
(1) Our financial results prior to November 16, 2006 represent the financial results of the group of wholly-owned subsidiaries of HLTH that comprised its Emdeon Business Services segment. On November 16, 2006, HLTH sold a 52% interest in EBS Master (which was formed as a holding company for our business in connection with that transaction) to an affiliate of General Atlantic. Accordingly, the financial information presented reflects the results of operations and financial condition of Emdeon Business Services before the 2006 Transaction (Predecessor) and of us after the 2006 Transaction (Successor).
 
(2) Our debt is reflected net of unamortized debt discount of $61.9 million recorded in connection with the 2008 Transaction.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The historical consolidated financial data discussed below reflect our historical results of operations and financial condition for periods on and after November 16, 2006. The historical consolidated financial data discussed below for periods prior to November 16, 2006, reflect the historical results of operations and financial condition of the group of subsidiaries of HLTH that comprised its Emdeon Business Services segment. For periods on and after November 16, 2006, the historical consolidated financial data gives effect to the reorganization transactions described under “Organizational Structure” as if they occurred on November 16, 2006. You should read the following discussion in conjunction with “Selected Consolidated Financial Data” and our and Emdeon Business Services’ respective consolidated financial statements and the related notes included elsewhere in this prospectus. Some of the statements in the following discussion are forward-looking statements. See “Forward-looking Statements.”
 
Overview
 
We are a leading provider of revenue and payment cycle management solutions, connecting payers, providers and patients in the U.S. healthcare system. Our product and service offerings integrate and automate key business and administrative functions of our payer and provider customers throughout the patient encounter, including pre-care patient eligibility and benefits verification, claims management and adjudication, payment distribution, payment posting and denial management and patient billing and payment. Our customers are able to improve efficiency, reduce costs, increase cash flow and more efficiently manage the complex revenue and payment cycle process by using our comprehensive suite of products and services.
 
We deliver our solutions and operate our business in three business segments: (i) payer services, which provides services to commercial insurance companies, third party administrators and governmental payers; (ii) provider services, which provides services to hospitals, physicians, dentists and other healthcare providers, such as labs and home healthcare providers; and (iii) pharmacy services, which provides services to pharmacies, pharmacy benefit management companies and other payers. Through our payer services segment, we provide payment cycle solutions, both directly and through our channel partners, that simplify the administration of healthcare related to insurance eligibility and benefit verification, claims filing and claims and payment distribution. Through our provider services segment, we provide revenue cycle management solutions and patient billing and payment services, both directly and through our channel partners, that simplify providers’ revenue cycle, reduce related costs and improve cash flow. Through our pharmacy services segment, we provide solutions to pharmacies and pharmacy benefit management companies related to prescription benefit claim filing, adjudication and management.
 
There are a number of company-specific initiatives and industry trends that may affect our transaction volumes, revenues, cost of operations and margins. As part of our strategy, we encourage our customers to migrate from paper-based claim, patient statement, payment and other transaction processing to electronic, automated processing in order to improve efficiency. Our business is aligned with our customers to support this transition, and as they migrate from paper-based transaction processing to electronic processing, even though our revenues generally will decline, our margins and profitability will typically increase. For example, because the cost of postage is included in our revenues for patient statement and payment distribution services (which is then also deducted as a cost of operations), when our customers transition to electronic processing, our revenues and costs of operations decrease as we will no longer incur or be required to charge for postage. In addition, as our payer customers migrate to MGAs with us, our electronic transaction volume usually increases but the per transaction rate we charge under these agreements is typically reduced. We also expect to continue to be affected by pricing pressure in our industry, which has led (and is expected to continue to lead) to reduced prices for the same services. We have sought in the past and will continue to seek to mitigate pricing pressure by (i) providing additional value-added products and services, (ii) increasing the volume of services we provide and (iii) managing our costs.


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Corporate History
 
Our predecessors have been in the healthcare information solutions business for approximately 25 years. We have grown both organically and through targeted acquisitions in order to offer the full range of products and services required to automate the patient encounter administration process.
 
In September 2000, Envoy Corporation and its wholly-owned subsidiary, ExpressBill, Inc., became part of our business. Envoy was a leading provider of claim transaction processing services to commercial payers and had an extensive network of healthcare providers and relationships with healthcare information system vendors. ExpressBill provided patient billing services, which involved the printing and mailing of customized patient statements, or bills, from healthcare providers to patients. The Envoy business today comprises the core of our claims management and submission operations, while the ExpressBill business comprises the core of our patient statement and billing operations.
 
In the third quarter of 2003, we acquired Advanced Business Fulfillment, Inc. (“ABF”), a distributor of payments and remittance advice from payers to providers and explanation of benefit information to patients. The ABF business today comprises the core of our payment distribution operations.
 
In the fourth quarter of 2003, we acquired MediFax EDI, Inc. MediFax provided insurance eligibility and benefit verification solutions between providers and governmental payers. The MediFax business today comprises the core of our provider revenue cycle management operations.
 
In the second quarter of 2004, we acquired Dakota Imaging Inc., a provider of paper claim imaging and scanning services for payers. By combining Dakota’s paper conversion processing capabilities with our existing electronic and print delivery capabilities, we were able to offer payers a single solution for processing both paper and electronic inbound claims.
 
Prior to November 2006, our business was owned by HLTH. We currently conduct our business through EBS Master and its subsidiaries. EBS Master was formed as a holding company for the group of wholly-owned subsidiaries of HLTH that comprised its Emdeon Business Services segment. In November 2006, we purchased a 52% interest in EBS Master from HLTH. In February 2008, HLTH sold its remaining 48% interest in EBS Master to affiliates of General Atlantic and H&F. As a result, prior to giving effect to the reorganization transactions, EBS Master was owned 65.77% by the General Atlantic Equityholders, and 34.23% by H&F Equityholders.
 
In the fourth quarter of 2007, we acquired IXT Solutions, Inc. (“IXT”), a provider of both paper-based and electronic patient statement and billing services. By combining IXT’s electronic patient statement and billing capabilities with our existing patient statement and billing operations, we enhanced our patient statement and billing offerings to healthcare providers.
 
Our Revenues and Expenses
 
We generate revenues by providing products and services that automate and simplify business and administrative functions for payers and providers, generally on either a per transaction, per document, per communications basis or, in some cases, on a flat fee basis. We generally charge a one-time implementation fee to payers and providers at the inception of a contract in conjunction with related setup and connection to our network and other systems. In addition, we receive software license fees and software and hardware maintenance fees, primarily from payers who license our systems for converting paper claims into electronic ones.
 
Cost of operations consists primarily of costs related to products and services we provide to customers and costs associated with the operation and maintenance of our networks. These costs include (i) postage (which is also a component of our revenue) and materials costs related to our patient statement and billing and payment distribution services, (ii) rebates paid to our channel partners, including healthcare information system vendors and electronic medical record vendors and (iii) data and telecommunications costs, all of which generally vary with our revenues. Cost of operations also includes (i) personnel costs associated with production, network operations,


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customer support and other personnel, (ii) facilities expenses and (iii) equipment maintenance, which vary less directly with our revenue due to the fixed or semi-fixed nature of these expenses.
 
The largest component of our cost of operations is currently postage (which is also a component of our revenue). Our postage costs increase as our patient statement and payment distribution volumes increase and also when the U.S. Postal Service increases postal rates, which has occurred each year from 2006 to 2008 and is expected to occur in the future. Rebates are paid to channel partners for electronic and other volumes delivered through our network to certain payers and can be impacted by the number of MGAs we execute with payers, the success of our direct sales efforts for provider revenue cycle management products and services and the extent to which direct connections to payers are developed by certain channel partners. We have been able to reduce our data communications expense over the last several years, due to efficiency measures and contract pricing changes. Our material costs, related primarily to our patient statement and payment distribution volumes, have increased over the last few years because of inflation and general commodity price increases.
 
Development and engineering expense consists primarily of personnel costs related to the development, management and maintenance of our current and future products and services. We plan to invest more in this area in the future as we develop new products and enhance existing products.
 
Sales, marketing, general and administrative expense (excluding corporate expense described in the next paragraph) consists primarily of personnel costs associated with our sales, account management, marketing functions and management and administrative services related to the operations of our business segments.
 
Our corporate expense relates to personnel costs associated with management, administrative, finance, human resources, legal and other corporate service functions, as well as professional services, certain facilities costs, advertising and promotion, insurance and other expenses related to our overall business operations. The amount of our corporate expenses increased significantly in 2007 as we transitioned from a segment of HLTH to a stand-alone company. We expect to incur additional costs in this area related to becoming a public company, including additional director and officer insurance, outside director compensation, employment of additional personnel and Sarbanes-Oxley and other compliance costs.
 
Our development and engineering expense, sales, marketing, general and administrative expense and our corporate expense, while related to our current operations, are also affected and influenced by our future plans (including the development of new products and services), business strategies and enhancement and maintenance of our infrastructure.
 
Significant Items Affecting Comparability
 
Certain significant items or events should be considered to better understand differences in our results of operations from period to period. We believe that the following items or events have had a significant impact on our results of operations for the periods discussed below or may have a significant impact on our results of operations in future periods:
 
Corporate Allocation Charge and Subsequent Standalone Costs
 
Prior to the consummation of the 2006 Transaction, we were a segment of HLTH and HLTH provided us with certain management and administrative support services. For those services, HLTH charged us a corporate services fee based on an allocation of the costs they incurred. Conversely, during the same period, we provided certain corporate technology support services to HLTH and its other operating segments. The corporate services fee charged by HLTH to us was offset by the costs we incurred in providing these corporate technology support services. For the period from January 1 to November 15, 2006, the corporate services fee HLTH charged us amounted to $7.5 million, after reduction for the $7.0 million of corporate technology support costs we incurred during that period. For 2005, the corporate services fee HLTH charged us was $7.3 million, after reduction for the $9.1 million of corporate technology support costs we incurred during that period.


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We separated from HLTH in November 2006 and transitioned to a stand-alone company. During this transition, we replicated the functions that HLTH previously provided to us and have been incurring and will continue to incur the costs of those functions. Subsequent to the 2006 Transaction through various periods during 2007, HLTH provided us with certain services to facilitate our transition to a stand-alone company and we continued to provide certain technology support services to HLTH. The net cost of the services HLTH provided to us in 2007 under this arrangement was $1.8 million.
 
Efficiency Measures
 
We evaluate and implement initiatives on an ongoing basis to improve our financial and operating performance through cost savings, productivity improvements and other efficiency measures. Since late 2006, we have initiated numerous measures to streamline our operations through innovation, integration and consolidation. For instance, we are consolidating our data centers, consolidating our networks and outsourcing certain information technology and operations functions. The implementation of these measures often involve upfront costs related to severance, professional fees and/or contractor costs, with the cost savings or other improvements not realized until the measures are completed.
 
Long-Term Debt
 
In connection with the 2006 Transaction, we borrowed an aggregate of $925.0 million under our credit agreements and entered into an interest rate swap agreement in order to reduce the risks associated with the variable rate of interest we are charged under our credit agreements. In connection with this financing, we capitalized a total of $20.1 million of loan costs. The incurrence of debt under our credit agreements resulted in interest expense of $10.2 million in the period from November 16 through December 31, 2006, $74.9 million in 2007 and $29.0 million during the six months ended June 30, 2008. Included in this interest expense is amortization expense of $0.3 million in the period from November 16 through December 31, 2006, $3.0 million in 2007 and $0.9 million during the six months ended June 30, 2008. Prior to November 2006, we were wholly-owned by HLTH and, therefore, our financial statements and results of operations did not reflect long-term indebtedness or similar arrangements.
 
Purchase Accounting
 
In connection with the 2006 Transaction and the 2008 Transaction, purchase accounting adjustments were reflected in our financial statements to account appropriately for these business combinations. These adjustments included the following items and their impact:
 
  •  Recognition of the fair value of our identifiable intangible assets.  The increased value of these intangibles resulted in increased amortization expense subsequent to these transactions of $3.6 million in the period from November 16 through December 31, 2006, $28.0 million in 2007 and $26.8 million during the six months ended June 30, 2008.
 
  •  Reduction to fair value of our deferred revenue related to outstanding products and services to be provided subsequent to the 2006 Transaction and the 2008 Transaction.  In connection with the 2006 Transaction, we reduced our deferred revenue by $5.2 million and, in connection with the 2008 Transaction, we reduced our deferred revenue by $5.6 million. These adjustments, in effect, reduced the revenue and income from operations that would otherwise have been recognized by $0.8 million in the period from November 16 to December 31, 2006, $3.4 million in 2007, $3.3 million in the six months ended June 30, 2008 (including $3.0 million from the 2008 Transaction) and $2.4 million in the six months ended June 30, 2007.
 
  •  Reduction in the carrying value of our long-term debt to fair value in connection with the 2008 Transaction. The debt discount recorded increased interest expense by $4.5 million in the six month period ended June 30, 2008. As a result of the 2008 Transaction, our interest rate swap no longer met the criteria for hedge accounting and thus the value of the interest rate swap at that date is being amortized over its term to interest


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  expense. This amortization increased interest expense by $4.7 million during the six month period ended June 30, 2008. As a result, the change in our interest rate swap since the 2008 Transaction has been charged to interest expense. The resulting charge reduced interest expense by $13.7 million during the six month period ended June 30, 2008.
 
Stock-Based and Equity-Based Compensation Expense
 
We incurred stock-based and equity-based compensation expense during 2005, 2006, 2007 and the six months ended June 30, 2008 associated with stock options and restricted awards from HLTH and equity grants pursuant to the EBS Equity Plan. Total stock-based compensation expense incurred for 2005, the period from January 1 through November 15, 2006, the period from November 16 through December 31, 2006 and 2007 was $0.3 million, $6.1 million, $0.3 million and $2.1 million, respectively. Total equity-based compensation expense of $4.5 million and $4.7 million was incurred for 2007 and the six months ended June 30, 2008, respectively.
 
In connection with the reorganization transactions, the vested EBS Phantom Awards held by certain of our employees will be converted into           shares of our Class A common stock. As a result of this conversion, we expect to recognize compensation expense of between $      and $      in the quarter during which this offering is completed.
 
Critical Accounting Policies
 
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expense and related disclosures. We base our estimates and assumptions on the best information available to us at the time the estimates and assumptions are made, on historical experience and on various other factors that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
 
We believe the following critical accounting policies include areas that require a significant amount of judgment and estimates.
 
Revenue Recognition
 
We generate revenues by providing products and services that automate and simplify business and administrative functions for payers and providers, generally on either a per transaction, per document, per communication basis or, in some cases, on a flat fee basis. We generally charge a one-time implementation fee to payers and providers at the inception of a contract in conjunction with related setup and connection to our network and other systems. In addition, we receive software license fees and software and hardware maintenance fees from payers who license our systems for converting paper claims into electronic claims and, occasionally, sell additional software and hardware products.
 
Revenue for transaction services, patient statement and payment distribution are recognized as the services are provided. Postage fees related to the Company’s payment distribution and patient statement volumes are recorded on a gross basis in accordance with EITF 00-10, Accounting for Shipping and Handling Fees and Costs. Implementation and software license and software maintenance fees are amortized to revenue on a straight-line basis over the contract period, which generally varies from one to three years. Software and hardware sales are recognized once all elements are delivered and customer acceptance is received.
 
Cash receipts or billings in advance of revenue recognition are recorded as deferred revenues on our consolidated balance sheets.


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We exclude sales and use tax from revenue in our consolidated statements of operations.
 
Software Development Costs
 
We account for internal use software development costs in accordance with Statement of Position (“SOP”) No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use (“SOP 98-1”). Software development costs that are incurred in the preliminary project stage are expensed as incurred. Once certain criteria of SOP 98-1 have been met, direct costs incurred in developing or obtaining computer software are capitalized. Training and data conversion costs are expensed as incurred. Capitalized software costs are included in property and equipment within our consolidated balance sheets and are amortized over a three-year period.
 
Business Combinations
 
In accordance with SFAS No. 141, Business Combinations (“SFAS 141”), we allocate the purchase price of an acquired business to its identifiable assets and liabilities based on estimated fair values. The excess of the purchase price over the amount allocated to the identifiable assets and liabilities, if any, is recorded as goodwill. The purchase price allocation methodology requires us to make assumptions and to apply judgment to estimate the fair value of acquired assets and liabilities. We estimate the fair value of assets and liabilities based on the appraised market values, the carrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows and market multiple analyses. We adjust the purchase price allocation, as necessary, up to one year after the acquisition closing date as we obtain more information regarding assets valuations and liabilities assumed. Unanticipated events or circumstances may occur which could affect the accuracy of our fair value estimates, including assumptions regarding industry economic factors and business strategies, and result in an impairment or a new allocation of purchase price.
 
Goodwill and Intangible Assets
 
Goodwill and intangible assets from our acquisitions are accounted for using the purchase method of accounting. Intangible assets with definite lives are amortized on a straight-line basis over the estimated useful lives of the related assets generally as follows:
 
     
Customer relationships
  10 to 20 years
Trade names
  7 years
Non-compete agreements
  1 to 5 years
 
In accordance with SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), we review the carrying value of goodwill annually and whenever indicators of impairment are present. With respect to goodwill, we determine whether potential impairment losses are present by comparing the carrying value of our reporting units to the fair value of our reporting units, using an income approach valuation. Our reporting units are determined in accordance with SFAS 142, which defines a reporting unit as an operating segment or one level below an operating segment. If the fair value of the reporting unit is less than the net assets of the reporting unit, then a hypothetical purchase price allocation is used to determine the amount of goodwill impairment.
 
Income Taxes
 
We account for income taxes under the provisions of SFAS No. 109, Accounting for Income Taxes (“SFAS 109”). SFAS 109 generally requires us to record deferred income taxes for the tax effect of differences between book and tax bases of our assets and liabilities.
 
Deferred income taxes reflect the available net operating losses and the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for


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income tax purposes. Realization of the future tax benefits related to deferred tax assets is dependent on many factors, including our past earnings history, expected future earnings, the character and jurisdiction of such earnings, unsettled circumstances that, if unfavorably resolved would adversely affect utilization of its deferred tax assets, carryback and carryforward periods, and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset.
 
We recognize uncertain tax positions in accordance with FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
 
Equity-Based Compensation
 
Compensation expense related to our equity-based awards is recognized on a straight-line basis over the vesting period under the provisions of SFAS 123(R), share based payment using the modified prospective method. The fair value of equity awards is determined by utilizing an independent third-party valuation using a Black-Scholes model and assumptions as to expected term, expected volatility, expected dividends, and the risk free rate. Certain equity-based awards are classified as liabilities due to the related repurchase features. We remeasure the fair value of these awards at each reporting date. These awards are included in other long-term liabilities in the consolidated balance sheets.


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Results of Operations
 
The following table summarizes our consolidated results of operations for the year ended December 31, 2005, the period from January 1 through November 15, 2006, the period from November 16 through December 31, 2006, the year ended December 31, 2007 and for the six months ended June 30, 2007 and June 30, 2008:
 
                                                                                                   
    Emdeon Business Services
      Emdeon Inc.
 
    (Predecessor)(1)       (Successor)(1)  
                Period from
      Period from
                Six Months
    Six Months
 
    Year Ended
    Jan. 1, 2006 to
      Nov. 16, 2006 to
    Year Ended
    Ended
    Ended
 
    December 31, 2005     Nov. 15, 2006       Dec. 31, 2006     December 31, 2007     June 30, 2007     June 30, 2008  
          % of
          % of
            % of
          % of
          % of
          % of
 
    Amount     Revenue(2)     Amount     Revenue(2)       Amount     Revenue(2)     Amount     Revenue(2)     Amount     Revenue(2)     Amount     Revenue(2)  
                                    (in thousands)     (unaudited)  
Revenues
                                                                                                 
Payer services
  $ 317,043       45.9 %   $ 299,991       45.2 %     $ 39,318       44.7 %   $ 366,675       45.4 %   $ 182,342       45.6 %   $ 184,598       43.7 %
Provider services
    344,278       49.9       336,243       50.7         44,934       51.1       408,439       50.5       200,869       50.3       219,995       52.0  
Pharmacy services
    35,989       5.2       32,055       4.8         4,143       4.7       36,937       4.6       18,222       4.6       19,621       4.6  
Eliminations
    (7,216 )     (1.0 )     (5,103 )     (0.7 )       (492 )     (0.5 )     (3,514 )     (0.5 )     (1,798 )     (0.5 )     (1,356 )     (0.3 )
                                                                                                   
Total revenues
    690,094       100.0       663,186       100.0         87,903       100.0       808,537       100.0       399,635       100.0       422,858       100.0  
                                                                                                   
Cost of operations
                                                                                                 
Payer services
    214,505       67.7       202,423       67.5         26,634       67.7       244,634       66.7       119,860       65.7       122,786       66.5  
Provider services
    232,061       67.4       221,954       66.0         29,746       66.2       269,795       66.1       132,128       65.8       145,899       66.3  
Pharmacy services
    8,359       23.2       6,141       19.2         750       18.1       6,790       18.4       3,337       18.3       4,134       21.1  
Eliminations
    (5,860 )             (4,181 )               (329 )             (2,462 )             (1,328 )             (974 )        
                                                                                                   
Total cost of operations
    449,065       65.1       426,337       64.3         56,801       64.6       518,757       64.2       253,997       63.6       271,845       64.3  
                                                                                                   
Development and engineering
                                                                                                 
Payer services
    8,865       2.8       7,142       2.4         837       2.1       8,365       2.3       3,889       2.1       4,177       2.3  
Provider services
    8,921       2.6       9,308       2.8         1,211       2.7       11,603       2.8       5,716       2.8       6,591       3.0  
Pharmacy services
    3,188       8.9       2,705       8.4         363       8.8       3,162       8.6       1,566       8.6       1,791       9.1  
Eliminations
    (4 )             (8 )                                                                  
                                                                                                   
Total development and engineering
    20,970       3.0       19,147       2.9         2,411       2.7       23,130       2.9       11,171       2.8       12,559       3.0  
                                                                                                   
Sales, marketing, general and admin
                                                                                                 
Payer services
    27,708       8.7       22,737       7.6         3,109       7.9       22,299       6.1       11,537       6.3       12,725       6.9  
Provider services
    29,313       8.5       26,513       7.9         3,671       8.2       31,329       7.7       15,403       7.7       15,695       7.1  
Pharmacy services
    5,306       14.7       4,247       13.2         512       12.4       4,875       13.2       2,627       14.4       1,880       9.6  
Eliminations
    (1,352 )             (914 )               (163 )             (1,052 )             (470 )             (382 )        
                                                                                                   
Total sales, marketing, general and admin excluding corporate
    60,975       8.8       52,583       7.9         7,129       8.1       57,451       7.1       29,097       7.3       29,918       7.1  
                                                                                                   
Income from segment operations
    159,084       23.1       165,119       24 9         21,562       24.5       209,199       25.9       105,370       26.4       108,536       25.7  
Corporate expense
    29,810       4.3       29,175       4.4         5,831       6.6       38,105       4.7       19,799       5.0       16,879       4.0  
Depreciation and amortization
    32,273       4.7       30,440       4.6         7,127       8.1       62,811       7.8       30,287       7.6       46,269       10.9  
                                                                                                   
Operating income
    97,001       14.1       105,504       15.9         8,604       9.8       108,283       13.4       55,284       13.8       45,388       10.7  
Interest income
    (74 )     0.0       (67 )     0.0         (139 )     (0.2 )     (1,567 )     (0.2 )     (731 )     (0.2 )     (577 )     (0.1 )
Interest expense
    56       0.0       25       0.0         10,173       11.6       74,940       9.3       38,052       9.5       29,023       6.9  
                                                                                                   
Income before income tax provision
    97,019       14.1       105,546       15.9         (1,430 )     (1.6 )     34,910       4.3       17,963       4.5       16,942       4.0  
Income tax provision
    31,526       4.6       42,004       6.3         1,337       1.5       18,862       2.3       9,663       2.4       7,646       1.8  
                                                                                                   
Net income (loss) before minority interest
    65,493       9.5       63,542       9.6         (2,767 )     (3.1 )     16,048       2.0       8,300       2.1       9,296       2.2  
Minority interest
                                                                  1,988       0.5  
                                                                                                   
Net income (loss)
  $ 65,493       9.5 %   $ 63,542       9.6 %     $ (2,767 )     (3.1 )%   $ 16,048       2.0 %   $ 8,300       2.1 %   $ 7,308       1.7 %
                                                                                                   
                                                                                                   
 
(footnotes on next page)
 
(1) Our financial results prior to November 16, 2006 represent the financial results of the group of subsidiaries of HLTH that comprised its Emdeon Business Services segment. On November 16, 2006, HLTH sold a 52% interest in EBS Master (which was formed as a holding


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company for our business in connection with that transaction) to an affiliate of General Atlantic. Accordingly, the financial information presented reflects the results of operations and financial condition of Emdeon Business Services before the 2006 Transaction (Predecessor) and of us after the 2006 Transaction (Successor).
(2) All references to percentage of revenues for expense components refer to the percentage of revenues of such segment.
 
Our historical consolidated operating results do not reflect (i) the step-up in the value of certain assets as a result of the 2008 Transaction (other than for the six months ended June 30, 2008), (ii) the creation of certain tax assets in connection with this offering and the reorganization transactions and the creation or acquisition of related liabilities in connection with entering into the tax receivable agreements and (iii) this offering and the application of the net proceeds from this offering. As a result, our historical consolidated operating results may not be indicative of what our results of operations will be for future periods.
 
Six Months Ended June 30, 2008 Compared to Six Months Ended June 30, 2007
 
Revenues
 
Our total revenues increased $23.2 million, or 5.8%, to $422.9 million for the six months ended June 30, 2008 as compared to $399.6 million for the six months ended June 30, 2007. This increase in total revenues for the six months ended June 30, 2008 includes a $3.0 million revenue reduction from a purchase accounting adjustment related to the 2008 Transaction.
 
Our payer services segment revenues increased $2.3 million, or 1.2%, to $184.6 million for the six months ended June 30, 2008 as compared to $182.3 million for the six months ended June 30, 2007. Claims management revenues were $90.8 million for the six months ended June 30, 2008 as compared to $96.6 million for the six months ended June 30, 2007. This $5.8 million, or 6.1%, decrease in revenues was primarily driven by (i) reduced average transaction rates from market pricing pressures and the execution of additional MGAs and (ii) electronic batch claims transaction volume declines related to the expiration of a significant channel partner contract and conversion of a significant MGA to a standard payer arrangement. This decrease in revenues was offset partially by higher electronic transaction volumes. Additionally, claims management revenue for the six months ended June 30, 2008 was reduced by $1.0 million related to a deferred revenue purchase accounting adjustment associated with the 2008 Transaction. Payer payment distribution services revenues were $93.8 million for the six months ended June 30, 2008 as compared to $85.7 million for the six months ended June 30, 2007. This $8.1 million, or 9.5%, increase was primarily driven by net new sales and implementations and the impact of U.S. postage rate increases in May 2008 and May 2007.
 
Our provider services segment revenues increased $19.1 million, or 9.5%, to $220.0 million for the six months ended June 30, 2008 as compared to $200.9 million for the six months ended June 30, 2007. Patient statement revenues were $133.4 million for the six months ended June 30, 2008 as compared to $118.7 million for the six months ended June 30, 2007. This $14.7 million, or 12.4%, increase in revenues was primarily driven by $10.2 million of revenues associated with the acquisition of IXT in December 2007, net new sales and implementations and the impact of U.S. postage rate increases in May 2008 and May 2007. Provider revenue cycle management revenues were $70.6 million for the six months ended June 30, 2008 as compared to $67.8 million for the six months ended June 30, 2007. This $2.8 million, or 4.2%, increase was primarily driven by net new sales and implementations, offset by attrition in legacy products and a $2.0 million deferred revenue purchase accounting adjustment associated with the 2008 Transaction. Dental revenues were $16.0 million for the six months ended June 30, 2008 as compared to $14.4 million for the six months ended June 30, 2007. This $1.6 million, or 11.2%, increase in revenues was primarily driven by net new sales and implementations.
 
Our pharmacy segment services revenues were $19.6 million for the six months ended June 30, 2008 as compared to $18.2 million for the six months ended June 30, 2007. This $1.4 million, or 7.7%, increase was primarily driven by net new sales and implementations.
 
Cost of Operations
 
Our total cost of operations increased $17.8 million, or 7.0%, to $271.8 million for the six months ended June 30, 2008 as compared to $254.0 million for the six months ended June 30, 2007.


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Our payer services segment cost of operations was $122.8 million for the six months ended June 30, 2008 as compared to $119.9 million for the six months ended June 30, 2007. This $2.9 million, or 2.4%, increase was primarily attributable to higher postage and materials costs resulting from higher payment distribution print volumes and U.S. postage rate increases in May 2008 and 2007, as well as increased external contractor and outsourcing costs associated with our efficiency measures. These increases were partially offset by reduced rebates paid to channel partners as the result of a decrease in the number of electronic claims processed through our channel partner relationships. Our payer services segment’s cost of operations as a percentage of revenue increased to 66.5% for the six months ended June 30, 2008 from 65.7% for the six months ended June 30, 2007 due primarily to the impact of the May 2008 and May 2007 U.S. postage rate increases.
 
Our provider services segment cost of operations was $145.9 million for the six months ended June 30, 2008 as compared to $132.1 million for the six months ended June 30, 2007. This $13.8 million, or 10.4%, increase was primarily attributable to higher postage and materials costs due to higher patient statement volumes and U.S. postage rate increases in May 2008 and 2007, as well as increased external contractor and outsourcing costs associated with our efficiency measures. These increases were partially offset by reduced personnel costs related to the implementation of our efficiency measures. Our provider services segment’s cost of operations as a percentage of revenue increased to 66.3% for the six months ended June 30, 2008 from 65.8% for the six months ended June 30, 2007 due primarily to the impact of the May 2008 and May 2007 U.S. postage rate increases.
 
Our pharmacy services segment cost of operations was $4.1 million for the six months ended June 30, 2008 as compared to $3.3 million for the six months ended June 30, 2007. This $0.8 million, or 23.9%, increase was primarily attributable to increased personnel costs to support our business growth. Our pharmacy services segment’s cost of operations as a percentage of revenue increased to 21.1% for the six months ended June 30, 2008 from 18.3% for the six months ended June 30, 2007 due primarily to the increased personnel costs to support our business growth.
 
Development and Engineering Expense
 
Our total development and engineering expense increased $1.4 million, or 12.4%, to $12.6 million for the six months ended June 30, 2008 as compared to $11.2 million for the six months ended June 30, 2007.
 
Our payer services segment development and engineering expense increased $0.3 million, or 7.4%, to $4.2 million for the six months ended June 30, 2008 as compared to $3.9 million for the six months ended June 30, 2007, reflecting generally consistent levels of activity for both periods.
 
Our provider services segment development and engineering expense was $6.6 million for the six months ended June 30, 2008 as compared to $5.7 million for the six months ended June 30, 2007. This $0.9 million, or 15.3%, increase was primarily attributable to increased provider revenue cycle management product development activities.
 
Our pharmacy services segment development and engineering expense was $1.8 million for the six months ended June 30, 2008 as compared to $1.6 million for the six months ended June 30, 2007. This $0.2 million, or 14.4%, increase was primarily attributable to increased product development activities in our pharmacy segment.
 
Sales, Marketing, General and Administrative Expense (Excluding Corporate Expense)
 
Our total sales, marketing, general and administrative expense (excluding corporate expense) increased $0.8 million, or 2.8%, to $29.9 million for the six months ended June 30, 2008 as compared to $29.1 million for the six months ended June 30, 2007.
 
Our payer services segment sales, marketing, general and administrative expense was $12.7 million for the six months ended June 30, 2008 as compared to $11.5 million for the six months ended June 30, 2007. This $1.2 million, or 10.3%, increase was primarily attributable to increased compensation expense assigned to equity grants under the EBS Equity Plan.
 
Our provider services segment sales, marketing, general and administrative expense increased $0.3 million, or 1.9%, to $15.7 million for the six months ended June 30, 2008 as compared to $15.4 million for the six months ended June 30, 2007, reflecting generally consistent levels of activity for both periods.


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Our pharmacy services segment sales, marketing, general and administrative expense was $1.9 million for the six months ended June 30, 2008 as compared to $2.6 million for the six months ended June 30, 2007. This $0.7 million, or 28.4%, decrease was primarily attributable to reduced personnel costs in our pharmacy sales department as a result of our efficiency measures.
 
Corporate Expense
 
Our corporate expense was $16.9 million for the six months ended June 30, 2008 as compared to $19.8 million for the six months ended June 30, 2007. This $2.9 million, or 14.7%, decrease was primarily attributable to lower transition services fees paid to HLTH in connection with services provided by HLTH to us since our separation, the absence of certain incentive compensation expenses paid in connection with the 2006 Transaction and an external consulting fee related to an efficiency measure study incurred in 2007. This decrease in corporate expense was partially offset by increased personnel and other costs in the first half of 2008 associated with our transition to a stand-alone company and increased compensation expense assigned to equity grants under the EBS Equity Plan.
 
Depreciation and Amortization Expense
 
Our depreciation and amortization expense was $46.3 million for the six months ended June 30, 2008 as compared to $30.3 million for the six months ended June 30, 2007. This $16.0 million, or 52.8%, increase was primarily attributable to additional depreciation and amortization expense related to purchase accounting adjustments associated with the 2008 Transaction, as well as depreciation of property and equipment assets placed in service after June 30, 2007.
 
Interest Income
 
Our interest income was $0.6 million in the six months ended June 30, 2008 as compared to $0.7 million in the six months ended June 30, 2007. This $0.2 million, or 21.1%, decrease was primarily attributable to a decline in interest rates applicable to our cash balances maintained in our bank accounts as compared to the prior year period.
 
Interest Expense
 
Our interest expense was $29.0 million in the six months ended June 30, 2008 as compared to $38.1 million in the six months ended June 30, 2007. This $9.0 million, or 23.7%, decrease was primarily attributable to a $13.7 million reduction from the change in fair value of our interest rate swap, lower amounts of outstanding indebtedness as a result of principal payments on our credit agreements after June 30, 2007 and a decline in the variable interest rates we were charged under our credit agreements. These decreases were offset partially by purchase accounting adjustments related to the 2008 Transaction for debt discount and interest rate swap amortization of $4.5 million and $4.7 million, respectively.
 
Income Taxes
 
Our income tax expense was $7.6 million in the six months ended June 30, 2008 as compared to $9.7 million in six months ended June 30, 2007. This $2.0 million, or 20.9%, decrease was primarily attributable to an increase in a deferred tax valuation allowance in 2008 as compared to 2007.
 
Year Ended December 31, 2007 Compared to the Period from January 1, 2006 through November 15, 2006 (Predecessor) and the Period from November 16, 2006 through December 31, 2006 (Successor)
 
Revenues
 
Our total revenues increased $57.4 million, or 7.6%, to $808.5 million in 2007 as compared to $663.2 million in the period from January 1 to November 15, 2006 and $87.9 million in the period from November 16 to December 31, 2006.
 
Our payer services segment revenues were $366.7 million in 2007 as compared to $300.0 million in the period from January 1 to November 15, 2006 and $39.3 million in the period from November 16, 2006 to December 31, 2006. Claims management revenues were $193.0 million in 2007 as compared to $165.5 million in the period from


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January 1, 2006 to November 15, 2006 and $21.6 million in the period from November 16 to December 31, 2006. This $5.9 million, or 3.2%, increase in 2007 as compared to the combined 2006 period was primarily driven by higher electronic claims transaction volumes, partially offset by (i) reduced average electronic batch claims rates from market pricing pressures and the execution of additional MGAs and (ii) lower software systems and maintenance revenues. Payer payment distribution services revenues were $173.7 million in 2007 as compared to $134.5 million in the period from January 1 to November 15, 2006 and $17.7 million in the period from November 16 to December 31, 2006. This $21.5 million, or 14.1% increase, in 2007 as compared to the combined 2006 period was primarily driven by net new sales and implementations, as well as a U.S. postage rate increase in May 2007.
 
Our provider services segment revenues were $408.4 million in 2007 as compared to $336.2 million in the period from January 1, 2006 to November 15, 2006 and $44.9 million in the period from November 16, 2006 to December 31, 2006. Patient statement revenues were $242.9 million in 2007 as compared to $198.2 million in the period from January 1, 2006 to November 15, 2006 and $27.2 million in the period from November 16 to December 31, 2006. This $17.5 million, or 7.8%, increase in 2007 as compared to the combined 2006 period was primarily driven by net new sales and implementations and a U.S. postage rate increase in May 2007. Provider revenue cycle management revenues were $136.7 million in 2007 as compared to $114.3 million in the period from January 1 to November 15, 2006 and $14.6 million in the period from November 16 to December 31, 2006. This $7.8 million, or 6.0%, increase in 2007 as compared to the combined 2006 period was primarily driven by net new sales and implementations. Dental revenues were $28.9 million in 2007 as compared to $23.8 million in the period from January 1 to November 15, 2006 and $3.1 million in the period from November 16 to December 31, 2006. This $2.0 million, or 7.5%, increase in 2007 as compared to the combined 2006 period was primarily driven by net new sales and implementations.
 
Our pharmacy services segment revenues were $36.9 million in 2007 as compared to $32.1 million in the period from January 1 to November 15, 2006 and $4.1 million in the period from November 16 to December 31, 2006. This $0.7 million, or 2.0%, increase in 2007 as compared to the combined 2006 period was primarily driven by net new sales and implementations.
 
Cost of Operations
 
Our total cost of operations increased $35.6 million, or 7.4%, to $518.8 million in 2007 as compared to $426.3 million in the period from January 1 to November 15, 2006 and $56.8 million in the period from November 16 to December 31, 2006.
 
Our cost of operations for our payer services segment was $244.6 million in 2007 as compared to $202.4 million in the period from January 1 to November 15, 2006 and $26.6 million in the period from November 16 to December 31, 2006. This $15.6 million, or 6.8%, increase in 2007 as compared to the combined 2006 period was primarily attributable to higher postage and materials costs due to higher volumes and a U.S. postage rate increase in May 2007, as well as severance and other costs related to our efficiency measures. These increases were partially offset by (i) reduced electronic transaction processing costs resulting from efficiency measures and the full year impact in 2007 of a 2006 supplier contract renegotiation, (ii) other production efficiencies, (iii) reduced personnel costs due to lower paper to electronic claims volumes and (iv) lower compensation expense in 2007 related to equity awards issued prior to the 2006 Transaction by HLTH. Our payer services segment’s cost of operations as a percentage of revenue decreased to 66.7% in 2007 from 67.5% in the period from January 1 to November 15, 2006 and 67.7% in the period from November 16 to December 31, 2006 primarily due to the impact of reduced electronic transaction unit costs and other production efficiencies, offset partially by the impact of a May 2007 U.S. postage rate increase.
 
Our cost of operations for our provider services segment was $269.8 million in 2007 as compared to $222.0 million in the period from January 1 to November 15, 2006 and $29.7 million in the period from November 16 to December 31, 2006. This $18.1 million, or 7.2%, increase in 2007 as compared to the combined 2006 period was primarily attributable to higher postage and materials costs related to increased patient statement volumes and a U.S. postage rate increase in May 2007, as well as increased information technology support costs. This increase was partially offset by (i) reduced electronic transaction processing costs resulting from our efficiency measures and the full year impact in 2007 of a 2006 supplier contract renegotiation, (ii) other production


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efficiencies and (iii) lower compensation expense related to equity awards issued prior to the 2006 Transaction by HLTH. Our provider services segment’s cost of operations as a percentage of revenue was stable during both the 2007 and combined 2006 periods as the impact of reduced electronic transaction unit costs and other production efficiencies offset the impact of a May 2007 U.S. postage rate increase.
 
Our cost of operations for our pharmacy services segment was $6.8 million in 2007 as compared to $6.1 million in the period from January 1, 2006 to November 15, 2006 and $0.8 million in the period from November 16, 2006 to December 31, 2006. This $0.1 million, or 1.5%, decrease in 2007 as compared to the combined 2006 period reflects generally consistent levels of activity during both years.
 
Development and Engineering Expense
 
Our total development and engineering expense increased $1.6 million, or 7.3%, to $23.1 million in 2007 as compared to $19.1 million in the period from January 1 to November 15, 2006 and $2.4 million in the period from November 16 to December 31, 2006.
 
Our development and engineering expense for our payer services segment was $8.4 million in 2007 as compared to $7.1 million in the period from January 1 to November 15, 2006 and $0.8 million in the period from November 16 to December 31, 2006. This $0.4 million, or 4.8%, increase in 2007 as compared to the combined 2006 period reflects generally consistent levels of development and engineering activity during both years.
 
Our development and engineering expense for our provider services segment was $11.6 million in 2007 as compared to $9.3 million in the period from January 1 to November 15, 2006 and $1.2 million in the period from November 16 to December 31, 2006. This $1.1 million, or 10.3%, increase in 2007 as compared to the combined 2006 period was primarily attributable to increased information technology support costs related to increased provider revenue cycle management product development activity.
 
Our development and engineering expense for our pharmacy services segment was $3.2 million in 2007 as compared to $2.7 million in the period from January 1 to November 15, 2006 and $0.4 million in the period from November 16 to December 31, 2006. This $0.1 million, or 3.1%, increase in 2007 as compared to the combined 2006 period reflects generally consistent levels of development and engineering activity during both years.
 
Sales, Marketing, General and Administrative Expense (Excluding Corporate Expense)
 
Our total sales, marketing, general and administrative expense (excluding corporate expense) decreased $2.3 million, or 3.8%, to $57.5 million in 2007 as compared to $52.6 million in the period from January 1 to November 15, 2006 and $7.1 million in the period from November 16 to December 31, 2006.
 
Our sales, marketing, general and administrative expense for our payer services segment was $22.3 million in 2007 as compared to $22.7 million in the period from January 1 to November 15, 2006 and $3.1 million in the period from November 16 to December 31, 2006. This $3.5 million, or 13.7%, decrease in 2007 as compared to the combined 2006 period was primarily attributable to reduced bad debt expense and lower compensation expense related to equity awards issued prior to the 2006 Transaction by HLTH.
 
Our sales, marketing, general and administrative expense for our provider services segment was $31.3 million in 2007 as compared to $26.5 million in the period from January 1 to November 15, 2006 and $3.7 million in the period from November 16 to December 31, 2006. This $1.1 million, or 3.8%, increase in 2007 as compared to the combined 2006 period reflects generally consistent levels of activity during both years.
 
Our sales, marketing, general and administrative expense for our pharmacy services segment was $4.9 million in 2007 as compared to $4.2 million in the period from January 1 to November 15, 2006 and $0.5 million in the period from November 16 to December 31, 2006. This $0.1, or 2.4%, million increase in 2007 as compared to the combined 2006 period reflects generally consistent levels of activity during both years.
 
Corporate Expense
 
Our corporate expense was $38.1 million in 2007 as compared to $29.2 million in the period from January 1 to November 15, 2006 and $5.8 million in the period from November 16 to December 31, 2006. The $3.1 million, or 8.9%, increase in 2007 as compared to the combined 2006 period was primarily attributable to (i) increased


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marketing expense, (ii) an external consulting fee associated with our efficiency measure study, (iii) increased transition services fees paid to HLTH and (iv) increased personnel, insurance, legal, equity compensation and other costs related to our operations as a stand-alone company following the 2006 Transaction. These increases were partially offset by the absence of a corporate allocation charge from HLTH during 2007 and the absence of $4.2 million of costs incurred related to the 2006 Transaction.
 
Depreciation and Amortization Expense
 
Our depreciation and amortization expense was $62.8 million in 2007 as compared to $30.4 million in the period from January 1 to November 15, 2006 and $7.1 million in the period from November 16 to December 31, 2006. The $25.2 million, or 67.2%, increase in 2007 as compared to the combined 2006 period was primarily attributable to the amortization of increased intangible assets recognized in connection with the 2006 Transaction and depreciation related to additional property and equipment placed in service during 2007.
 
Interest Income
 
Our interest income was $1.6 million in 2007 as compared to $0.1 million in the period from January 1 to November 15, 2006 and $0.1 million in the period from November 16 to December 31, 2006. The $1.4 million increase in 2007 as compared to the combined 2006 period was attributable to larger cash balances maintained in our bank accounts during 2007. Prior to the 2006 Transaction, the majority of our cash was maintained at the corporate level of HLTH.
 
Interest Expense
 
Our interest expense was $74.9 million in 2007 as compared to $10.2 million in the period from November 16 to December 31, 2006. Minimal interest expense was incurred in the period from January 1 to November 15, 2006. This $64.7 million increase in 2007 as compared to the combined 2006 period was attributable to long-term debt and related loan costs associated with our credit agreements, which we entered into at the time of the 2006 Transaction. Prior to the 2006 Transaction, we did not have significant long-term debt obligations.
 
Income Taxes
 
Our income tax expense was $18.9 million in 2007 as compared to $42.0 million in the period from January 1 to November 15, 2006 and $1.3 million in the period from November 16 to December 31, 2006. The $24.5 million, or 56.5%, decrease in 2007 as compared to the combined 2006 period was primarily attributable to lower pre-tax income due to increased interest expense and depreciation and amortization in 2007.
 
Period from January 1, 2006 through November 15, 2006 (Predecessor) and the Period from November 16, 2006 through December 31, 2006 (Successor) Compared to the Year Ended December 31, 2005
 
Revenues
 
Our total revenues increased $61.0 million, or 8.8%, to $663.2 million in the period from January 1 to November 15, 2006 and $87.9 million in the period from November 16 to December 31, 2006 as compared to $690.1 million in 2005.
 
Our payer services segment revenues were $300.0 million in the period from January 1 to November 15, 2006 and $39.3 million in the period from November 16 to December 31, 2006 as compared to $317.0 million in 2005. Claims management revenues were $165.5 million in the period from January 1 to November 15, 2006 and $21.6 million in the period from November 16 to December 31, 2006 as compared to $183.0 million in 2005. This $4.1 million, or 2.2% increase in the combined 2006 period as compared to 2005 was primarily driven by higher electronic transaction volumes and software systems revenue. This increase was partially offset by reduced average electronic batch claims rates from market pricing pressures and the execution of additional MGAs, as well as lower paper to electronic claims volumes. Payer payment distribution services revenues were $134.5 million in the period from January 1 to November 15, 2006 and $17.7 million in the period from November 16 to December 31, 2006 as compared to $134.1 million in 2005. This $18.2 million, or 13.5%, increase in the combined 2006 period as


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compared to 2005 was primarily driven by net new sales and implementations, as well as the impact of a U.S. postage rate increase in January 2006.
 
Our provider services segment revenues were $336.2 million in the period from January 1 to November 15, 2006 and $44.9 million in the period from November 16 to December 31, 2006 as compared to $344.3 million in 2005. Patient statement revenues were $198.2 million in the period from January 1 to November 15, 2006 and $27.2 million in the period from November 16 to December 31, 2006 as compared to $198.1 million in 2005. The $27.3 million, or 13.8%, increase in the combined 2006 period as compared to 2005 was primarily driven by net new sales and implementations and a U.S. postage rate increase in January 2006. Provider revenue cycle management revenues were $114.3 million in the period from January 1 to November 15, 2006 and $14.6 million in the period from November 16 to December 31, 2006 as compared to $120.5 million in 2005. The $8.4 million, or 7.0%, increase in the combined 2006 period as compared to 2005 was primarily driven by net new sales and implementations. Dental revenues were $23.8 million in the period from January 1 to November 15, 2006 and $3.1 million in the period from November 16 to December 31, 2006 as compared to $25.7 million in 2005. The $1.2 million, or 4.5%, increase in the combined 2006 period as compared to 2007 was primarily driven by net new sales and implementations.
 
Our pharmacy services segment revenues were $32.1 million in the period from January 1 to November 15, 2006 and $4.1 million in the period from November 16 to December 31, 2006 as compared to $36.0 million in 2005. The $0.2 million, or 0.6%, increase during the combined 2006 period as compared to 2005 was primarily driven by net new sales and implementations, offset partially by lower prescription rebate revenue.
 
Cost of Operations
 
Our total cost of operations increased $34.1 million, or 7.6%, to $426.3 million in the period from January 1 to November 15, 2006 and $56.8 million in the period from November 16 to December 31, 2006 as compared to $449.1 million in 2005.
 
Our cost of operations for our payer services segment was $202.4 million in the period from January 1 to November 15, 2006 and $26.6 million in the period from November 16 to December 31, 2006 as compared to $214.5 million in 2005. This $14.6 million, or 6.8%, increase in the combined 2006 period as compared to 2005 was primarily attributable to higher postage and materials costs due to higher payment distribution volumes and a U.S. postage rate increase in January 2006, as well as increased personnel costs related to increased paper to electronic claims volumes and compensation expense related to equity awards issued prior to the 2006 Transaction by HLTH. This increase was partially offset by reduced electronic transaction processing costs resulting from a 2006 supplier contract renegotiation and other production efficiencies. Our payer services segment’s cost of operations as a percentage of revenue was stable during both the combined 2006 and 2005 periods as the impact of reduced electronic transaction unit costs and other production efficiencies offset the impact of a January 2006 U.S. postage rate increase.
 
Our cost of operations for our provider services segment was $222.0 million in the period from January 1 to November 15, 2006 and $29.7 million in the period from November 16 to December 31, 2006 as compared to $232.1 million in 2005. This $19.6 million, or 8.5%, increase in the combined 2006 period as compared to 2005 was primarily attributable to higher postage and materials costs related to increased patient statement volumes and a U.S. postage rate increase in January 2006, compensation expense related to equity awards issued prior to the 2006 Transaction by HLTH and increased information technology support costs. This increase was partially offset by reduced electronic transaction processing costs resulting from a 2006 supplier contract renegotiation and other production efficiencies. Our provider services segment’s cost of operations as a percentage of revenue decreased to 66.0% in the period from January 1 to November 15, 2006 and 66.2% in the period from November 16 to December 31, 2006 from 67.4% in 2005 as the impact of reduced electronic transaction unit costs and other production efficiencies offset the impact of a January 2006 U.S. postage rate increase.
 
Our cost of operations for our pharmacy services segment was $6.1 million in the period from January 1 to November 15, 2006 and $0.8 million in the period from November 16 to December 31, 2006 as compared to $8.4 million in 2005. This $1.5 million, or 17.6%, decrease in the combined 2006 period as compared to 2005 was due to reduced transaction processing costs as a result of several 2006 supplier contract renegotiations. Our pharmacy services segment’s cost of operations as a percentage of revenue decreased to 19.2% in the period from


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January 1 to November 15, 2006 and 18.1% in the period from November 16 to December 31, 2006 from 23.2% in 2005, primarily due to the impact of reduced electronic transaction unit costs.
 
Development and Engineering Expense
 
Our total development and engineering expense increased $0.6 million, or 2.8%, to $19.1 million in the period from January 1 to November 15, 2006 and $2.4 million in the period from November 16 to December 31, 2006 as compared to $21.0 million in 2005.
 
Our development and engineering expense for our payer services segment was $7.1 million in the period from January 1 to November 15, 2006 and $0.8 million in the period from November 16 to December 31, 2006 as compared to $8.9 million in 2005. The $0.9 million, or 10.0%, decrease in the combined 2006 period as compared to 2005 was primarily attributable to reduced personnel costs and a lower level of development activities in 2006.
 
Our development and engineering expense for our provider services segment was $9.3 million in the period from January 1 to November 15, 2006 and $1.2 million in the period from November 16 to December 31, 2006 as compared to $8.9 million in 2005. The $1.6 million, or 17.9%, increase in the combined 2006 period as compared to 2005 was primarily attributable to increased information technology support costs related to new product development and product integration activity.
 
Our development and engineering expense for our pharmacy services segment was $2.7 million in the period from January 1 to November 15, 2006 and $0.4 million in the period from November 16 to December 31, 2006 as compared to $3.2 million in 2005, reflecting generally consistent levels of activity during the combined 2006 period and 2005.
 
Sales, Marketing, General and Administrative Expense (Excluding Corporate Expense)
 
Our total sales, marketing, general and administrative expense (excluding corporate expense) decreased $1.3 million, or 2.1%, to $52.6 million in the period from January 1 to November 15, 2006 and $7.1 million in the period from November 16 to December 31, 2006 as compared to $61.0 million in 2005.
 
Our sales, marketing, general and administrative expense for our payer services segment was $22.7 million in the period from January 1 to November 15, 2006 and $3.1 million in the period from November 16 to December 31, 2006 as compared to $27.7 million in 2005. The $1.9 million, or 6.7%, decrease in the combined 2006 period as compared to 2005 was primarily attributable to reduced personnel costs in 2006 from the reduction of management personnel from prior acquisitions, partially offset by compensation expense related to equity awards issued prior to the 2006 Transaction by HLTH.
 
Our sales, marketing, general and administrative expense for our provider services segment was $26.5 million in the period from January 1 to November 15, 2006 and $3.7 million in the period from November 16 to December 31, 2006 as compared to $29.3 million in 2005, reflecting generally consistent levels of activity during the combined 2006 period and 2005.
 
Our sales, marketing, general and administrative expense for our pharmacy services segment was $4.2 million in the period from January 1 to November 15, 2006 and $0.5 million in the period from November 16 to December 31, 2006 as compared to $5.3 million in 2005. The $0.5 million, or 10.3%, decrease in the combined 2006 period as compared to 2005 was primarily attributable to lower bad debt expense, offset partially by increased personnel costs.
 
Corporate Expense
 
Our corporate expense was $29.2 million in the period from January 1 to November 15, 2006 and $5.8 million in the period from November 16 to December 31, 2006 as compared to $29.8 million in 2005. The $5.2 million, or 17.4%, increase during the combined 2006 period as compared to 2005 was primarily attributable to $4.2 million of costs related to the 2006 Transaction, increased transition services fees paid to HLTH and equity compensation and other costs related to our operations as a stand-alone company following the 2006 Transaction. These increases


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were partially offset by reduced personnel costs resulting from open management positions, external consulting fees and marketing costs.
 
Depreciation and Amortization Expense
 
Our depreciation and amortization expense was $30.4 million in the period from January 1 to November 15, 2006 and $7.1 million in the period from November 16 to December 31, 2006 as compared to $32.3 million in 2005. The $5.3 million, or 16.4%, increase during the combined 2006 period as compared to 2005 was primarily attributable to the amortization of increased intangible assets which were recognized in connection with the 2006 Transaction and depreciation related to additional property and equipment placed in service during 2006.
 
Interest Income
 
Our interest income was $0.1 million in the period from January 1 to November 15, 2006 and $0.1 million in the period from November 16 to December 31, 2006 as compared to $0.1 million in 2005, reflecting generally consistent levels of cash balances during the combined 2006 period and 2005.
 
Interest Expense
 
Our interest expense was $10.2 million in the period from November 16 to December 31, 2006 as compared to $0.1 million in 2005. Minimal interest was incurred in the period from January 1 to November 15, 2006. The $10.1 million increase during the combined 2006 period as compared to 2005 was attributable to long-term debt and related loan costs associated with our credit agreements, which we entered into at the time of the 2006 Transaction. Prior to the 2006 Transaction, we did not have significant long-term debt obligations.
 
Income Taxes
 
Our income tax expense was $42.0 million in the period from January 1 to November 15, 2006 and $1.3 million in the period from November 16 to December 31, 2006 as compared to $31.5 million in 2005. The $11.8 million, or 37.5%, increase during the combined 2006 period as compared to 2005 was primarily attributable to increased pre-tax income in 2006 as compared to 2005, as well as a reduction in 2005 income taxes from the resolution of a tax contingency.
 
Liquidity and Capital Resources
 
General
 
We are a holding company with no material business operations. Our principal asset is the equity interests we own in EBS Master. We conduct all of our business operations through the direct and indirect subsidiaries of EBS Master. Accordingly, our only material sources of cash are dividends or other distributions or payments that are derived from earnings and cash flow generated by the subsidiaries of EBS Master.
 
We have financed our operations primarily through cash provided by operating activities, private sales of EBS Units to the Principal Equityholders and borrowings under our credit agreements. These sources of financing have been our principal sources of liquidity to date. We intend to use our proceeds from this offering for working capital and general corporate purposes, which may include the repayment of indebtedness and to fund future acquisitions. We believe that our existing cash on hand, the net proceeds from this offering, cash generated from operating activities and available borrowings under our revolving credit agreement ($44.2 million as of June 30, 2008) will be sufficient to satisfy our currently anticipated cash requirements at least through the next 12 months, which include debt service requirements under our credit agreements and potential payments under the tax receivable agreements.
 
As of June 30, 2008, we had cash and cash equivalents of $63.6 million as compared to $29.6 million as of December 31, 2007 and $29.3 million as of December 31, 2006.


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Cash Flows
 
Operating Activities
 
Cash provided by operations for the six months ended June 30, 2008 was $46.1 million as compared to $32.3 million for the six months ended June 30, 2007. This $13.8 million increase was primarily driven by our business growth.
 
Cash provided by operations for the year ended December 31, 2007 was $95.1 million as compared to $125.4 million in the period from January 1 to November 15, 2006 and $20.8 million in the period from November 16 to December 31, 2006. The $51.1 million decrease in cash provided by operations during 2007 as compared to the combined 2006 period is primarily attributable to (i) $62.9 million of additional interest expense paid in 2007 under our credit agreements, which agreements were not in place prior to the 2006 Transaction, (ii) repayment in 2007 to HLTH of amounts paid by them on our behalf during 2006 and (iii) costs incurred in 2007 related to our separation from HLTH, offset partially by increased cash from business growth.
 
Cash provided by operations was $127.1 million for the year ended December 31, 2005. The $19.2 million increase for the combined 2006 period as compared to 2005 was primarily attributable to increased cash from business growth and payments of certain expenses by HLTH on our behalf prior to the 2006 Transaction, offset partially by $9.2 million interest expense paid during 2006.
 
Investing Activities
 
Cash used in investing activities for the six months ended June 30, 2008 was $587.3 million as compared to $30.5 million during the six months ended June 30, 2007. Excluding payments related to the 2008 Transaction and 2006 Transaction of $578.4 million and $10.7 million, respectively, cash used in investing activities was $8.9 million during the six months ended June 30, 2008 as compared to $19.8 million during the six months ended June 30, 2007. This $10.9 million decrease is primarily attributable to higher capital expenditures in the first half of 2007 related to our efficiency measures.
 
Cash used in investing activities for the year ended December 31, 2007 was $50.2 million as compared to $1,217.0 million in the period from January 1 to November 15, 2006 and $45.2 million in the period from November 16 to December 31, 2006. Excluding payments related to the 2006 Transaction of $10.7 million and $1,214.3 million, respectively, cash used in investing activities was $39.5 million in 2007 as compared to $47.8 million in the combined 2006 period. This $8.3 million decrease in 2007 as compared to the combined 2006 period was primarily attributable to a reduction in amounts paid for acquisitions during 2007 as compared to 2006. Investment activity during 2007 principally related to the $11.3 million paid for the acquisition of IXT and capital expenditures of $28.2 million. Investment activity in 2006 included acquisition payments of $22.5 million, primarily the final earn-out payment related to the 2003 ABF acquisition, and capital expenditures of $25.3 million.
 
Cash used in investing activities was $71.6 million for 2005. Excluding acquisition payments related to the 2006 Transaction of $1,214.3 million in 2006, the $23.9 million decrease as compared to 2005 was primarily attributable to a reduction in the amount of earn-out payments made related to the 2003 ABF acquisition in the combined 2006 period.
 
Financing Activities
 
Cash provided by financing activities for the six months ended June 30, 2008 was $575.1 million as compared to $25.9 million used during the six months ended June 30, 2007. Excluding items related to the 2008 Transaction of $578.9 million in 2007, cash used in financing activities was $3.8 million during the six months ended June 30, 2008. This $22.1 million decrease in cash used in financing activities during the first half of 2008 as compared to the first half of 2007 was primarily attributable to the absence of optional debt prepayments being made under our first lien credit facility during the first half of 2008 as compared to $15.0 million of such payments in the 2007 period, as well as the repayment to HLTH during the first half of 2007 of a $10.0 million cash advance from HLTH made in connection with the 2006 Transaction.


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Cash used in financing activities for the year ended December 31, 2007 was $44.7 million as compared to $1,225.4 million provided in the period from November 16 to December 31, 2006 and $76.5 million used in the period from January 1 to November 15, 2006. Excluding capital contributions and debt proceeds associated with the 2006 Transaction of $1,225.4 million, cash used in financing activities in the combined 2006 period was $76.5 million. This $31.8 million decrease in 2007 as compared to the combined 2006 period was primarily attributable to the difference between the optional debt prepayments made under our first lien credit facility during 2007 and the net cash paid to HLTH during 2006 prior the 2006 Transaction.
 
Cash used in financing activities was $57.2 million in 2005. Excluding capital contributions and debt proceeds associated with the 2006 Transaction of $1,225.4 million, the $19.3 million increase for the combined 2006 period as compared to 2005 was primarily attributable to business growth during the 2006 combined period and the resulting larger cash payments made to HLTH prior to the 2006 Transaction.
 
Credit Facilities
 
In November 2006, our subsidiary, Emdeon Business Services LLC, entered into the first lien credit agreement, which we refer to as the “First Lien Credit Agreement,” and the second lien credit agreement, which we refer to as the “Second Lien Credit Agreement.” Together, we refer to the First Lien Credit Agreement and the Second Lien Credit Agreement as the “Credit Agreements.” The First Lien Credit Agreement provided us $805.0 million of total available financing, consisting of a secured $755.0 million term loan facility and a secured $50.0 million revolving credit facility. The revolving credit facility provides for the issuance of standby letters of credit, in an aggregate face amount at any time not in excess of $12.0 million. In addition, under the terms of the First Lien Credit Agreement, under certain circumstances we can borrow up to an additional $200.0 million in incremental term loans and increase the available capacity under the revolving credit facility by $25.0 million, provided that the aggregate amount of such increases may not exceed $200.0 million. The revolving First Lien Credit Agreement credit facility matures in November 2012 and the term loan matures in November 2013.
 
Borrowings outstanding under the First Lien Credit Agreement amounted to $713.7 million as of June 30, 2008, and currently bear interest, at our option, at either an adjusted LIBOR rate plus 2.00% or the lenders’ alternate base rate plus 1.00%, or a combination of the two. The applicable rate for borrowings under our revolving credit facility varies depending on our total leverage ratio.
 
We are required to make quarterly principal payments of approximately $1.8 million on the First Lien Credit Agreement term loan facility through 2013. We are also required to pay a commitment fee of 0.5% per annum, provided that our total leverage ratio is greater than or equal to 4.0:1, and otherwise 0.375% per annum on the undrawn portion of the revolving credit facility. We are permitted to prepay the revolving credit facility or the term loan under the First Lien Credit Agreement at any time and, under certain circumstances, are required to prepay amounts outstanding under the First Lien Credit Agreement with proceeds we receive from certain asset sales or from certain incurrences of debt.
 
Our Second Lien Credit Agreement is a term loan facility with an aggregate principal amount of $170.0 million, which was the amount outstanding as of June 30, 2008. This term loan matures in May 2014. Borrowings outstanding under the Second Lien Credit Agreement currently bear interest, at our option, at either an adjusted LIBOR rate plus 5.00% or the lenders’ alternate base rate plus 4.00%, or a combination of the two. We are required to make quarterly interest payments. Although we are permitted to prepay the loans under our Second Lien Credit Agreement at any time, the terms of our First Lien Credit Agreement restrict our ability to make such prepayments.
 
As of June 30, 2008, total borrowings outstanding under the Credit Agreements amounted to $883.7 million (before debt discount to fair value recorded in conjunction with the 2008 Transaction). Under our $50.0 million revolving credit facility, net of $5.8 million of outstanding but undrawn letters of credit issued, we had $44.2 million in available borrowing capacity.
 
In connection with the 2008 Transaction, our long-term debt was adjusted to fair value, which resulted in the recording of a debt discount of $66.4 million with $61.9 million unamortized as of June 30, 2008.
 
During the six months ended June 30, 2008, the effective interest rate of our borrowings under our Credit Agreements was approximately 7.3%.


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The obligations of Emdeon Business Services LLC under the Credit Agreements are unconditionally guaranteed by EBS Master and all of its subsidiaries and are secured by liens on substantially all of EBS Master’s assets, including the stock of its subsidiaries.
 
The Credit Agreements contain covenants that may restrict the operation of our business, including our ability to incur additional debt, create liens, make investments or capital expenditures, engage in asset sales, enter into transactions with affiliates, enter into sale-leaseback transactions and enter into certain hedging arrangements. In addition, our Credit Agreements restrict the ability of EBS Master and its subsidiaries to make dividends or other distributions to us, issue equity interests, repurchase equity interests or certain indebtedness or enter into mergers or consolidations. The Credit Agreements contain certain financial covenants, including the following:
 
  •  a maximum total leverage ratio, which requires that our ratio of consolidated indebtedness less excess cash to our consolidated EBITDA for the most recently completed four fiscal quarters not exceed certain thresholds. The maximum total leverage ratio is tested on a quarterly basis.
 
  •  a minimum interest coverage ratio, which requires that our ratio of consolidated EBITDA to our consolidated interest expense for the most recently completed four fiscal quarters not be less than certain thresholds. The minimum interest coverage ratio is tested on a quarterly basis.
 
As of June 30, 2008, we were in compliance with all of the financial and other covenants under the Credit Agreements.
 
Events of default under the Credit Agreements include non-payment of principal, interest, fees or other amounts when due; violation of certain covenants; failure of any representation or warranty to be true in all material respects when made or deemed made; cross-default and cross-acceleration to certain indebtedness; certain ERISA events; dissolution, insolvency and bankruptcy events; and actual or asserted invalidity of the guarantees or security documents. In addition, a “Change of Control” (as such term is defined in the Credit Agreements) is an event of default under the Credit Agreements. A “Change of Control” will occur, among other things, if we fail to own at least 55% of the ownership interests in EBS Master or General Atlantic or its affiliates fail to control us. Some of these events of default allow for grace periods and materiality qualifiers.
 
Commitments and Contingencies
 
The following table presents certain minimum payments due under contractual obligations with minimum firm commitments as of December 31, 2007:
 
                                         
    Payments by Period  
    Total     2008     2009-2010     2011-2012     Thereafter  
    (in thousands)  
 
First Lien Credit Agreement
  $ 717,450     $ 7,247     $ 14,494     $ 14,494     $ 681,215  
Second Lien Credit Agreement
    170,000                         170,000  
Expected interest
    324,260       63,822       113,601       99,265       47,572  
Operating lease obligations
    27,322       7,484       12,032       4,287       3,519  
                                         
Total contractual obligations
  $ 1,239,032     $ 78,553     $ 140,127     $ 118,046     $ 902,306  
                                         
 
Expected interest under our Credit Agreements is based on our interest rates as of June 30, 2008 and includes the interest impact from our interest rate swap agreement. Because the rates are variable, actual payments could differ materially. Our other principal commitments consist of obligations under operating leases for office space and equipment. See the Notes to our consolidated financial statements contained elsewhere in this prospectus for additional information related to our operating leases and other commitments.


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Off-Balance Sheet Arrangements
 
As of December 31, 2007 and June 30, 2008, we had no off-balance sheet arrangements or obligations, other than as may be related to the letters of credit and interest rate swap agreements previously described and surety bonds of an insignificant amount.
 
Quantitative and Qualitative Disclosures About Market Risk
 
We have interest rate risk primarily related to borrowings under the Credit Agreements. Term loan borrowings under the First Lien Credit Agreement bear interest, at our option, at either an adjusted LIBOR rate plus 2.00% or the lenders’ alternate base rate plus 1.00%, or a combination of the two, and borrowings under the Second Lien Credit Agreement bear interest, at our option, at either an adjusted LIBOR rate plus 5.00% or the lenders’ alternate base rate plus 4.00%, or a combination of the two. As of June 30, 2008, we had outstanding borrowings of $713.7 million under the First Lien Credit Agreement and $170.0 million under the Second Lien Credit Agreement. If our interest rates increased by 1.0%, our annual interest expense on our current borrowings would increase by approximately $2.3 million, as of June 30, 2008, considering the hedging impact of our interest rate swap agreement.
 
Recent Accounting Pronouncements
 
Business Combinations
 
In December 2007, the FASB issued SFAS 141. SFAS 141(R) expands the definition of a business and a business combination and generally requires the acquiring entity to recognize all of the assets and liabilities of the acquired business, regardless of the percentage ownership acquired, at their fair values. It also requires that contingent consideration and certain acquired contingencies be recorded at fair value on the acquisition date and that acquisition costs generally be expensed as incurred. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008. We are currently evaluating the impact, if any, that SFAS 141(R) will have on our results of operations, financial position and cash flows.
 
Fair Value Measurements
 
In September 2006, the FASB issued SFAS 157, Fair Value Measurement (“SFAS 157”), which provides guidance for using fair value to measure assets and liabilities, including a fair value hierarchy that prioritizes the information used to develop fair value assumptions. SFAS 157 also requires expanded disclosure about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value and the effect of fair value measurements on earnings. SFAS 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value and does not expand the use of fair value in any new circumstances. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The adoption of SFAS 157 did not have a material impact on our financial position or results of operations.
 
Fair Value Option for Financial Assets and Financial Liabilities
 
On February 15, 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115 (“SFAS 159”). SFAS 159 permits many financial instruments and certain other items to be measured at fair value at their option. Most of the provisions in SFAS 159 are elective; however, the amendment to SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, applies to all entities with available-for-sale and trading securities. The fair value option established by SFAS 159 permits the choice to measure eligible items at fair value at specified election dates. Unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings at each subsequent reporting date. The fair value option: (i) may be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method; (ii) is irrevocable (unless a new election date occurs); and (iii) is applied only to entire instruments and not to portions of instruments. SFAS 159 is effective for financial statements issued for first fiscal year beginning after November 15, 2007. The adoption of SFAS 159 did not have a material impact on our financial position or results of operations.


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Consolidated Financial Statements
 
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51 (“SFAS 160”). SFAS 160 amends Accounting Research Bulletin (“ARB”) No. 51, Consolidated Financial Statements (“ARB 51”) to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. Additionally, SFAS 160 changes the way the consolidated income statement is presented by requiring consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest.
 
SFAS 160 requires expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interests of the parent’s owners and the interests of the noncontrolling owners of a subsidiary, including a reconciliation of the beginning and ending balances of the equity attributable to the parent and the noncontrolling owners and a schedule showing the effects of changes in a parent’s ownership interest in a subsidiary on the equity attributable to the parent. SFAS 160 does not change ARB 51’s provisions related to consolidation purposes or consolidation policy, or the requirement that a parent consolidate all entities in which it has a controlling financial interest. SFAS 160 does, however, amend certain of ARB 51’s consolidation procedures to make them consistent with the requirements of SFAS 141(R), as well as to provide definitions for certain terms and to clarify some terminology. In addition to the amendments to ARB 51, SFAS 160 amends SFAS 128, Earnings per Share, so that the calculation of earnings per share amounts in consolidated financial statements will continue to be based on amounts attributable to the parent. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. Earlier adoption is prohibited. SFAS 160 must be applied prospectively as of the beginning of the fiscal year in which it is initially applied, except for the presentation and disclosure requirements, which must be applied retrospectively for all periods presented. We have not yet evaluated the impact that SFAS 160 will have on our results of operations or financial position.
 
Disclosures About Derivative Instruments and Hedging Activities
 
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (“SFAS 161”). SFAS 161 amends and expands the disclosure requirements for derivative instruments and about hedging activities with the intent to provide users of financial statements with an enhanced understanding of how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for and how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 does not change accounting for derivative instruments and is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Upon adoption, we will include additional disclosures in our financial statements regarding derivative instruments and hedging activity.


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BUSINESS
 
Overview
 
We are a leading provider of revenue and payment cycle management solutions, connecting payers, providers and patients in the U.S. healthcare system. Our product and service offerings integrate and automate key business and administrative functions of our payer and provider customers throughout the patient encounter, including pre-care patient eligibility and benefits verification, claims management and adjudication, payment distribution, payment posting and denial management and patient billing and payment collection. Through the use of our comprehensive suite of products and services, our customers are able to improve efficiency, reduce costs, increase cash flow and more efficiently manage the complex revenue and payment cycle process. In 2007, we generated revenues from continuing operations of $808.5 million, Adjusted EBITDA of $182.8 million, net income of $16.0 million and cash flow provided by operations of $95.1 million.
 
Our services are delivered primarily through recurring, transaction-based processes that leverage our revenue and payment cycle network, the single largest financial and administrative information exchange in the U.S. healthcare system. In 2007, we processed a total of 3.7 billion healthcare-related transactions, including approximately one out of every two commercial healthcare claims delivered electronically in the United States. We have developed our network of payers and providers over 25 years and connect virtually all private and government payers, claim-submitting providers and pharmacies making it extremely difficult, expensive and time-consuming for competitors to replicate our market position. Compared to many of our competitors, who lack the breadth and scale of our network and who often must rely on our connectivity to provide some or all of their own services, we are uniquely positioned to facilitate seamless and timely interaction among payers and providers. Further, with the cost pressures and capital allocation decisions our customers face today, many payers and providers are reluctant to invest the time or money into supporting additional vendor connectivity and, as a result, have chosen to consolidate their business activities with us. Our network and related products and services are designed to easily integrate with our customers’ existing technology infrastructures and administrative workflow and typically require minimal capital expenditure on the part of the customer, while generating significant savings and operating efficiencies.
 
We generate greater than 90% of our revenues from products and services where we believe we have a leading market position. Our solutions are critical to the day-to-day operations of our payer and provider customers as our solutions drive consistent automated workflows and information exchanges that support key financial and administrative processes. Our market leadership is demonstrated by the long tenure of our payer and provider relationships, which for our 50 largest customers in 2007 average 11 years. We are the exclusive provider of certain electronic eligibility and benefits verification and/or claims management services under MGAs for more than 300 payer customers (approximately 25% of all U.S. payers). Similarly, we are the sole provider of certain payment and remittance advice distribution services for over 600 of our payer customers (approximately 50% of all U.S. payers). These exclusive relationships provide us with a significant opportunity to expand the scope of our product and service offerings with these customers.
 
Our ubiquitous, independent platform facilitates alignment with both our payer and provider customers, thereby creating a significant opportunity for us to increase penetration of our existing solutions and drive the adoption of new solutions. Recently, we have significantly increased the number of products and services utilized by our existing customers through cross-selling. In addition to increasing penetration of our existing solutions, we have created a culture of innovation to develop and market new solutions that allow us to deepen our customer relationships. Because we serve as a central point of communication and data aggregation for our customers, our network captures the most comprehensive and timely sources of U.S. healthcare information. Unlike many other data sources, our network provides us with access to data generated at or close to the point of care. Our access to vast amounts of healthcare data positions us to develop business intelligence solutions that provide our customers with valuable information, reporting capabilities and related data analytics to support our customers’ core business decision making. For example, because we often process all of an individual payer’s claims and capture data from that payer’s entire spectrum of providers, we are capable of developing customized solutions for our payer customers that can enable more timely and relevant information management tools relating to their inpatient, outpatient, dental and pharmacy data.


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Our business continues to benefit from several healthcare industry trends that increase the overall number of healthcare transactions and the complexity of the reimbursement process. We believe that payers and providers will increasingly seek solutions that utilize technology and outsourced process expertise to automate and simplify the administrative and clinical processes of healthcare to enhance their profitability, while minimizing errors and reducing costs. Our mission-critical products and services enable the healthcare system to operate more efficiently and help to mitigate the continuing trend of cost escalation across the industry. We stand to benefit from the major secular trends affecting the broader healthcare sector as a result of our position at the nexus of all key healthcare constituent groups.
 
Our Industry
 
Payer & Provider Landscape
 
Healthcare expenditures are a large and growing component of the U.S. economy, representing $2.1 trillion in 2006, or 16% of GDP, and are expected to grow at 6.7% per year to $4.3 trillion, or 20% of GDP, in 2017. The cost of healthcare administration in the U.S. is estimated to be $360 billion in 2008, or 17% of total healthcare expenditures, $150 billion of which is spent by payers and providers on billing and insurance administration-related activities.
 
Healthcare is generally provided through a fragmented industry of providers that have, in many cases, historically under-invested in administrative and clinical solutions. Within this universe of providers, there are currently over 5,700 hospitals and over 560,000 office-based doctors. Approximately 60% of the office-based doctors are in small physician practices consisting of ten or fewer physicians and have fewer resources to devote to administrative and financial matters compared to larger practices. In addition, providers can maintain relationships with 50 or more individual payers, many of which have customized claim formats and reimbursement procedures. The administrative portion of healthcare costs for providers is expected to continue to expand due in part to the increasing complexity in the reimbursement process and the greater administrative burden being placed on providers for reporting and documentation relating to the care they provide. These factors are compounded by the fact that many providers lack the technological infrastructure and human resources to bill, collect and obtain full reimbursement for their services, and instead rely on inefficient, labor-intensive processes to perform these functions. As a result, we believe payers and providers will continue to seek solutions that automate and simplify the administrative and clinical processes of healthcare. We benefit from this trend given our expansive suite of administrative product and service offerings.
 
Payment for healthcare services generally occurs through complex and frequently changing reimbursement mechanisms involving multiple parties. The proliferation of private-payer benefit plan designs and government mandates (such as HIPAA format and data content standards) continue to increase the complexity of the reimbursement process. For example, preferred provider organizations (“PPOs”), health maintenance organizations (“HMOs”), point of service plans (“POSs”) and high-deductible health plans (“HDHPs”) now cover 97% of employer-sponsored health insurance beneficiaries and are more complex than traditional indemnity plans which covered 73% of beneficiaries in 1988. Despite significant consolidation among private payers in recent years, claims systems have often not been sufficiently integrated, resulting in persistently high costs associated with administering these plans. Government payers also continue to introduce more complex rules to align payments with the appropriate care provided, including the expansion of Medicare diagnosis-related group codes and the implementation of the Recovery Audit Contractor demonstration program, both of which have increased administrative burdens on providers by requiring more detailed classification of patients and care provided in order to receive associated Medicare reimbursement. Further, due to an increasing number of drug prescriptions authorized by providers and an industry-wide shortage of pharmacists, pharmacies and pharmacy benefit managers must increasingly be able to efficiently process transactions in order to maximize their productivity and better control prescription drug costs. Most payers, providers and many independent pharmacies are not equipped to handle this increased complexity and the associated administrative challenges themselves.
 
Increases in patient financial responsibility for healthcare expenses have put additional pressure on providers to collect payments at the patient point of care since approximately 60% of healthcare expenses not collected from individuals at the time of care are estimated to become bad debt for a typical provider. Several market trends have contributed to this growing bad debt problem, including the shift towards HDHP and consumer-oriented plans, which grew by 1.3 million enrollees, or 41%, in 2007 over 2006, higher deductibles and co-payments for privately insured


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individuals and the increasing ranks of the uninsured (47.0 million or 15.8% of the U.S. population in 2006). Our solutions equip providers to significantly improve collection at the point of care.
 
The Revenue and Payment Cycle
 
The healthcare revenue and payment cycle consists of all the processes and efforts that providers undertake to ensure they are compensated properly by payers for the medical services rendered to patients. These processes begin with the collection of relevant eligibility and demographic information about the patient before care is provided and end with the collection of payment from payers and patients. Providers are required to send invoices, or claims, to a large number of different payers, including government agencies, managed care companies and private individuals in order to be reimbursed for the care they provide.
 
Payers and providers spend approximately $150 billion annually on these revenue and payment cycle activities. Major steps in this process include:
 
  •  Pre-Care/Medical Treatment:  The provider verifies insurance benefits available to the patient, ensures treatment will adhere to medical necessity guidelines and confirms patient personal financial and demographic information. In addition, in order to receive reimbursement for the care they provide, providers are often required by payers to obtain pre-authorizations before patient procedures or in advance of referring patients to specialists for care. The provider treats the patient and documents procedures conducted and resources used.
 
  •  Claim Management/Adjudication:  The provider prepares and submits paper or electronic claims to a payer for services rendered directly or through a clearinghouse, such as ours. Before submission, claims are validated for payer-specific rules and corrected as necessary. The payer verifies accuracy, completeness and appropriateness of the claim and calculates payment based on the patient’s health plan design, out of pocket payments relative to established deductibles and the existing contract between the payer and provider.
 
  •  Payment Distribution:  The payer sends payment and a payment explanation (i.e., remittance advice) to the provider and sends an EOB to the patient.
 
  •  Payment Posting/Denial Management:  The provider posts payments internally, reconciles payments with accounts receivable and submits any claims to secondary insurers if secondary coverage exists. The provider is responsible for evaluating denial/underpayment of a claim and re-submitting it to the payer if appropriate.
 
  •  Patient Billing and Payment:  The provider sends a bill to the patient for any remaining balance and posts payments received.
 
Our Market Opportunity and Solutions
 
Limited financial resources have historically resulted in under-investment by providers in their internal administrative and clinical information systems. According to a report by the American Hospital Association, in 2006, over 50% of providers characterized their deployment of healthcare information technology as “low” or “getting started,” with only 16% reporting a “high” level of deployment. Providers’ administrative and financial processes have historically been manual and paper-based. These manual and paper-based processes are more prone to human error and administrative inefficiencies, often resulting in increased costs and uncompensated care. According to a recent CAQH study, providers may reduce labor costs associated with verifying insurance coverage by as much as 50% by moving from labor-intensive verification methods, such as fax or phone verification, to automated processes.
 
At the same time, payers are continually exploring new ways to increase administrative efficiencies in order to drive greater profitability due in part to their general inability to increase premiums in excess of the growth in medical costs. For example, beginning in 2004, many payers consolidated their claim management vendors in an effort to reduce their claims submission costs. Many of our existing MGAs with our payer customers were established because of our ability to offer them a single-vendor solution for certain of their eligibility and benefit verification and claims management processes.


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As described below, opportunities exist to increase efficiencies and cash flow throughout many steps of the revenue and payment cycle for both payers and providers.
 
PAYER OPPORTUNITIES AND SOLUTIONS
 
     
Pre-Care and Claim Management/Adjudication    
     
Market Opportunity.  In many cases, insurance eligibility and benefits verification, pre-authorizations and referrals are granted by payers over the phone, necessitating human interaction and manual verification of the validity of such eligibility benefits, referrals and pre-authorizations. Based on our experience, we estimate that it costs payers in the range of $1.50 to $3.50 for simple eligibility verification to $8.00 to $10.00 for complex referrals per provider telephone call.  
Our Solution.  Our web-based pre-care solutions interface directly with the payer’s own systems allowing providers to process insurance eligibility and benefits verification tasks prior to the delivery of care without the need for live payer/provider interaction. As a result, we estimate that payers are able to save $2.00 on average per eligibility verification task when compared to manual processes.
     
According to a 2006 American Health Insurance Plans (“AHIP”) survey, 25% of healthcare claims are still submitted to payers in paper format. Paper claims are both more costly for providers to submit and more costly for payers to process than electronic claims. In 2007, the average cost of processing a “clean” electronic claim (i.e., a claim for which no additional information is needed) by a payer was 85 cents, nearly half the $1.58 cost of processing a “clean” paper claim. Furthermore, according to AHIP, the cost of manually adjudicating a claim that requires further review costs $2.05, or almost two and half times the cost of a clean, electronic claim.   Our claim submission solutions include paper-to-EDI conversion of insurance claims through high-volume imaging, batch and real-time healthcare transaction information exchanges and intelligent routing between payers and our other business partners. We also validate payer adjudication rules and edit claims for proper format before submission to minimize manual processes associated with pending claims. Our electronic solutions lead to higher auto adjudication rates and fewer delayed claims, which result in lower processing costs for payers and accelerated reimbursement for providers.
     
Payment Distribution    
     
Market Opportunity.  Generally, payers use in-house print and mail operations or outsource payment, remittance advices and EOB distribution to a print and mail vendor. Converting these processes to electronic format allows payers to eliminate the distribution costs associated with printing and mailing these documents. Limited connectivity, HIPAA standards, limited data and connectivity standardization and lack of provider readiness have historically been the primary barriers to the adoption of electronic solutions. Industry research shows that the average cost of mailing a check and remittance advice ranges from 50 cents to $1.50 per item as opposed to electronic payment and distribution of remittance advice, which costs on average 35 cents per item. Further, as payers transition from paper to electronic processes and utilization of existing print and mail infrastructure drops, we believe these internal infrastructures will become prohibitively expensive for payers to maintain.   Our Solution.  Our payment and remittance distribution solutions facilitate the paper and electronic distribution of payments and payment related information by payers to providers, including EOBs to patients. We are uniquely positioned to provide detailed remittance information in an electronic format that allows for the elimination of paper. Our payer customers realize significant print and operational cost savings through the use of either electronic payment and remittance products or our high-volume “co-operative” print and mail solutions to reduce postage and material costs. In addition, we offer electronic solutions that integrate with our print and mail platform to drive the conversion to electronic payment and remittance. We expect to see transition from paper based processes to electronic processes over time because of the substantial cost savings available to payers by adopting electronic payment, remittance advice and EOB distribution.


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PROVIDER OPPORTUNITIES AND SOLUTIONS