10-Q

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

Form 10-Q

(Mark One)

☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017

OR

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Cotiviti Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation)

001-37787 (Commission File Number)	46-0595918 (IRS Employer Identification No.)
115 Perimeter Center Place Suite 700 Atlanta, GA 30346 (Address of principal executive offices)	30346 (Zip Code)

(770) 379-2800

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒   No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b‑2 of the Exchange Act. (Check one):

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒ (Do not check if a smaller reporting company)	Smaller reporting company	☐
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐   No ☒

The number of shares of the registrant’s common stock, $0.001 par value, outstanding as of March 31, 2017 was 91,838,470.

INDEX

ITEM 1.	Consolidated Financial Statements	1
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	28
ITEM 4.	Controls and Procedures	29
PART II - OTHER INFORMATION
ITEM 1.	Legal Proceedings	30
ITEM 1A.	Risk Factors	30
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
ITEM 3.	Defaults Upon Senior Securities	30
ITEM 4.	Mine Safety Disclosures	30
ITEM 5.	Other Information	30
ITEM 6.	Exhibits	31

i

Definitions

As used in this Quarterly Report on Form 10-Q for the period ended March 31, 2017 (this “Quarterly Report on Form 10‑Q” or this “Report”), the following abbreviations and terms have the meanings as listed below. Additionally, the terms “Cotiviti,” “we,” “us” and “our” refer to Cotiviti Holdings, Inc. and its consolidated subsidiaries, unless the context clearly indicates otherwise. The term “Cotiviti Holdings” refers only to Cotiviti Holdings, Inc. and not to any of its subsidiaries. Unless and as otherwise stated, any references in this Annual Report to any agreement means such agreement and all schedules, exhibits and attachments in each case as amended, restated, supplemented or otherwise modified to the date of filing this Annual Report.

2016 Plan: refers to the Cotiviti Holdings, Inc. 2016 Equity Incentive Plan.

Adjusted EBITDA: refers to net income (loss) to Cotiviti before depreciation and amortization, interest expense, other non-operating (income) expense, income tax expense (benefit), transaction-related expenses and other and stock-based compensation.

Affordable Care Act: refers to the Patient Protection and Affordable Care Act of 2010.

ASC: refers to the FASB Accounting Standards Codification.

ASU: refers to Accounting Standards Update issued by the FASB.

CMS: refers to the Centers for Medicare and Medicaid Services, the United States federal agency which administers Medicare and Medicaid.

EPS: refers to earnings per share.

Exchange Act: refers to the United States Securities Exchange Act of 1934, as amended.

FASB: refers to the Financial Accounting Standards Board.

First Lien Credit Facilities: refers to the First Lien Term A Loans in the original principal amount of $250.0 million, the First Lien Term B Loans in the original principal amount of $550.0 million and the $100.0 million Revolver under the Restated Credit Agreement.

First Lien Term A Loans: refers to the first lien term A loans in the original principal amount of $250.0 million under our Restated Credit Agreement.

First Lien Term B Loans: refers to the first lien term B loans in the original principal amount of $550.0 million under our Restated Credit Agreement.

First Lien Term Loans: refers, collectively, to the First Lien Term A Loans and the First Lien Term B Loans under our Restated Credit Agreement.

GAAP: refers to generally accepted accounting principles in the United States.

HIPAA: we collectively refer to the United States Health Insurance Portability and Accountability Act of 1996, as amended by the HITECH Act, together with their implementing regulations including the Omnibus Final Rule, as “HIPAA”.

HITECH: refers to the United States Health Information Technology for Economic and Clinical Health Act of 2009, enacted as part of the American Recovery and Reinvestment Act of 2009, which amended HIPAA.

ICD-10: refers to the 10th revision of the International Statistical Classification of Diseases and Related Health Problems, a medical classification list adopted by the World Health Organization containing codes for, among other things, diseases, signs and symptoms, abnormal findings, complaints, social circumstances and external causes of injury or diseases.

ii

iHealth Technologies: refers to iHealth Technologies, Inc., a predecessor name of a wholly-owned subsidiary.

Initial First Lien Credit Facilities: refers to the Initial First Lien Term Loan and the Initial First Lien Revolver.

Initial First Lien Term Loan: refers to the first lien term loan in the original principal amount of $810.0 million under our Initial Secured Credit Facilities.

Initial First Lien Revolver: refers to the $75.0 million first lien revolving facility under our Initial Secured Credit Facilities.

Initial Second Lien Credit Facility: refers to the second lien term loan in the original principal amount of $265.0 million under our Initial Secured Credit Facilities.

Initial Secured Credit Facilities: refers to the loans provided pursuant to the First Lien Credit Agreement, dated as of May 14, 2014, entered into by our subsidiary Cotiviti Corporation and certain of our other subsidiaries, as borrowers and/or guarantors, the lenders named therein, as lenders, and the agents named therein, pursuant to which the lenders agreed to provide the Initial First Lien Credit Facilities, comprising the $810.0 million Initial First Lien Term Loan and the $75.0 million Initial First Lien Revolver, and the $265.0 million Initial Second Lien Credit Facility. The Initial Secured Credit Facilities were refinanced in September 2016 with the First Lien Credit Facilities pursuant to the Restated Credit Agreement.

IPO: refers to an initial public offering of common equity.

IT: refers to information technology.

JOBS Act: refers to the United States Jumpstart Our Business Startups Act of 2012.

LIBOR: refers to the London inter-bank offered rate.

Medicaid: refers to the means-tested United States government health care insurance program for people of all ages, jointly funded by state and federal governments and managed by the states. The Social Security Amendments of 1965 created Medicaid by adding Title XIX to the Social Security Act of 1935.

Medicare: refers to the United States government health care insurance program providing health insurance to people age 65 and older, regardless of income or medical history, as well as people of all ages with disabilities and certain medical conditions. The Social Security Amendments of 1965 created Medicare by adding Title XVIII to the Social Security Act of 1935.

Medicare RAC: refers to a Medicare Recovery Audit Contractor; we are one of the Medicare RACs for CMS under the Medicare Recovery Audit Program.

NYSE: refers to the New York Stock Exchange, on which our shares are listed under the symbol “COTV.”

Omnibus Final Rule: refers to the Final Omnibus Privacy, Security, Breach Notification and Enforcement Rules, implemented in 2013, which amended the original Privacy, Security, Breach Notification and Enforcement Rules under HIPAA, as directed pursuant to the HITECH Act.

Restated Credit Agreement: refers to the Amended and Restated First Lien Credit Agreement, dated as of September 28, 2016, entered into by our subsidiary Cotiviti Corporation and certain other of our subsidiaries, as borrowers and/or guarantors, the lenders named therein, as lenders, and the agents named therein, pursuant to which the lenders agreed to provide the First Lien Credit Facilities comprising the First Lien Term A Loans in the original principal amount of $250.0 million, the First Lien Term B Loans in the original principal amount of $550.0 million and the $100.0 million Revolver.

Revolver: refers to the $100.0 million first lien revolving credit facility under our Restated Credit Agreement.

iii

RSUs: refers to restricted stock units.

Sarbanes-Oxley Act: refers to the United States Sarbanes-Oxley Act of 2002.

SEC: refers to the United States Securities and Exchange Commission.

SG&A: refers to selling, general and administrative.

iv

PART I - FINANCIAL INFORMATION

ITEM 1.   Consolidated Financial Statements

Cotiviti Holdings, Inc.

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

	March 31,		December 31,
	2017		2016
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	128,458	$	110,635
Restricted cash		7,232		9,103
Accounts receivable, net of allowance for doubtful accounts of $648 and $851 at March 31, 2017 and December 31, 2016, respectively; and net of estimated allowance for refunds and appeals of $35,518 and $41,020 at March 31, 2017 and December 31, 2016, respectively		62,072		67,735
Prepaid expenses and other current assets		17,847		14,957
Total current assets		215,609		202,430
Property and equipment, net		70,286		67,640
Goodwill		1,196,121		1,196,024
Intangible assets, net		518,131		533,305
Other long-term assets		2,746		2,864
TOTAL ASSETS	$	2,002,893	$	2,002,263
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt	$	18,000	$	18,000
Customer deposits		7,232		9,103
Accounts payable and accrued other expenses		26,736		23,162
Accrued compensation costs		29,379		58,589
Estimated liability for refunds and appeals		61,766		62,539
Total current liabilities		143,113		171,393
Long-term liabilities:
Long-term debt		758,348		762,202
Other long-term liabilities		5,765		8,799
Deferred tax liabilities		119,759		120,533
Total long-term liabilities		883,872		891,534
Total liabilities		1,026,985		1,062,927
Commitments and contingencies (Note 6)
Stockholders' equity:
Common stock ($0.001 par value; 600,000,000 shares authorized, 91,845,947 and 90,748,740 issued, and 91,838,470 and 90,741,340 outstanding at March 31, 2017 and December 31, 2016, respectively)		92		91
Additional paid-in capital		921,186		911,582
Retained earnings		60,892		33,917
Accumulated other comprehensive loss		(6,161)		(6,156)
Treasury stock, at cost (7,477 and 7,400 shares at March 31, 2017 and December 31, 2016, respectively)		(101)		(98)
Total stockholders' equity		975,908		939,336
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	2,002,893	$	2,002,263

See accompanying notes to consolidated financial statements.

1

Cotiviti Holdings, Inc.

Consolidated Statements of Comprehensive Income

(In thousands, except share and per share amounts)

(Unaudited)

	Three Months Ended
	March 31,
	2017		2016
Net revenue	$	160,133	$	142,718
Cost of revenue (exclusive of depreciation and amortization, stated separately below):
Compensation		56,288		53,461
Other costs of revenue		6,686		5,398
Total cost of revenue		62,974		58,859
Selling, general and administrative expenses (exclusive of depreciation and amortization, stated separately below):
Compensation		24,693		19,110
Other selling, general and administrative expenses		16,879		15,229
Total selling, general and administrative expenses		41,572		34,339
Depreciation and amortization of property and equipment		5,575		4,835
Amortization of intangible assets		15,199		15,207
Transaction-related expenses		731		240
Total operating expenses		126,051		113,480
Operating income		34,082		29,238
Other expense (income):
Interest expense		8,421		16,060
Other non-operating (income) expense		(453)		(299)
Total other expense (income)		7,968		15,761
Income before income taxes		26,114		13,477
Income tax (benefit) expense		(861)		5,393
Net income	$	26,975	$	8,084
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments		57		(26)
Change in fair value of derivative instruments		(62)		(482)
Total other comprehensive (loss) income		(5)		(508)
Comprehensive income	$	26,970	$	7,576
Earnings per share:
Basic	$	0.30	$	0.10
Diluted		0.28		0.10

See accompanying notes to consolidated financial statements.

2

Cotiviti Holdings, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Three Months Ended
	March 31,
	2017		2016
Cash flows from operating activities:
Net income	$	26,975	$	8,084
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes		1,877		(5,405)
Depreciation and amortization		20,774		20,042
Stock-based compensation expense		2,083		1,074
Amortization of debt issuance costs		645		1,348
Accretion of asset retirement obligations		48		46
Changes in operating assets and liabilities:
Restricted cash		1,871		(1,518)
Accounts receivable		5,663		12,266
Other assets		(2,612)		7,493
Customer deposits		(1,871)		1,518
Accrued compensation		(29,210)		(8,452)
Accounts payable and accrued other expenses		(841)		(2,225)
Estimated liability for refunds and appeals		(774)		2,262
Other long-term liabilities		247		144
Other		(303)		(324)
Net cash provided by operating activities		24,572		36,353
Cash flows from investing activities:
Expenditures for property and equipment		(9,660)		(9,467)
Other investing activities		—		2
Net cash used in investing activities		(9,660)		(9,465)
Cash flows from financing activities:
Proceeds from exercise of stock options		7,363		16
Purchase of treasury shares		(3)		—
Repayment of debt		(4,500)		(2,025)
Net cash provided by (used in) financing activities		2,860		(2,009)
Effect of foreign exchanges on cash and cash equivalents		51		8
Net increase in cash and cash equivalents		17,823		24,887
Cash and cash equivalents at beginning of period		110,635		149,365
Cash and cash equivalents at end of the period	$	128,458	$	174,252
Supplemental disclosures of cash flow information:
Cash paid for income taxes	$	649	$	590
Cash paid for interest		7,587		14,565
Noncash investing activities (accrued property and equipment purchases)		6,738		9,052

See accompanying notes to consolidated financial statements

3

Cotiviti Holdings, Inc.

Notes to the Financial Statements

(In thousands, except shares and per share amounts)

(Unaudited)

Note 1. Description of Business

Cotiviti Holdings, Inc. (collectively with its subsidiaries, “we,” “our,” “Cotiviti” or the “Company”) is a leading provider of analytics‑driven payment accuracy solutions, focused primarily on the healthcare sector. Our integrated solutions help clients enhance payment accuracy in an increasingly complex healthcare environment. We leverage our robust technology platform, configurable analytics, proprietary information assets and expertise in healthcare reimbursement to help our clients enhance their claims payment accuracy. We help our healthcare clients identify and correct payment inaccuracies. We work with over 40 healthcare organizations, including over 20 of the 25 largest U.S. commercial, Medicare and Medicaid managed health plans, as well as CMS. We are also a leading provider of payment accuracy solutions to over 35 retail clients, including eight of the ten largest retailers in the United States.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

Our accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). All significant intercompany balances and transactions have been eliminated in consolidation. These consolidated financial statements are unaudited and have been prepared by us following the rules and regulations of the SEC. In our opinion they reflect all adjustments, including normal recurring items, that are necessary to present fairly the results of interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted as permitted by such rules and regulations; however, we believe that the disclosures are adequate to make the information presented not misleading. Operating results for the periods presented herein are not necessarily indicative of the results that may be expected for other interim periods or the entire fiscal year. Certain prior year amounts have been reclassified to conform to the current year presentation.

Estimated Liability for Refunds and Appeals and Unbilled Receivables

The estimated liability for refunds and appeals representing our estimate of claims that may be overturned related to revenue which had already been received was $61,766 and $62,539 at March 31, 2017 and December 31, 2016, respectively. The estimated allowance for refunds and appeals representing our estimate of claims that may be overturned related to amounts in accounts receivable was $35,518 and $41,020 at March 31, 2017 and December 31, 2016, respectively.

Unbilled receivables represent revenue recognized related to claims for which clients have received economic value that were not invoiced at the balance sheet date. Unbilled receivables of approximately $49,676 and $51,643 as of March 31, 2017 and December 31, 2016, respectively, are included in accounts receivable on our Consolidated Balance Sheets.

Certain unbilled receivables arise when a portion of our earned fee is deferred at the time of the initial invoice. At a later date (which can be up to a year after original invoice, and at other times during the year after completion of the audit period based on contractual terms or as agreed with our client), we invoice the unbilled receivable amount. Notwithstanding the deferred due date, our clients acknowledge we have earned this unbilled receivable at the time of the original invoice, but we have agreed to defer billing the client for the related services. Unbilled receivables of this nature were approximately $6,087 and $6,137 as of March 31, 2017 and December 31, 2016, respectively, and are included in accounts receivable on our Consolidated Balance Sheets.

We record periodic changes in unbilled receivables and refund liabilities as adjustments to revenue.

4

Cotiviti Holdings, Inc.

Notes to the Financial Statements (continued)

(In thousands, except shares and per share amounts)

(Unaudited)

Recently Issued Accounting Standards

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment (“ASU2017-04”), which is intended to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of the goodwill. Instead, an entity should compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The guidance is effective for public companies with annual reporting periods beginning after December 15, 2019, and interim periods within those annual periods. Early adoption is permitted. We are evaluating this new guidance and do not believe it will have a material impact on our consolidated financial statements and related disclosures as the fair values of our reporting units exceed their carrying values.

In November 2016, the FASB issued ASU 2016-18, Restricted Cash (“ASU 2016-18”), which requires that restricted cash be included with cash and cash equivalents when reconciling the beginning and end of period total amounts shown on the statement of cash flows. The guidance is effective for public companies with annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted. We are evaluating this guidance and its impact on our consolidated financial statements and related disclosures and expect the adoption of this ASU could impact the disclosure of our cash flows from operations.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”) which addresses eight specific cash flow issues in order to reduce diversity in practice. The guidance is effective for public companies with annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted. We are evaluating this guidance and its impact on our consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”) which changes the accounting recognition, measurement and disclosure for leases in order to increase transparency. ASU 2016-02 requires lease assets and liabilities to be recognized on the balance sheet and key information about leasing arrangements to be disclosed. The guidance is effective for public companies with annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted. We are evaluating this new guidance and its impact on our consolidated financial statements and related disclosures.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”) which changes the current financial instruments model primarily impacting the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. The guidance is effective for public companies with annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. We are evaluating this new guidance and do not believe it will have a material impact on our consolidated financial statements and related disclosures.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which supersedes existing revenue recognition guidance and provides clarification of principles for recognizing revenue from contracts with customers. ASU 2014-09 sets forth a five-step model for determining when and how revenue is recognized. The core principle of the new standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. Additional disclosures will be required to describe the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. The two permitted transition methods under ASU 2014-09 are the full retrospective method, in which case the new guidance would be applied to each prior reporting period presented and the cumulative effect of applying the standard would be recognized at the earliest period shown, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of the initial application. The guidance is effective for public companies with annual periods beginning after December 15, 2017 and interim periods within that reporting period. The

5

Cotiviti Holdings, Inc.

Notes to the Financial Statements (continued)

(In thousands, except shares and per share amounts)

(Unaudited)

FASB will permit companies to adopt the new standard early, but not before the original effective date of annual reporting periods beginning after December 15, 2016.

In 2016, we formed an internal team to evaluate and quantify the potential impact of this new revenue guidance. As of the date of this filing, we have made significant progress on our contract reviews and policy drafting. We will continue to evaluate this new guidance and plan to provide additional information about our method of adoption and the impact, if any, on our consolidated financial statements and related disclosures in future filings.

Note 3. Property and Equipment

Property and equipment by major asset class for the periods presented consisted of the following:

	March 31,		December 31,
	2017		2016
Computer equipment	$	41,106	$	40,349
Software		53,837		42,614
Furniture and fixtures		8,802		8,652
Leasehold improvements		4,895		4,392
Projects in progress		7,234		12,001
Property and equipment, gross	$	115,874	$	108,008
Less: accumulated depreciation and amortization		45,588		40,368
Property and equipment, net	$	70,286	$	67,640

In December 2015, we purchased a perpetual software license, which is included in the software total above. We are paying for this software over a two year period ending in January 2018. As such, there is approximately $3,256 and $3,351 included in accounts payable and accrued other expenses on our Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016, respectively, and $3,225 included in other long-term liabilities on our Consolidated Balance Sheets as of December 31, 2016.

Total depreciation and amortization expense related to property and equipment, including capitalized software costs, was $5,575 and $4,835 for the three months ended March 31, 2017 and 2016, respectively.

Note 4. Intangible Assets

Intangible asset balances by major asset class for the periods presented were as follows:

							Weighted
	Gross				Net		Average
	Carrying		Accumulated		Carrying		Amortization
	Amount		Amortization		Amount		Period
March 31, 2017:
Customer relationships	$	640,095	$	156,549	$	483,546	13.7	years
Acquired software		82,400		52,015		30,385	6.2	years
Connolly trademark		4,200		—		4,200	indefinite-lived
Total	$	726,695	$	208,564	$	518,131	12.8	years
December 31, 2016:
Customer relationships	$	640,052	$	144,768	$	495,284	13.7	years
Acquired software		82,400		48,579		33,821	6.2	years
Connolly trademark		4,200		—		4,200	indefinite-lived
Total	$	726,652	$	193,347	$	533,305	12.8	years

Amortization expense was $15,199 and $15,207 for the three months ended March 31, 2017 and 2016, respectively.

6

Cotiviti Holdings, Inc.

Notes to the Financial Statements (continued)

(In thousands, except shares and per share amounts)

(Unaudited)

As of March 31, 2017 amortization expense for the next 5 years is expected to be:

Remainder of 2017	$	42,628
2018		53,898
2019		53,898
2020		53,898
2021		49,576

Note 5. Goodwill

Total goodwill in our Consolidated Balance Sheets was $1,196,121 and $1,196,024 as of March 31, 2017 and December 31, 2016, respectively.

Changes in the carrying amount of goodwill by our Healthcare and Global Retail and Other segments for the three months ended March 31, 2017 were as follows:

			Global Retail
	Healthcare		and Other
December 31, 2016	$	1,147,771	$	48,253
Foreign currency translation		—		97
March 31, 2017	$	1,147,771	$	48,350

There was no impairment related to goodwill for any period presented.

Note 6. Commitments and Contingencies

We may be involved in various legal proceedings and litigation arising in the ordinary course of business. While any legal proceeding or litigation has an element of uncertainty, management believes the ultimate disposition of these matters will not have a material adverse effect on our consolidated financial position, results of operations, or liquidity.

Medicare RAC Contract Contingency

In August 2014, CMS announced it would allow providers to remove all eligible claims currently pending in the appeals process by offering to pay hospitals 68% of the original claim amount. This settlement was offered to the providers and it was unknown what, if any, impact there would be for the Medicare RACs. On July 1, 2015, CMS issued a Technical Direction Letter to the Medicare RACs, including ourselves, indicating that Medicare RACs will only be entitled to the contract contingency fee on the settled amounts of the claims, or 32% of the original inpatient claim amounts. Based on the initial lists of finalized settlements provided by CMS, we would be required to refund CMS approximately $22,308 due to the related adjustments in Medicare RAC contingency fees. CMS further advised that as the hospital settlement project continues, additional settlement lists will be matched to Medicare RAC claims which may result in updated refund amounts to those initially provided. While there are uncertainties in any dispute resolution and results are uncertain, we have disputed CMS’s findings based on our interpretation of the terms of the Medicare RAC contract and our belief that the backup data provided by CMS is inaccurate and/or incomplete. Our liability for estimated refunds and appeals includes amounts for these settled claims based on our best estimates of the amount we believe will be ultimately payable to CMS based on our interpretation of the terms of the Medicare RAC contract. We believe that it is possible that we could be required to pay an additional amount up to approximately $13,000 in excess of the amount we accrued as of March 31, 2017 based on the claims data we have received from CMS to date. As CMS completes its settlement process with the providers and updated files are provided to us, the potential amount owed by us may change. On September 28, 2016, CMS announced a second settlement process to allow eligible providers to settle their inpatient claims currently under appeal beginning December 1, 2016. This second settlement process could result in additional

7

Cotiviti Holdings, Inc.

Notes to the Financial Statements (continued)

(In thousands, except shares and per share amounts)

(Unaudited)

amounts owed to CMS. CMS has not yet provided us with any information and accordingly the amount of any such additional claims cannot presently be determined.

Note 7. Long‑term Debt

Long‑term debt for the periods presented was as follows:

	March 31,		December 31,
	2017		2016
First Lien Term A Loan	$	243,580	$	246,694
First Lien Term B Loan		543,130		544,345
Revolver		—		—
Total debt		786,710		791,039
Less: debt issuance costs		10,362		10,837
Less: current portion		18,000		18,000
Total long-term debt	$	758,348	$	762,202

The Restated Credit Agreement includes certain binding affirmative and negative covenants, including delivery of financial statements and other reports, maintenance of existence and transactions with affiliates. The negative covenants restrict our ability, among other things, to incur indebtedness, grant liens, make investments, sell or otherwise dispose of assets or enter into a merger, pay dividends or repurchase stock. There is a required financial covenant applicable only to the Revolver and the Term A Loan, pursuant to which we agree not to permit our Secured Leverage Ratio to exceed 5.50:1.00 through September 2018, 5.25:1.00 through September 2019 and 5.00:1.00 through June 2021. In addition, the Restated Credit Agreement includes certain events of default including payment defaults, failure to perform affirmative covenants, failure to refrain from actions or omissions prohibited by negative covenants, the inaccuracy of representations or warranties, bankruptcy and insolvency related defaults and a change of control default. We were in compliance with all such covenants as of March 31, 2017 and December 31, 2016, respectively.

The Restated Credit Agreement requires mandatory prepayments based upon annual excess cash flows commencing with the year ended December 31, 2017. The mandatory prepayment is contingently payable in the second quarter based on an annual excess cash flow calculation for the proceeding year as defined within the Restated Credit Agreement. 

As of March 31, 2017, the aggregate maturities of long‑term debt (excluding any amounts that may become payable with respect to the aforementioned mandatory prepayment provision for annual excess cash flows) for each of the next five years are expected to be $13,500 for the remainder of 2017, $18,000 in 2018, $24,250 in 2019, $30,500 in 2020 and $183,625 in 2021.

In April 2017, we entered into and executed the First Amendment Agreement to the then outstanding Restated Credit Agreement, which, among other things, provided for a 25 basis point reduction in applicable interest rate spread over LIBOR associated with the First Lien Term B Loan. As a result, we expect to record a loss on extinguishment of approximately $3,000, which will be included in our Consolidated Statements of Comprehensive Income during the second quarter of 2017.

Note 8. Derivative Instruments

We are exposed to fluctuations in interest rates on our long‑term debt. We manage our exposure to fluctuations in the 3‑month LIBOR through the use of interest rate cap agreements designated as cash flow hedges. We are meeting our objective by hedging the risk of changes in cash flows related to changes in LIBOR by capping the interest on our floating rate debt linked to LIBOR to approximately 3%. We do not utilize derivatives for speculative or trading purposes.

8

Cotiviti Holdings, Inc.

Notes to the Financial Statements (continued)

(In thousands, except shares and per share amounts)

(Unaudited)

As of March 31, 2017 and December 31, 2016, we had $540,000 in notional debt outstanding related to these interest rate caps, which cover quarterly interest payments through September 2019. The notional amount decreases over time.

All of our outstanding interest rate cap contracts qualify for cash flow hedge accounting treatment in accordance with ASC 815, Derivatives and Hedging. Cash flow hedge accounting treatment allows for gains and losses on the effective portion of qualifying hedges to be deferred in accumulated other comprehensive (loss) income until the underlying transaction occurs, rather than recognizing the gains and losses on these instruments in earnings during each period they are outstanding. When the actual interest payments are made on our variable rate debt and the related derivative contract settles, any effective portion of realized interest rate hedging derivative gains and losses previously recorded in accumulated other comprehensive (loss) income is recognized in interest expense. We recognized interest expense of $201 and $82 related to interest rate caps during the three months ended March 31, 2017 and 2016, respectively. 

Ineffectiveness results, in certain circumstances, when the change in total fair value of the derivative instrument differs from the change in the fair value of our expected future cash outlays for the related interest payment and is recognized immediately in interest expense. There was no ineffectiveness recorded during the three months ended March 31, 2017 and 2016, respectively. Likewise, if the hedge does not qualify for hedge accounting, the periodic changes in its fair value are recognized in the period of the change in interest expense. All cash flows related to our interest rate cap agreements are classified as operating cash flows.

Any outstanding derivative instruments expose us to credit loss in the event of nonperformance by the counterparties to the agreements, but we do not expect that the counterparty will fail to meet their obligations. The amount of such credit exposure is generally the positive fair value of our outstanding contracts. To manage credit risks, we select counterparties based on credit assessments, limit our overall exposure to any single counterparty and monitor the market position of any counterparty.

The table below reflects quantitative information related to the fair value of our derivative instruments and where these amounts are recorded in our consolidated financial statements as of the period presented:

	March 31,		December 31,
	2017		2016
Liability fair value recorded in other long-term liabilities	$	1,691	$	1,729
Liability fair value recorded in accounts payable and accrued other expenses		1,046		1,065
Estimated amount of existing losses expected to be reclassified into earnings in the next 12 months		(2,200)		(1,783)

We record deferred hedge premiums which are being paid over the life of the hedge in accumulated other comprehensive (loss) income until the related hedge ultimately settles and interest payments are made on the underlying debt. As of March 31, 2017, we have made payments of $2,945 related to these deferred premiums. We expect to pay an additional $3,449 in deferred premiums through 2019 related to our outstanding interest rate cap agreements which is reflected in the fair value of these derivatives in the table above.

9

Cotiviti Holdings, Inc.

Notes to the Financial Statements (continued)

(In thousands, except shares and per share amounts)

(Unaudited)

Comprehensive income includes changes in the fair value of our interest rate cap agreements which qualify for hedge accounting. Changes in other comprehensive income for the periods presented related to derivative instruments classified as cash flow hedges were as follows:

	Three Months Ended March 31,
	2017		2016
Balance at beginning of period, January 1	$	(3,334)	$	(2,968)
Reclassifications in earnings, net of tax of $76 and $31, respectively		125		51
Change in fair value of derivative instrument, net of tax of $112 and $323, respectively		(187)		(533)
Balance at end of period, March 31	$	(3,396)	$	(3,450)

Note 9. Fair Value Measurements

We measure assets and liabilities at fair value based on assumptions market participants would use in pricing an asset or liability in the principal or most advantageous market. Authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value whereby inputs are assigned a hierarchical level. The hierarchical levels are:

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

Level 2: Observable prices, other than quoted prices included in Level 1 inputs for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Unobservable inputs for the asset or liability used to measure fair value to the extent observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

The following table summarizes our financial instruments measured at fair value within the Consolidated Balance Sheets:

	March 31, 2017						December 31, 2016
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Liabilities:
Long-term debt	$	—	$	—	$	786,710	$	—	$	—	$	791,039
Interest rate cap agreements		—		2,737		—		—		2,794		—
Total	$	—	$	2,737	$	786,710	$	—	$	2,794	$	791,039

The fair value of our private debt is determined based on fluctuations in current interest rates, the trends in market yields of debt instruments with similar credit ratings, general economic conditions and other quantitative and qualitative factors. The carrying value of our debt approximates its fair value. Refer to Note 7 for more information on our long-term debt.

The fair value of the interest rate cap agreements is determined using the market standard methodology of discounting the future expected variable cash receipts that would occur if interest rates rose above the strike rate of the caps. The analysis reflects the contractual terms of the derivatives, including period to maturity and remaining deferred premium payments, and uses observable market‑based inputs, including interest rates and implied volatilities. The variable cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rates. As such, the estimated fair values of these liabilities are classified as Level 2 in the fair value hierarchy. Refer to Note 8 for more information on our interest rate cap agreements.

10

Cotiviti Holdings, Inc.

Notes to the Financial Statements (continued)

(In thousands, except shares and per share amounts)

(Unaudited)

Note 10. Income Taxes

The following table presents our income tax provision and effective income tax rate: 

	Three Months Ended
	March 31,
	2017			2016
Income tax provision	$	(861)		$	5,393
Effective income tax rate		(3.3)	%		40.0	%

Our effective income tax rate was (3.3)% and 40.0% for the three months ended March 31, 2017 and 2016, respectively. The decrease in the effective tax rate is primarily due to a $10,422 tax benefit related to stock option exercises. Additionally, we realized a tax benefit of $337 during the three months ended March 31, 2017 related to the settlement of an uncertain tax position as a result of the closure of our audit with the Internal Revenue Service for the tax year ended December 31, 2014 and the iHealth Technologies, Inc. audit for the tax years ended December 31, 2012, December 31, 2013 and May 13, 2014. 

We file income taxes with the U.S. federal government and various states and foreign jurisdictions. We operate in a number of state and local jurisdictions and as such are subject to state and local income tax examinations based upon various statutes of limitations in each jurisdiction. We are currently under audit by the State of New York for the tax year ended December 31, 2014 and for iHealth Technologies for the tax years ended December 31, 2012, December 31, 2013, May 13, 2014 and December 31, 2014.

Note 11. Stockholders’ Equity

Secondary Offering

On March 7, 2017 we completed a secondary public offering of 9,683,000 shares of our common stock by certain of our stockholders, including 1,263,000 shares sold to the underwriters pursuant to their option to purchase additional shares, at a public offering price of $36.00 per share. All of the shares offered were sold by selling stockholders.  Accordingly, we did not receive any proceeds from the sale of the shares. In connection with this offering, we incurred approximately $600 in professional services expenses, which are included in transaction-related expenses on our Consolidated Statements of Comprehensive Income for the three months ended March 31, 2017.

Note 12. Earnings per Share

Basic earnings per share (“EPS”) is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period. For all periods presented, potentially dilutive outstanding shares consisted solely of equity incentive awards. Our potential common shares consist of the incremental common shares issuable upon the exercise of stock options or vesting of RSUs. The dilutive effect of outstanding equity incentive awards is reflected in diluted earnings per share by application of the treasury stock method. For all periods presented, all outstanding common stock consisted of a single class.

11

Cotiviti Holdings, Inc.

Notes to the Financial Statements (continued)

(In thousands, except shares and per share amounts)

(Unaudited)

Basic and diluted earnings per share are computed as follows:

	Three Months Ended
	March 31,
	2017		2016
Net income available to common stockholders	$	26,975	$	8,084
Weighted average outstanding shares of common stock		91,138,356		77,231,196
Dilutive effect of stock-based awards		3,766,874		526,162
Adjusted weighted average outstanding and assumed conversions for diluted EPS		94,905,230		77,757,358
Earnings per share:
Basic	$	0.30	$	0.10
Diluted		0.28		0.10

Employee stock options and restricted stock units (“RSUs”) that were excluded from the calculation of diluted earnings per share because their effect is anti‑dilutive for the periods presented were as follows:

	Three Months Ended
	March 31,
	2017	2016
Employee stock-based awards	361,566	2,019,649

The criteria associated with all of our outstanding performance-based stock options as defined in the terms of the applicable award agreements, were satisfied as of September 30, 2016 and, as a result, outstanding performance-based stock options were included in the calculation of diluted earnings per share for the three months ended March 31, 2017. Performance-based stock options of 2,794,910 were not included in the calculation of diluted earnings per share for the three months ended March 31, 2016 as the vesting conditions had not yet been satisfied.

Note 13. Stock‑Based Compensation

Stock Options

The following is a summary of stock option activity under the Plans:

				Weighted
		Weighted		average
		average		remaining	Aggregate
	Outstanding	exercise price		contractual life	Intrinsic Value
	Options	per share		(Years)	(in thousands)
Outstanding at December 31, 2016	5,997,372	$	10.18	7.30	$	145,270
Granted	534,262		34.39			—
Forfeited	(35,008)		12.58			—
Exercised	(1,096,999)		6.86			—
Expired	(2,893)		13.79			—
Outstanding at March 31, 2017	5,396,734	$	13.23	7.56	$	153,263
Vested, exercisable, expected to vest
at March 31, 2017	5,396,734	$	13.23	7.56	$	153,263
Exercisable at March 31, 2017	3,188,518	$	9.95	6.99	$	101,004

Aggregate intrinsic value represents the difference between our estimated fair value of common stock and the exercise price of outstanding in‑the‑money options. The fair value per share of common stock was $41.63 as of 

12

Cotiviti Holdings, Inc.

Notes to the Financial Statements (continued)

(In thousands, except shares and per share amounts)

(Unaudited)

March 31, 2017 based upon the closing price of our common stock on the NYSE. The total intrinsic value of stock options exercised was $33,482 for the three months ended March 31, 2017 and insignificant for the three months ended March 31, 2016.  

Restricted Stock Units

The following is a summary of RSU activity under the 2016 Plan:

		Weighted
		average
		grant date fair value
	Number of Awards	per share
Outstanding at December 31, 2016	67,295	$	25.88
Granted	235,412		34.39
Forfeited	(3,875)		24.70
Vested and converted to shares, net of units withheld for taxes	(131)		19.00
Units withheld for taxes	(77)		19.00
Outstanding at March 31, 2017	298,624	$	32.59
Expected to vest at March 31, 2017	298,624	$	32.59

Employee Stock Purchase Plan

We have an ESPP for US and non-US employees (collectively, “ESPP”), both of which have a series of six month offering periods, with a new offering period beginning on the first day of January and July each year. The ESPP was adopted by our Board of Directors in May 2016. In order for the US ESPP to qualify as an “employee stock purchase plan” under the requirements of Section 423 of the United States Internal Revenue Code of 1986, as amended, the ESPP is subject to stockholder approval at our first annual meeting of stockholders to be held on May 25, 2017. The ESPP was effective January 1, 2017 with the first purchase date scheduled for June 30, 2017. Employees may contribute up to 10% of their pay towards the purchase of common stock via payroll deductions to a maximum of $10 per year, or $5 per offering period. Purchase dates occur on the last business day of June and December of each year.

Stock Compensation Expense

We used the following weighted average assumptions to estimate the fair value of stock options granted for the periods presented as follows:

	Three Months Ended March 31,
		2017
Expected term (years)			6.25
Expected volatility			40.00	%
Expected dividend yield			0.00	%
Weighted average risk-free interest rate			1.93	%
Weighted average grant date fair value		$	14.45

No stock options were granted during the three months ended March 31, 2016.

We recorded total stock‑based compensation expense of $2,083 and $1,074 for the three months ended March 31, 2017 and 2016, respectively. As of March 31, 2017, we had total unrecognized compensation cost related to 2,506,840 unvested stock options and RSUs under the Plans of $25,037 which we expect to recognize over the next 2.9 years.

13

Cotiviti Holdings, Inc.

Notes to the Financial Statements (continued)

(In thousands, except shares and per share amounts)

(Unaudited)

Note 14. Segment Information

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

We evaluate the performance of each segment based on segment net revenue and segment operating income. Operating income is calculated as net revenue less operating expenses and is not affected by other expense (income) or by income taxes. Indirect costs are generally allocated to the segments based on the segments’ proportionate share of revenue and expenses directly related to the operation of the segment. We do not allocate interest expense, other non-operating (income) expense or the provision for income taxes, since these items are not considered in evaluating the segment’s overall operating performance. Our Chief Operating Decision Maker does not receive or utilize asset information to evaluate performance of operating segments. Accordingly, asset-related information has not been presented.

Our operating segment results for the periods presented were as follows:

	Three Months Ended
	March 31,
	2017		2016
	(unaudited)
Net Revenue
Healthcare	$	139,803	$	124,130
Global Retail and Other		20,330		18,588
Consolidated net revenue	$	160,133	$	142,718
Operating Income
Healthcare	$	31,161	$	26,622
Global Retail and Other		2,921		2,616
Consolidated operating income	$	34,082	$	29,238

Operating segment net revenue by product type for the periods presented was as follows:

	Three Months Ended March 31,
	2017		%	2016		%
	(unaudited)
Healthcare
Retrospective claims accuracy	$	77,516	48.4	$	65,270	45.7
Prospective claims accuracy		59,717	37.3		55,410	38.8
Transaction services		2,570	1.6		3,450	2.5
Total Healthcare		139,803	87.3		124,130	87.0
Global Retail and Other
Retrospective claims accuracy		19,674	12.3		17,990	12.6
Other		656	0.4		598	0.4
Total Global Retail and Other		20,330	12.7		18,588	13.0
Consolidated net revenue	$	160,133	100.0	$	142,718	100.0

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ITEM 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the financial condition and results of our operations should be read together with the financial statements and the related notes of Cotiviti Holdings, Inc. included in Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and the related notes included in our Annual Report on Form 10-K, filed with the SEC.

This discussion and analysis contains forward-looking statements regarding the industry outlook, our expectations for the performance of our business, our liquidity and capital resources and other non-historical statements. These forward-looking statements are subject to numerous risks and uncertainties, including but not limited to the risks and uncertainties described in “—Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors.” Our actual results may differ materially from those contained in or implied by these forward-looking statements.

Overview

We are a leading provider of analytics-driven payment accuracy solutions, focused primarily on the healthcare sector. Our integrated solutions help clients enhance payment accuracy in an increasingly complex healthcare environment. We leverage our robust technology platform, configurable analytics, proprietary information assets and expertise in healthcare reimbursement to help our clients enhance their claims payment accuracy. We help our healthcare clients identify and correct payment inaccuracies, which resulted in approximately $3.3 billion in savings in 2016. We work with over 40 healthcare organizations, including over 20 of the 25 largest U.S. commercial, Medicare and Medicaid managed health plans, as well CMS. We are also a leading provider of payment accuracy solutions to over 35 retail clients, including eight of the ten largest retailers in the United States. We operate in two segments, Healthcare and Global Retail and Other.

Our growth strategy for healthcare includes:

· expand within our existing client base by increasing the volume of claims we review with our solutions; expanding utilization across the depth and breadth of our solutions; and cross-selling our prospective and retrospective solutions.

· expand our client base;

· innovate to improve and develop new solutions to expand the scope of our services; and

· pursue opportunistic acquisitions and strategic partnerships in payment accuracy and adjacent markets.

As a result of the meaningful savings we deliver to our clients, we have increased our client base and strengthened our long-standing relationships with many of the leading healthcare payers in the United States. In 2016, we generated revenue from six new clients and four cross-sell clients which we believe will drive revenue growth in 2017 and beyond. In the first quarter of 2017, we generated revenue from three new clients. The average length of our relationships with our ten largest healthcare clients is over ten years. We have also substantially increased the annual savings captured by our healthcare clients over time. As a result, we believe our revenue is highly recurring and we have strong visibility into future revenue.

We are also a leading provider of payment accuracy solutions to the retail market. Retailers process and validate extremely high volumes of transactions with disparate suppliers on varying terms. We work with retail clients in the United States, Canada and the United Kingdom to realize their negotiated allowances, concessions, rebates and other incentives associated with merchandise procurement, logistics and other service transactions. In 2016, we generated over $500 million in savings for our retail clients.

For a further discussion of our two operating segments, (i) Healthcare and (ii) Global Retail and Other, refer to “—Our Segments” and Note 14 to the consolidated financial statements.

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Factors Affecting Our Results of Operations

Recent Developments – 2017 Highlights

· We continued to execute on our strategy, increasing volume and expanding the adoption of our solutions within our existing healthcare clients which contributed to healthcare revenue growth of 13% in the first quarter 2017.

· Growth in our healthcare business also continues to benefit from the addition of new clients and our successful cross-sell efforts. During the three months ended March 31, 2017, we generated $1.5 million in revenue from seven new clients added within the past year and from an additional two existing clients who have adopted either prospective or retrospective solutions.

· In March 2017, we began auditing under our two new Medicare RAC contracts awarded in October 2016 and expect to generate approximately 1-2% of total revenue from these contracts in 2017.

· During the three months ended March 31, 2017, approximately 1.1 million shares of common stock were issued upon the exercise of stock options. The stock option exercises resulted in a $10.4 million tax benefit and an effective tax rate of (3.3)% for the three months ended March 31, 2017.

· In April 2017, we entered into and executed the First Amendment Agreement to the then outstanding Restated Credit Agreement, which, among other things, provided for a 25 basis point reduction in applicable interest rate spread over LIBOR associated with the First Lien Term B Loan. As a result, we expect to record a loss on extinguishment of approximately $3.0 million, during the second quarter of 2017.

Dollar Amount of Claims Reviewed

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

In our Global Retail and Other segment, our revenue is dependent on (i) the amount of payments that we review for our retail clients and (ii) the timing of our payment reviews, which typically are completed on a batch processing basis following the lapse of a period of time after payment.

Healthcare Industry and General Economic Conditions

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

· Healthcare Spending by Payers. Changing demographics, the shift to managed care plans within government healthcare and increased healthcare coverage may lead to an increase in healthcare spending by our payer clients. From 2004 to 2014, healthcare costs in the United States grew at a 4.8% CAGR to $3.0 trillion and increased 5.8% in 2015 to $3.2 trillion. According to CMS, healthcare costs are expected to continue to grow at an average annual rate of 5.6% through 2025. Our revenue is impacted by the expansion or contraction of healthcare coverage and spending, which directly affects the number of payments available for our review.

· Complexity in the Healthcare Industry. We believe reimbursement models will continue to become more complex as healthcare payers accommodate new markets and lines of business and as advancements in medical care increase the number of testing and treatment options available. The adoption of the ICD-10 coding framework in October 2015 has resulted in a nearly five times increase of possible diagnosis codes to approximately 68,000, further complicating the claims process. As reimbursement models grow more complex and healthcare coverage increases, the complexity and number of claims may also increase, which could impact the demand for our payment accuracy solutions. Also, many of the changes promulgated by the Affordable Care Act require implementing regulations that

16

have not yet been drafted or have been released only as proposed rules. Such changes could have a further impact on our results of operations.

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

Components of Results of Operations

Net revenue

Our net revenue is generated from contracts with our clients. Our client contracts generally provide for performance fees that are based on a percentage of the inaccurate payments that we prevent through our prospective claims accuracy solutions or the payment recoveries received by our clients that use our retrospective claims accuracy solutions. We derive less than 3% of our revenue on a “fee-for-service” basis whereby billing is based upon a flat fee or a fee per hour. Our clients may request a refund or offset if their providers or vendors ultimately reject the payment inaccuracies we find or if our clients determine not to pursue reimbursement from their providers or vendors even though we may have collected fees. We record an estimate for refund liabilities at any given time based on actual historical refund data by client type. In such cases, we record any such refund as a reduction of revenue.

Historically, there has been a seasonal pattern to our healthcare revenue with the revenues in the first quarter generally lower than the other quarters and revenues in the fourth quarter generally being higher than the other quarters. Accordingly, the comparison of revenue from quarter to quarter may fluctuate and is dependent on various factors, including, but not limited to, reset of member liability, timing of special projects and timing of inaccurate payments being prevented or recovered as well as the aforementioned seasonal considerations. Consequently, you should not rely on our revenue for any one quarter as an indication of our future performance.

Cost of revenue

Our cost of revenue is comprised of:

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

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

Selling, general and administrative expenses

Our selling, general and administrative expenses are comprised of:

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

· Other selling, general and administrative expenses, which include all of our general operating costs. These costs include, but are not limited to, rent and occupancy costs for facilities associated with locations that are used for employees not serving in revenue generating roles, telecommunications costs, information technology infrastructure costs, software licensing costs, advertising and marketing expenses, costs associated with developing new service offerings and expenses related to the use of certain subcontractors

17

and professional services firms. Selling, general and administrative expenses do not include depreciation and amortization, which is stated separately in our consolidated statement of operations.

Depreciation and amortization of property and equipment

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

Amortization of intangible assets

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

Transaction-related expenses

Transaction-related expenses consist primarily of professional services and other expenses associated with our IPO and other offerings as well as certain expenses associated with corporate development activity.

Interest expense

Interest expense consists of accrued interest and related payments on our outstanding long-term debt as well as the amortization of debt issuance costs. Additionally, interest expense includes any effective portion of realized interest rate hedging derivative gains and losses previously recorded in accumulated other comprehensive (loss) income when the actual interest payments are made on our variable rate debt and the related derivative contract settles.

Other non-operating (income) expense

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

Income tax (benefit) expense

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

Stock-based compensation expense

We grant equity incentive awards to certain employees, officers and non-employee directors as long-term incentive compensation. We recognize the related expense for these awards ratably over the applicable vesting period. Such expense is recognized in either cost of revenue or selling, general and administrative expenses based upon the function of the optionee. The following table shows the allocation of stock-based compensation expense between our expense line items for the periods presented (in thousands):

	Three Months Ended
	March 31,
	2017		2016
	(unaudited)
Cost of revenue	$	466	$	289
Selling, general and administrative expenses		1,617		785
Total	$	2,083	$	1,074

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As of March 31, 2017, we had total unrecognized stock-based compensation expense related to unvested stock options and RSUs of $25.0 million, which we expect to recognize over the next 2.9 years. 

Foreign currency translation adjustments.

The assets and liabilities of our foreign subsidiaries with a functional currency other than the U.S. Dollar are translated into U.S. Dollars using applicable exchange rates at the balance sheet date. Revenue and expenses are translated at average exchange rates effective during the year. The resulting foreign currency translation gains and losses are included as a component of other comprehensive (loss) income. We had upward foreign currency translation adjustments of $0.1 million for the three months ended March 31, 2017 compared to insignificant downward foreign currency translation adjustments for the three months ended March 31, 2016. The translation adjustments were the result of the strengthening of the U.S. Dollar against the Canadian Dollar and British Pound over the corresponding period.

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

We are a party to interest rate cap agreements that hedge the potential impact fluctuations in interest rates may have on payments we make pursuant to our long-term debt. We had a downward net change in fair value of derivative instruments, net of related taxes, of approximately $0.1 million and$0.5 million for the three months ended March 31, 2017 and 2016, respectively. The downward changes were the result of fluctuations in three-month LIBOR.

How We Assess Our Performance

Adjusted EBITDA

We believe Adjusted EBITDA (a non-GAAP measure) is useful to investors as a supplemental measure to evaluate our overall operating performance. Management uses Adjusted EBITDA as a measurement to compare our operating performance to our peers and competitors. We define Adjusted EBITDA as net income before depreciation and amortization, interest expense, other non-operating (income) expense such as foreign currency translation, income tax (benefit) expense, transaction-related expenses and other and stock-based compensation. See the notes to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information regarding these adjustments. Management believes Adjusted EBITDA is useful because it provides meaningful supplemental information about our operating performance and facilitatesperiod-to-period comparisons without regard to our financing methods, capital structure or other items that we believe are not indicative of our ongoing operating performance. By providing this non-GAAP financial measure, management believes we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. Management believes that Adjusted EBITDA is frequently used by securities analysts, investors and other interested parties as a supplemental measure of financial performance within our industry. In addition, the determination of Adjusted EBITDA is consistent with the definition of a similar measure in our First Lien Credit Facilities.

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

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

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

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

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

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

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

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

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

The following table presents a reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP measure, for the periods presented:

	Three Months Ended
	March 31,
	2017		2016
(in thousands)	(unaudited)
Net income	$	26,975	$	8,084
Depreciation and amortization		20,774		20,042
Interest expense		8,421		16,060
Other non-operating (income) expense(a)		(453)		(299)
Income tax (benefit) expense		(861)		5,393
Transaction-related expenses and other(b)		731		240
Stock-based compensation(c)		2,083		1,074
Adjusted EBITDA	$	57,670	$	50,594

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

^(b) Represents transaction‑related expenses that consist primarily of certain expenses associated with our secondary offering in 2017 and our IPO and other offering costs in 2016 as well as certain corporate development activity.

^(c) Represents expense related to equity incentive awards granted to certain employees, officers and non‑employee directors as long‑term incentive compensation. We recognize the related expense for these awards ratably over the vesting period.

Dollar Amount of Inaccurate Payments Prevented or Recovered

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

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

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

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Factors Affecting the Comparability of our Results of Operations

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

Debt Refinancings, Repayments and Repricing

In connection with our various debt refinancings, we incurred significant debt issuance costs, primarily associated with the new indebtedness. These debt issuance costs are amortized utilizing the effective interest method over the associated life of the related indebtedness and recorded as interest expense. Unamortized debt issuance costs were $10.4 million as of March 31, 2017.  

In June 2016, we repaid $223.0 million in outstanding principal under our then outstanding second lien credit facility using proceeds from our IPO. We also made a voluntary prepayment of $13.1 million of outstanding principal under the second lien credit facility. As a result of these repayments, we recognized a loss on extinguishment of debt totaling $7.1 million during the three months ended June, 30, 2016 primarily related to the accelerated recognition of the unamortized portion of debt issuance costs and original issue discount.

In September 2016, we completed a refinancing of our then existing first and second lien credit facilities and entered the Amended and Restated First Lien Credit Agreement (the “Restated Credit Agreement”), which provides for first lien credit facilities (the “First Lien Credit Facilities” consisting of a (a) Term Loan A in the amount of $250.0 million, (b) Term Loan B in the amount of $550.0 million and (c) revolving credit facility (the “Revolver”) in the amount of up to $100.0 million, reducing our total debt principal outstanding by $22.7 million and reducing the interest rates. As a result of this refinancing, we recognized a loss on extinguishment of debt of $9.3 million during the three months ended September 30, 2016, primarily related to the payment of certain fees and the accelerated recognition of the unamortized portion of debt issuance costs and original issue discount related to indebtedness that was repaid to certain lenders.

In April 2017, we entered into and executed the First Amendment Agreement to the then outstanding Restated Credit Agreement, which, among other things, provided for lower applicable interest rates associated with the First Lien Term B Loan. As a result, we expect to record a loss on extinguishment of approximately $3.0 million, during the second quarter of 2017.

Our Segments

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

We evaluate the performance of each segment based on segment net revenue and segment operating income. The cost of revenue for each segment is based on direct expenses associated with revenue generating activities of each segment. We allocate selling, general and administrative expenses to each segment based on the segments’ proportionate share of revenue and expenses directly related to the operation of the segment as determined by management. The following table

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sets forth the net revenue and operating income for our Healthcare and Global Retail and Other segments for the periods presented (in thousands).

	Three Months Ended
	March 31,
	2017		2016
	(unaudited)
Net Revenue
Healthcare	$	139,803	$	124,130
Global Retail and Other		20,330		18,588
Consolidated net revenue	$	160,133	$	142,718
Operating Income
Healthcare	$	31,161	$	26,622
Global Retail and Other		2,921		2,616
Consolidated operating income	$	34,082	$	29,238

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

	Three Months Ended March 31,
	2017		%	2016		%
	(unaudited)
Healthcare
Retrospective claims accuracy	$	77,516	48.4	$	65,270	45.7
Prospective claims accuracy		59,717	37.3		55,410	38.8
Transaction services		2,570	1.6		3,450	2.5
Total Healthcare		139,803	87.3		124,130	87.0
Global Retail and Other
Retrospective claims accuracy		19,674	12.3		17,990	12.6
Other		656	0.4		598	0.4
Total Global Retail and Other		20,330	12.7		18,588	13.0
Consolidated net revenue	$	160,133	100.0	$	142,718	100.0

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Results of Operations

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016

	Three Months Ended March 31,						Percentage
			Percentage of			Percentage of	Change
			Net Revenue			Net Revenue	Period to
	2017		(%)	2016		(%)	Period (%)
Net revenue	$	160,133	100.0	$	142,718	100.0	12.2
Cost of revenue (exclusive of depreciation and amortization, stated separately below):
Compensation		56,288	35.1		53,461	37.5	5.3
Other costs of revenue		6,686	4.2		5,398	3.8	23.9
Total cost of revenue		62,974	39.3		58,859	41.2	7.0
Selling, general and administrative expenses (exclusive of depreciation and amortization, stated separately below):
Compensation		24,693	15.4		19,110	13.4	29.2
Other selling, general and administrative expenses		16,879	10.6		15,229	10.7	10.8
Total selling, general and administrative expenses		41,572	26.0		34,339	24.1	21.1
Depreciation and amortization of property and equipment		5,575	3.5		4,835	3.4	15.3
Amortization of intangible assets		15,199	9.5		15,207	10.7	(0.1)
Transaction-related expenses		731	0.4		240	0.2	204.6
Total operating expenses		126,051	78.7		113,480	79.5	11.1
Operating income		34,082	21.3		29,238	20.5	16.6
Other expense (income):
Interest expense		8,421	5.3		16,060	11.3	(47.6)
Other non-operating (income) expense		(453)	(0.3)		(299)	(0.2)	51.5
Total other expense (income)		7,968	5.0		15,761	11.0	(49.4)
Income before income taxes		26,114	16.3		13,477	9.4	93.8
Income tax (benefit) expense		(861)	(0.5)		5,393	3.8	(116.0)
Net income	$	26,975	16.8	$	8,084	5.7	233.7

Net revenue

Net revenue was $160.1 million for the three months ended March 31, 2017 as compared to $142.7 million for the three months ended March 31, 2016. The increase of $17.4 million was the result of increased Healthcare segment revenue of $15.7 million and increased Global Retail and Other segment revenue of $1.7 million. See “−Segment net revenue and operating income.”

Cost of revenue

Cost of revenue related to compensation was $56.3 million for the three months ended March 31, 2017 as compared to $53.5 million for the three months ended March 31, 2016. The increase of $2.8 million was primarily the result of approximately $2.0 million in additional payroll related expenses due to increased headcount and growth of our Healthcare segment. Employee benefit costs increased approximately $0.6 million due to rising healthcare coverage costs and the increase in the number of our employees. Stock-based compensation increased by approximately $0.2 million due to additional equity incentive awards.  

Other costs of revenue were $6.7 million for the three months ended March 31, 2017 as compared to $5.4 million for the three months ended March 31, 2016. The increase of $1.3 million was primarily the result of an increase of approximately $0.6 million in professional and consulting fees as we have leveraged external resources and expertise.  Rent and occupancy increased approximately $0.3 million as a result of new and expanded locations. Personnel-related costs increased approximately $0.4 million due to the increase in the number of employees.

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Selling, general and administrative expenses

Selling, general and administrative expenses related to compensation were $24.7 million for the three months ended March 31, 2017 as compared to $19.1 million for the three months ended March 31, 2016. The increase of $5.6 million was primarily related to a $4.6 million increase in compensation related expenses due to an increase in the number of employees to support our growing operations. Stock-based compensation increased $0.8 million due to additional equity incentive awards. Employee benefit costs increased approximately $0.2 million due to rising healthcare coverage costs and the increase in number of employees.

Other selling, general and administrative expenses were $16.9 million for the three months ended March 31, 2017 as compared to $15.2 million for the three months ended March 31, 2016. The increase of $1.7 million was primarily due to an increase of $1.0 million in IT infrastructure and telecommunications. Personnel-related expenses increased approximately $0.7 million due to the increase number of employees. Other variable costs increased approximately $0.3 million to support our growing operations. The increase was partially offset by a $0.3 million decrease in professional and consulting fees as our current need to leverage external resources has been reduced.

Depreciation and amortization of property and equipment

Depreciation and amortization of property and equipment was $5.6 million for the three months ended March 31, 2017 as compared to $4.8 million for the three months ended March 31, 2016. The increase of $0.8 million was due to continued investments in capital expenditures over the prior year.

Amortization of intangible assets

Amortization of intangible assets was $15.2 million for each of the three months ended March 31, 2017 and 2016 as there have been no changes in our intangible assets.

Transaction-related expenses

Transaction-related expenses were $0.7 million for the three months ended March 31, 2017 primarily related to expenses incurred in connection with our secondary public offering as well as certain expenses related to corporate development activity. Transaction-related expenses were $0.2 million for the three months ended March 31, 2016 primarily related to expenses incurred in connection with our IPO.

Interest expense

Interest expense was $8.4 million for the three months ended March 31, 2017 as compared to $16.1 million for the three months ended March 31, 2016.  The decrease of $7.7 million was primarily due to the significant decline in outstanding principal over the past year in connection with the use of our IPO proceeds and the September 2016 refinancing, which resulted in an $3.6 million decrease in interest expense. Additionally, interest rate reductions in connection with the September 2016 refinancing resulted in an $4.1 million decrease in interest expense.

Other non-operating income

We had other non-operating income of $0.5 million for the three months ended March 31, 2017 as compared to $0.3 million for the three months ended March 31, 2016. The increase of $0.2 million was primarily the result of foreign exchange gains related to our operations in India.

Income tax expense

We had a total income tax benefit of $0.9 million for the three months ended March 31, 2017 as compared to income tax expense of $5.4 million for the three months ended March 31, 2016. The decrease of $6.3 million was primarily the result of a $10.4 million excess tax benefit relating to stock option exercises during the three months ended March 31, 2017. The effective tax rate for the three months ended March 31, 2017 was (3.3)% compared to 40.0% for the three months ended March 31, 2016. The decrease in the effective tax rate is primarily due to the excess tax benefit related to

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stock option exercises. Excluding the impact of discrete items, our effective income tax rate was 37.6% for the three months ended March 31, 2017.

Segment net revenue and operating income

Healthcare segment net revenue was $139.8 million for the three months ended March 31, 2017 as compared to $124.1 million for the three months ended March 31, 2016. The increase of $15.7 million was primarily the result of a net increase of $14.2 million due to increased penetration and extended scope of services provided to our existing client base and a $1.5 million increase due to the addition of new clients and the success of our cross-sell efforts.

Global Retail and Other segment net revenue was $20.3 million for the three months ended March 31, 2017 as compared to $18.6 million for the three months ended March 31, 2016. The increase of $1.7 million was primarily the result of the timing,  nature and size of the claims reviewed.

Healthcare segment operating income was $31.2 million for the three months ended March 31, 2017 as compared to $26.6 million for the three months ended March 31, 2016. The increase in operating income of $4.6 million was the result of an increase in net revenue noted above. This was partially offset by an increase in compensation expense of $6.4 million related to an increase in the number of employees in our growing Healthcare segment. Our ongoing investment in strategic initiatives contributed an additional $1.0 million in expense primarily related to an increase in IT infrastructure costs. Additionally, stock-based compensation expense increased approximately $0.9 million due to additional equity incentive awards. Rent and occupancy related costs increased $0.3 million as a result of new and expanded locations. Depreciation and amortization expenses increased by $0.7 million due to our continued investments in capital expenditures. Personnel-related expenses increased $1.0 million due to the increase in number of employees. Transaction-related expenses increased $0.5 million primarily related to the secondary offering. Additionally, certain variable costs increased approximately $0.3 million.

Global Retail and Other segment operating income was $2.9 million for the three months ended March 31, 2017 as compared to $2.6 million for the three months ended March 31, 2016. The increase in operating income of $0.3 million was the result of an increase in net revenue noted above. This increase was partially offset by a $1.0 million increase in compensation related expenses and a $0.1 million increase in stock-based compensation primarily related to additional equity incentive awards. Our ongoing investment in strategic initiatives contributed an additional $0.2 million in IT infrastructure costs. Additionally, certain variable costs increased approximately $0.1 million. 

Liquidity and Capital Resources

Overview

Our primary sources of liquidity are our existing cash and cash equivalents, cash provided by operating activities and borrowings under our credit facilities. As of March 31, 2017, we had cash and cash equivalents of $128.5 million and availability under the Revolver of $99.5 million. Our total indebtedness was $791.0 million as of March 31, 2017. 

In April 2017, we successfully repriced our First Lien Term B Loan, reducing the interest rate by 25 basis points.

Our principal liquidity needs have been, and we expect them to continue to be, debt service, capital expenditures, working capital and potential mergers and acquisitions. Our capital expenditures support investments in our underlying infrastructure to enhance our solutions and technology for future growth. Our capital expenditures were $9.7 million and $9.5 million for the three months ended March 31, 2017 and 2016, respectively. The increase is primarily due to expenditures associated with enhancing our IT platform. We do not expect our capital expenditures to continue to increase. However, our strategy includes the expansion of our existing solutions and the development of new solutions, which will require cash expenditures over the next few years and will be funded primarily with cash provided by operating activities.

We believe that our cash flow from operations, availability under our First Lien Credit Facilities and available cash and cash equivalents will be sufficient to meet our liquidity needs for at least the foreseeable future. We anticipate that to the extent that we require additional liquidity, it will be funded through the incurrence of additional indebtedness, the issuance of

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equity financings, or a combination thereof. We cannot assure you that we will be able to obtain this additional liquidity on reasonable terms, or at all. Additionally, our liquidity and our ability to meet our obligations and fund our capital requirements are also dependent on our future financial performance, which is subject to general economic, financial and other factors that are beyond our control. Accordingly, we cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available from additional indebtedness or otherwise to meet our liquidity needs. If we decide to pursue one or more significant acquisitions, we may incur additional debt or sell additional equity to finance such acquisitions, which could possibly result in additional expenses or dilution.

Summary of Cash Flows

The following table provides a summary of cash flows from operating, investing and financing activities for the periods presented (in thousands):

	Three Months Ended
	March 31,
	2017		2016
	(unaudited)
Net cash provided by operating activities	$	24,572	$	36,353
Net cash used in investing activities		(9,660)		(9,465)
Net cash provided by (used in) financing activities		2,860		(2,009)

Operating Activities

Net cash provided by operating activities was $24.6 million and $36.4 million for the three months ended March 31, 2017 and 2016, respectively. The decrease in cash provided by operating activities for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016 primarily was due to a $27.2 million increase in net income adjusted for the exclusion of non-cash expenses, offset by approximately a $39.0 million decrease related to the effect of changes in operating assets and liabilities.

Net income adjusted for the exclusion of non-cash expenses was approximately $52.1 million for the three months ended March 31, 2017 as compared to $24.9 million for the three months ended March 31, 2016. The increase was primarily due to the growth in our Healthcare operations and the reduction in interest expense.

The effect of changes in operating assets and liabilities was a decrease of $27.5 million for the three months ended March 31, 2017 compared to a increase of $11.5 million for the three months ended March 31, 2016. The most significant drivers contributing to this increase relate to the following:

· Changes in accounts receivable primarily driven by increased revenue and timing of collections. Accounts receivable, net of the allowance for doubtful accounts, decreased $5.7 million during the three months ended March 31, 2017 as compared to a decrease of $12.3 million during the three months ended March 31, 2016; 

· Changes in accrued compensation primarily driven by timing of payments and an increase in the number of employees. Accrued compensation decreased $29.2 million during the three months ended March 31, 2017 as compared to a decrease of $8.5 million during the three months ended March 31, 2016; and

· Timing of income tax payments including the impact of approximately $10.0 million paid during the year ended December 31, 2015 that was applied to our tax liabilities for the three months ended March 31, 2016. 

Investing Activities

Net cash used in investing activities was $9.7 million and $9.5 million for the three months ended March 31, 2017 and 2016, respectively. The increase in cash used in investing activities during the three months ended March 31, 2017 as compared to the three months ended March 31, 2016 was due to an increase in capital expenditures due to our ongoing investments, particularly as it relates to enhancing our information technology infrastructure and platforms to support our growing operations.

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Financing Activities

Net cash provided by financing activities was $2.9 million for the three months ended March 31, 2017 compared to net cash used of $2.0 million for the three months ended March 31, 2016. The increase in cash provided by financing activities during the three months ended March 31, 2017 as compared to the three months ended March 31, 2016 was primarily due to $7.4 million in proceeds from the exercise of stock options partially offset by scheduled debt principal payments of $4.5 million during the three months ended March 31, 2017 as compared to $2.0 million during the three months ended March 31, 2016.

Off-Balance Sheet Arrangements

Except for operating leases and certain letters of credit entered into in the normal course of business, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Contractual Obligations

Except as set forth below, there have been no material changes to our contractual obligations as described in the Annual Report on Form 10-K for the year ended December 31, 2016.

In April 2017, we repriced our First Lien Term B Loan reducing the interest rate by 25 basis points.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts and disclosure of contingent assets and liabilities. There have been no significant changes in the critical accounting policies and estimates described in our Annual Report on Form 10-K for the year ended December 31, 2016.

Jumpstart Our Business Act of 2012

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). We will remain an emerging growth company until the earlier of (1) the last day of our fiscal year (a) following the fifth anniversary of the completion of our IPO, (b) in which we have total annual gross revenue of at least $1.0 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Common Stock that is held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies.

At the end of our second fiscal quarter ending on June 30, 2017, we will analyze whether our aggregate worldwide market value of voting and non-voting common equity held by non-affiliates is over $700 million. If we exceed this threshold, then as of the end of our fiscal year ending on December 31, 2017, we will be considered a large accelerated filer and therefore will lose our status as an emerging growth company. Based on the current market value of our common stock held by non-affiliates, it is possible that we may become a large accelerated filer as of December 31, 2017.

Recently Issued Accounting Pronouncements

See “Recently Issued Accounting Pronouncements” in Note 2 of the unaudited consolidated financial statements.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as “anticipates,”

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“intends,” “plans,” “seeks,” “believes,” “estimates,” “expects” and similar references to future periods, or by the inclusion of forecasts or projections. Examples of forward-looking statements include, but are not limited to, statements we make regarding the outlook for our future business and financial performance.

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, our actual results may differ materially from those contemplated by the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include regional, national or global political, economic, business, competitive, market and regulatory conditions and the following: our inability to successfully leverage our existing client base by expanding the volume of claims reviewed and cross-selling additional solutions; improvements to healthcare claims and retail billing processes reducing the demand for our solutions or rendering our solutions unnecessary; healthcare spending fluctuations; our clients declining to renew their agreements with us or renewing at lower performance fee levels; inability to develop new clients; delays in implementing our solutions; system interruptions or failures, including cyber-security breaches, identity theft or other disruptions that could compromise our information; our failure to innovate and develop new solutions for our clients; our failure to comply with applicable privacy, security and data laws, regulations and standards; changes in regulations governing healthcare administration and policies, including governmental restrictions on the outsourcing of functions such as those that we provide; loss of a large client; consolidation among healthcare payers or retailers; slow development of the healthcare payment accuracy market; negative publicity concerning the healthcare payment industry or patient confidentiality and privacy; significant competition for our solutions; our inability to protect our intellectual property rights, proprietary technology, information, processes and know-how; compliance with current and future regulatory requirements; declines in contracts awarded through competitive bidding or our inability to re-procure contracts through the competitive bidding process; our failure to accurately estimate the factors upon which we base our contract pricing; our inability to manage our growth; our inability to successfully integrate and realize synergies from any future acquisitions or strategic partnerships; our failure to maintain or upgrade our operational platforms; our failure to renew our Medicare Recovery Audit Contractor program contracts or if the terms of the Medicare RAC program contracts are substantially changed; litigation, regulatory or dispute resolution proceedings, including claims or proceedings related to intellectual property infringements; our inability to expand our retail business; our inability to manage our relationships with information suppliers, software vendors or utility providers; fluctuations in our results of operations; changes in tax rules; risks associated with international operations; our inability to realize the book value of intangible assets; our success in attracting and retaining qualified employees and key personnel; general economic, political and market forces and dislocations beyond our control; risks related to our substantial indebtedness and holding company structure; volatility in bank and capital markets; our status as a controlled company and as an emerging growth company; and provisions in our amended and restated certificate of incorporation.

For the reasons described above, as well as factors identified in “Item 1A – Risk Factors” in this Quarterly Report on Form 10-Q and the section of the Annual Report on Form 10-K entitled “Risk Factors,” we caution you against relying on any forward-looking statements. Any forward-looking statement made by us in this Quarterly Report on Form 10-Q speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. Given these uncertainties, you should not place undue reliance on these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

ITEM 3.   Quantitative and Qualitative Disclosures About Market Risk

Except as set forth below, there have been no material changes to our quantitative and qualitative disclosures about market risk compared to the quantitative and qualitative disclosure about market risk described in the Annual Report on Form 10-K for the year ended December 31, 2016.

We are exposed to interest rate risk on our First Lien Credit Facilities, which bear interest at variable rates. As of March 31, 2017, we had $791.0 million outstanding principal under our long-term debt and $540.0 million notional debt outstanding related to interest rate cap agreements. Based on our outstanding debt as of March 31, 2017, and assuming that our mix of debt instruments, interest rate caps and other variables remain the same, the annualized effect of a one percentage point change in variable interest rates would have an annualized pretax impact on our earnings and cash flows of

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approximately $7.5 million.

ITEM 4.   Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q pursuant to Rule 13a-15(b) of the Exchange Act. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q are effective at a reasonable assurance level in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. While our disclosure controls and procedures are designed to provide reasonable assurance of their effectiveness, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

Changes in Internal Control over Financial Reporting

There were no changes to our internal control over financial reporting during the three months ended March 31, 2017 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

We have not engaged an independent registered accounting firm to perform an audit of our internal control over financial reporting as of any balance sheet date or for any period reported in our financial statements. Our independent public registered accounting firm will first be required to attest to the effectiveness of our internal controls over financial reporting for our Annual Report on Form 10-K for the first year we are no longer an “emerging growth company.” In addition, as a newly public company, our management is presently not required to perform an annual assessment of the effectiveness of our internal controls over financial reporting until our second annual report on Form 10-K which is for the year ending December 31, 2017.

29

PART II - OTHER INFORMATION

ITEM 1.   Legal Proceedings

None.

ITEM 1A.   Risk Factors

For a discussion of potential risks and uncertainties related to our Company and our business see the information in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2016. There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016. 

ITEM 2.   Unregistered Sales of Equity Securities and Use of Proceeds

None.

ITEM 3.   Defaults Upon Senior Securities

Not applicable.

ITEM 4.   Mine Safety Disclosures

Not applicable.

ITEM 5.   Other Information

None.

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ITEM 6.   Exhibits

Exhibit No.	Description of Exhibits
10.1*	First Amendment Agreement, dated as of April 7, 2017, to the Amended and Restated First Lien Credit Agreement dated as of September 28, 2016, by and among Cotiviti Corporation, Cotiviti Domestic Holdings, Inc., Cotiviti Intermediate Holdings, Inc., the other Loan Parties thereto, the Lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent.
31.1*	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
**101.INS	XBRL Instance Document.
**101.SCH	XBRL Taxonomy Extension Schema Document.
**101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
**101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.
**101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
**101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.

*  Filed herewith.

** Submitted electronically with this Report.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	COTIVITI HOLDINGS, INC.
Date: May 3, 2017	By:	/S/ STEVE SENNEFF
		Name:	Steve Senneff
		Title:	Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

32

EX-10.1

Exhibit 10.1

FIRST AMENDMENT AGREEMENT

This FIRST AMENDMENT to the Credit Agreement referred to below, dated as of April 7, 2017 (this “FirstAmendment”), by and among COTIVITI CORPORATION, a Delawarecorporation as a borrower (the “Top Borrower”), COTIVITI DOMESTIC HOLDINGS, INC., a Delaware corporation (a “Borrower” and together with the Top Borrower, the “Borrowers”), COTIVITI INTERMEDIATE HOLDINGS, INC., a Delawarecorporation (“Holdings”), certain subsidiaries of the Top Borrower, as Subsidiary Guarantors, the Lenders under the Credit Agreement immediately prior to the First Amendment Effective Date (as defined below) party hereto, each Consenting Lender (as defined below), the Replacement Lender (as defined below) and JPMORGAN CHASE BANK, N.A., as administrative agent and collateral agent (in such capacity, the “Administrative Agent”).  Capitalized terms not otherwise defined in this First Amendment have the same meanings as specified in the Credit Agreement (as defined below), as amended by this First Amendment.

RECITALS

WHEREAS, the Borrowers, Holdings, the several Lenders (as defined in the Credit Agreement) from time to time party thereto and the Administrative Agent, have entered into that certain Amended and Restated First Lien Credit Agreement, dated as of September 28, 2016 (together with all exhibits and schedules attached thereto, as amended, restated, amended and restated, supplemented or otherwise modified prior to the date hereof, the “Credit Agreement”);  

WHEREAS, the Borrowers, the undersigned Lenders (including the Replacement Lender (if applicable)) and the Administrative Agent have agreed to amend the Credit Agreement as hereinafter set forth;

WHEREAS, each Initial Term B  Lender under the Credit Agreement immediately prior to the First Amendment Effective Date (collectively, the “Existing Term Lenders”) that executes and delivers a consent to this First Amendment in the form of the “Term Lender Consent” attached hereto as Annex I (a “Term Lender Consent”) and selects Option A thereunder (the “Continuing Term Lenders”) thereby agrees to the terms and conditions of this First Amendment;

WHEREAS, each Existing Term Lender that executes and delivers a Term Lender Consent and selects Option B thereunder (the “Non-Continuing Term Lenders” and, together with the Continuing Term Lenders, the “Consenting Term Lenders”) thereby agrees to the terms and conditions of this First Amendment and agrees that it shall execute, or shall be deemed to have executed, a counterpart of the Master Assignment and Assumption Agreement substantially in the form attached hereto as Annex II (a “Master Assignment”) and shall in accordance therewith sell all of its existing Initial Term B  Loans as specified in the applicable Master Assignment, as further set forth in this First Amendment;

WHEREAS, each Existing Term Lender that fails to execute and return a Term Lender Consent by 12:00 p.m. (New York City time), on March 31, 2017 (the “Consent Deadline”) (each, a “Non-Consenting Term Lender”) shall, in accordance with Section 2.19(b) of the Credit Agreement, assign and delegate (or be deemed to assign and delegate), without recourse (in accordance with Section 9.05(b) of the Credit Agreement), all of its interests, rights and obligations under the Credit Agreement and the related Loan Documents in respect of its existing Initial Term B  Loans to the Replacement Lender (if any), which shall assume such obligations as specified in the Master Assignment, as further set forth in this First Amendment;

WHEREAS, each Loan Party party hereto (collectively, the “Reaffirming Parties”, and each, a “Reaffirming Party”) expects to realize substantial direct and indirect benefits as a result of this First Amendment becoming effective and the consummation of the transactions contemplated hereby and agrees

to reaffirm its obligations pursuant to the Credit Agreement, the Collateral Documents, and the other Loan Documents to which it is a party; and

NOW, THEREFORE, in consideration of the covenants and agreements contained herein, as well as other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

SECTION 1. Amendments to Credit Agreement.  The Credit Agreement is, effective as of the First Amendment Effective Date (as defined below), and subject to the satisfaction (or waiver) of the conditions precedent set forth in Section 3 below, hereby amended as follows:

(a) Definitions.  Section 1.01 of the Credit Agreement is hereby amended by adding the following new definitions thereto in proper alphabetical order:

“First Amendment” means that certain First Amendment to Credit Agreement, dated as of April  7, 2017, among the Borrowers, Holdings, the Subsidiary Guarantors, the Administrative Agent and the Lenders party thereto.

“First Amendment Effective Date” shall mean April 7, 2017.

(b) Alternate Base Rate.  The definition of “Alternate Base Rate” in Section 1.01 of the Credit Agreement is hereby amended and restated in its entirety as follows:

“Alternate Base Rate” means, for any day, a rate per annum equal to the highest of (a) the NYFRB Rate in effect on such day plus 0.50%, (b) to the extent ascertainable, the Published LIBO Rate (which rate shall be calculated based upon an Interest Period of one month and shall be determined on a daily basis) plus 1.00%, (c) the Prime Rate and (d) solely with respect to the Initial Term B Loans prior to the First Amendment Effective Date, 1.75% per annum.  Any change in the Alternate Base Rate due to a change in the Prime Rate, the NYFRB Rate or the Published LIBO Rate, as the case may be, shall be effective from and including the effective date of such change in the Prime Rate, the NYFRB Rate or the Published LIBO Rate, as the case may be.

(c) Applicable Rate.  Clause (a) of the definition of “Applicable Rate” in Section 1.01 of the Credit Agreement is hereby amended and restated in its entirety as follows:

“Applicable Rate” means, for any day, (a)(x) at any time prior to the First Amendment Effective Date, with respect to any Initial Term B Loan, subject to the last paragraph of this definition, a percentage per annum equal to 1.75% for ABR Loans and 2.75% for LIBO Rate Loans, and (y) from and after the First Amendment Effective Date, with respect to any Initial Term B Loan, subject to the last paragraph of this definition, a percentage per annum equal to 1.50% for ABR Loans and 2.50% for LIBO Rate Loans.

(d) LIBO Rate.  Clause (a) of the proviso in the definition of “LIBO Rate” in Section 1.01 of the Credit Agreement is hereby amended and restated in its entirety as follows:

“; provided that, (a) in no event shall the LIBO Rate (x) solely with respect to the Initial Term B Loans at any time prior to the First Amendment Effective Date, be less than 0.75% per annum and (y) solely with respect to (1) the Initial Term A Loans, (2) the Initial Revolving Loans and (3) after and from the First Amendment Effective Date, the Initial Term B Loans, be less than 0.00% per annum”

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(e) Section 2.12(f) of the Credit Agreement is hereby amended by replacing the words “the Closing Date” with the words “the First Amendment Effective Date” in each instance where such term appears.

SECTION 2. Continuation of Existing Term Loans; Non-Consenting Lenders; Other Terms and Agreements.

(a) Continuing Lenders.  Each Existing Term Lender selecting Option A on the Term Lender Consent hereby consents and agrees to this First Amendment.

(b) Non-Continuing Term Lenders.  Each Existing Term Lender selecting Option B on the Term Lender Consent hereto hereby consents and agrees (subject to the effectiveness of the assignment referred to in the following clause (ii)) to (i) this First Amendment and (ii) sell the entire principal amount of its existing Initial Term B  Loans via an assignment on the First Amendment Effective Date pursuant to the Master Assignment.  By executing a Term Lender Consent and selecting Option B, each Non-Continuing Term Lender shall be deemed to have executed a counterpart to the Master Assignment to give effect, solely upon the consent and acceptance by the Replacement Lender, to the assignment described in the immediately preceding sentence.

(c) Non-Consenting Term Lenders.  The Top Borrower hereby gives notice to each Non-Consenting Term Lender that, upon receipt of Lender Consents from Lenders holding more than 50% of the aggregate outstanding principal amount of the Initial Term B  Loans immediately prior to the First Amendment Effective Date, if such Non-Consenting Term Lender has not executed and delivered a Term Lender Consent on or prior to the Consent Deadline, such Non-Consenting Term Lender shall, pursuant to Section 2.19(b) of the Credit Agreement, execute or be deemed to have executed a counterpart of the Master Assignment and shall in accordance therewith sell its Existing Terms Loans as specified in the Master Assignment.  Pursuant to the Master Assignment, each Non-Consenting Term Lender shall sell and assign the entire outstanding principal amount of its Existing Term Loans as set forth in Schedule I to the Master Assignment, as such Schedule is completed by the Administrative Agent on or prior to the First Amendment Effective Date, to JPMorgan Chase Bank, N.A., as assignee (in such capacity the “Replacement Lender”) under such Master Assignment, solely upon the consent and acceptance by the Replacement Lender.  The Replacement Lender shall be deemed to have consented to this First Amendment with respect to such purchased Initial Term B  Loans at the time of such assignment.

SECTION 3. Conditions of Effectiveness. The effectiveness of this First Amendment (including the amendments contained in Section 1 and agreements contained in Section 2) are subject to the satisfaction (or waiver) of the following conditions (the date of satisfaction of such conditions being referred to herein as the “FirstAmendment Effective Date”):

(a) This First Amendment shall have been duly executed by the Borrowers, Holdings, the Subsidiary Guarantors and the Administrative Agent (which may include a copy transmitted by facsimile or other electronic method), and delivered to the Administrative Agent, and the Lenders under the Credit Agreement consisting of Lenders holding more than 50% of the aggregate outstanding principal amount of the Initial Term B  Loans immediately prior to the First Amendment Effective Date. 

(b) The Administrative Agent shall have received a certificate signed by a Responsible Officer of the Top Borrower as to the matters set forth in paragraphs (d) and (e) of this Section 3;

(c) The Administrative Agent shall have received (i) a certificate of each Loan Party, dated the First Amendment Effective Date and executed by a secretary, assistant secretary or other Responsible Officer thereof, which shall (A) certify that either (x) (i) attached thereto is a true and complete copy of the

3

certificate or articles of incorporation, formation or organization of such Loan Party certified by the relevant authority of its jurisdiction of organization and that such certificate or, if applicable, such articles of incorporation, formation or organization of such Loan Party attached thereto have not been amended, repealed, modified or restated (except as attached thereto) since the date reflected thereon or (ii) the certificate or articles of incorporation, formation or organization of such Loan Party delivered on the Closing Date to the Administrative Agent have not been amended, repealed, modified or restated and are in full force and effect, (y) (i) attached thereto is a true and correct copy of the by-laws or operating, management, partnership or similar agreement of such Loan Party, together with all amendments thereto as of the Closing Date and such by-laws or operating, management, partnership or similar agreement are in full force and effect or (ii) if applicable, the by-laws or operating, management, partnership or similar agreement of such Loan Party, together with all amendments thereto delivered on the Closing Date have not been amended, repealed, modified or restated and are in full force and effect and (z) attached thereto is a true and complete copy of the resolutions or written consent, as applicable, of its board of directors, board of managers, sole member or other applicable governing body authorizing the execution and delivery of this First Amendment and any related Loan Documents, which resolutions or consent have not been modified, rescinded or amended (other than as attached thereto) and are in full force and effect, and (B) identify by name and title and bear the signatures of the officers, managers, directors or authorized signatories of such Loan Party authorized to sign this First Amendment or any of such other Loan Documents to which such Loan Party is a party on the Closing Date and (ii) a good standing (or equivalent) certificate as of a recent date for such Loan Party from the relevant authority of its jurisdiction of organization.

(d) No Default or Event of Default has occurred and is continuing both before and immediately after giving effect to the transactions contemplated hereby;

(e) The representations and warranties of the Borrowers and each of the Guarantors set forth in Section 4 of this First Amendment are true and correct;

(f) All fees and expenses required to be paid in connection with this First Amendment or pursuant to that certain engagement letter, dated as of March 28, 2017 (the “Engagement Letter”), by and among the Top Borrower and the Repricing Arrangers (as defined below) and any fee letter entered into by the Top Borrower and any party thereto shall have been paid in full in cash or will be paid in full in cash on the First Amendment Effective Date, including, without limitation, all reasonable and documented out-of-pocket expenses incurred by the Repricing Arrangers, the Administrative Agent and their respective Affiliates in connection with the execution and delivery of this First Amendment.

(g) The Replacement Lender, if any, shall have executed and delivered the Master Assignment contemplated by Section 2 above and all conditions to the consummation of the assignments in accordance with Section 2 above shall have been satisfied and such assignments shall have been consummated.

(h) TheBorrowers shall have, substantially concurrently with the effectiveness of this First Amendment, paid to each Non-Consenting Term Lender all accrued interest, fees and other amounts payable to such Non-Consenting Term Lender under any Loan Document with respect to the Initial Term B  Loans assigned by such Non-Consenting Term Lender under Section 2(c) above (other than principal and all other amounts paid to such Non-Consenting Term Lender under Section 2 above), if any, then due and owing to such Non-Consenting Term Lender under the Credit Agreement and the other Loan Documents (immediately prior to the effectiveness of this First Amendment).

SECTION 4. Representations and Warranties. To induce the other parties hereto to enter into this First Amendment, each Loan Party represents and warrants to each of the Lenders and the Administrative Agent that, as of the First Amendment Effective Date:

4

(a) This First Amendment has been duly authorized, executed and delivered by each Loan Party party hereto and constitutes, and the Credit Agreement, as amended by this First Amendment constitutes, its legal, valid and binding obligation, enforceable against each such Loan Party in accordance with its terms, subject to the Legal Representations;

(b) The representations and warranties of Holdings, the Borrowers and the Subsidiary Guarantors set forth in Article 3 of the Credit Agreement (as amended by this First Amendment) and the other Loan Documents are true and correct in all material respects on and as of the First Amendment Effective Date (immediately after giving effect to this First Amendment), except to the extent that such representations and warranties specifically refer to an earlier date or specified period, in which case they shall be true and correct in all material respects as of such earlier date or for such specified period; and

(c) After giving effect to this First Amendment and the transactions contemplated hereby, no Default or Event of Default has occurred and is continuing.

SECTION 5. Top Borrower’s Consent. For purposes of Section 9.05 of the Credit Agreement, the Top Borrower hereby consents to any assignee of the Replacement Lender (in each case otherwise being an Eligible Assignee) becoming a Term Lender in connection with the syndication of the Initial Term B  Loans acquired by the Replacement Lender pursuant to Section 2 hereof, to the extent the inclusion of such assignee in the syndicate (and the amount of any assignment allocated thereto) has been disclosed in writing to and agreed by the Top Borrower prior to the First Amendment Effective Date.

SECTION 6. Effects on Loan Documents.  Except as specifically amended herein or contemplated hereby, all Loan Documents shall continue to be in full force and effect and are hereby in all respects ratified and confirmed.  The execution, delivery and effectiveness of this First Amendment shall not operate as a waiver of any right, power or remedy of any Lender or the Administrative Agent under any of the Loan Documents, nor constitute a waiver of any provision of the Loan Documents or in any way limit, impair or otherwise affect the rights and remedies of the Lenders or the Administrative Agent under the Loan Documents.  Holdings, the Borrowers and each of the Subsidiary Guarantors acknowledges and agrees that, on and after the First Amendment Effective Date, this First Amendment shall constitute a Loan Document for all purposes of the Amended Credit Agreement.  On and after the First Amendment Effective Date, each reference in the Amended Credit Agreement to “this Agreement”, “hereunder”, “hereof”, “herein” or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to “Credit Agreement”, “thereunder”, “thereof” or words of like import referring to the Credit Agreement shall mean and be a reference to the Credit Agreement as amended by this First Amendment, and this First Amendment and the Credit Agreement as amended by this First Amendment shall be read together and construed as a single instrument.  Nothing herein shall be deemed to entitle Holdings, the Borrowers nor the Subsidiary Guarantors to a further consent to, or a further waiver, amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement as amended by this First Amendment or any other Loan Document in similar or different circumstances. 

SECTION 7. Indemnification.  The Borrowers hereby confirm that the indemnification provisions set forth in Section 9.03 of the Credit Agreement as amended by this First Amendment shall apply to this First Amendment and the transactions contemplated hereby.

SECTION 8. Repricing Arrangers.  The Borrowers and the Lenders party hereto agree that JPMorgan Chase Bank, N.A., SunTrust Robinson Humphrey, Inc.,  Goldman Sachs Bank USA, Barclays Bank PLC, Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Morgan Stanley Senior Funding, Inc. and Royal Bank of Canada (each a “Repricing Arranger”) shall be entitled to the privileges, indemnification, immunities and other benefits afforded to the Arrangers under the Credit Agreement as

5

amended by this First Amendment and (b) except as otherwise agreed to in writing by the Top Borrower and each such Repricing Arranger, each Repricing Arranger shall have no duties, responsibilities or liabilities with respect to this First Amendment, the Credit Agreement as amended by this First Amendment or any other Loan Document (other than, for the avoidance of doubt, any duties, responsibilities or liabilities set forth in this First Amendment, the Credit Agreement or the Engagement Letter). 

SECTION 9. Amendments; Execution in Counterparts; Severability. 

(a) This First Amendment may not be amended nor may any provision hereof be waived except pursuant to a writing signed by Holdings, each Borrower, each of the Subsidiary Guarantors, the Lenders party hereto and the Administrative Agent; and

(b) To the extent any provision of this First Amendment is prohibited by or invalid under the applicable law of any jurisdiction, such provision shall be ineffective only to the extent of such prohibition or invalidity and only in such jurisdiction, without prohibiting or invalidating such provision in any other jurisdiction or the remaining provisions of this First Amendment in any jurisdiction.

SECTION 10. Reaffirmation.  Each of the Reaffirming Parties, as party to the Credit Agreement and certain of the Collateral Documents and the other Loan Documents, in each case as amended, supplemented or otherwise modified from time to time, hereby (i) acknowledges and agrees that all of its obligations under the Credit Agreement, the Collateral Documents and the other Loan Documents to which it is a party are reaffirmed and remain in full force and effect on a continuous basis, (ii) reaffirms (A) each Lien granted by it to the Administrative Agent for the benefit of the Secured Parties and (B) any guaranties made by it pursuant to any Loan Guaranty, (iii) acknowledges and agrees that the grants of security interests by it contained in the Security Agreement and any other Collateral Document shall remain, in full force and effect after giving effect to the First Amendment, and (iv) agrees that the Obligations include, among other things and without limitation, the payment of any principal or interest on the Initial Term B  Loans under the Credit Agreement as amended by this First Amendment.  Nothing contained in this First Amendment shall be construed as substitution or novation of the obligations outstanding under the Credit Agreement or the other Loan Documents, which shall remain in full force and effect, except to any extent modified hereby.

SECTION 11. Administrative Agent.  The Borrowers acknowledge and agree that JPMorgan Chase Bank, N.A., in its capacity as administrative agent under the Credit Agreement, will serve as Administrative Agent under the Credit Agreement as amended by this First Amendment.

SECTION 12. Governing Law; Waiver of Jury Trial; Jurisdiction.  THIS FIRST AMENDMENT AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS FIRST AMENDMENT, WHETHER IN TORT, CONTRACT (AT LAW OR IN EQUITY) OR OTHERWISE, SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. The provisions of Sections 9.10(b),  9.10(c),  9.10(d) and 9.11 of the Credit Agreement are incorporated herein by reference, mutatis mutandis.  

SECTION 13. Headings.  Section headings in this First Amendment are included herein for convenience of reference only, are not part of this First Amendment and are not to affect the construction of, or to be taken into consideration in interpreting, this First Amendment.

SECTION 14. Counterparts.  This First Amendment may be executed by one or more of the parties hereto on any number of separate counterparts, and all of said counterparts taken together shall be

6

deemed to constitute one and the same instrument. Signatures delivered by facsimile or PDF or other electronic means shall have the same force and effect as manual signatures delivered in person.

[Remainder of page intentionally left blank.]

7

IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed and delivered by their respective proper and duly authorized officers as of the day and year first above written.

Top Borrower:
COTIVITI CORPORATION
By:	/s/Jonathan Olefson
	Name: Jonathan Olefson
	Title: Senior Vice President, General Counsel and Secretary
Borrower:
COTIVITI DOMESTIC HOLDINGS, INC.
By:	/s/Jonathan Olefson
	Name: Jonathan Olefson
	Title: Senior Vice President, General Counsel and Secretary

[Signature Page to Amendment]

Holdings:
COTIVITI INTERMEDIATE HOLDINGS, INC.
By:	/s/Jonathan Olefson
	Name: Jonathan Olefson
	Title: Senior Vice President, General Counsel and Secretary

[Signature Page to Amendment]

Subsidiary Guarantors:
COTIVITI, LLC
COTIVITI USA, LLC
COTIVITI INVESTMENTS, LLC
By:	/s/Jonathan Olefson
	Name: Jonathan Olefson
	Title: Senior Vice President, General Counsel and Secretary

[Signature Page to Amendment]

JPMORGAN CHASE BANK, N.A., as Administrative Agent
By:	/s/ Dawn Lee Lun
	Name:Dawn Lee Lun
	Title: Executive Director
JPMORGAN CHASE BANK, N.A., as Replacement Lender
By:	/s/ Dawn Lee Lun
	Name: Dawn Lee Lun
	Title: Executive Director

[Signature Page to Amendment]

ANNEX I

INITIAL TERM B  LENDER CONSENT TO
FIRST AMENDMENT TO CREDIT AGREEMENT

[NAME OF INITIAL TERM B  LENDER], as an Initial Term B  Lender

By:

Name:

Title:

[For Initial Term B  Lenders requiring a second signature block]

By:

Name:

Title:

PROCEDURE FOR INITIAL TERM B  LENDERS:

The above-named Initial Term B  Lender elects to:

OPTION A  – CONSENT TO AMENDMENT AND CONTINUATION OF EXISTING INITIAL TERM  B  LOANS: ☐ Consent and agree to this First Amendment and agree to continue as an Initial Term B  Lender with respect to its entire outstanding principal amount of Initial Term B Loans under the Credit Agreement after giving effect to the First Amendment, or a lower principal amount as reasonably determined by the Lead Arranger.  

OPTION B – CONSENT TO AMENDMENT ONLY: ☐ Consent to the First Amendment and agree to sell and assign its entire outstanding principal amount of Initial Term B  Loans under the Credit Agreement after giving effect to the First Amendment, or a lower principal amount as reasonably determined by the Lead Arranger, to the Replacement Lender pursuant to the Master Assignment.

Annex I

ANNEX II

FORM OF MASTER ASSIGNMENT AND ASSUMPTION AGREEMENT

FOR COTIVITI CORPORATION.
CREDIT AGREEMENT

This Assignment and Assumption (the “Assignment and Assumption”) is dated as of the Effective Date set forth below and is entered into by and between each Assignor identified in Section 1 below (each, an “Assignor”) and JPMorgan Chase Bank, N.A. (the “Assignee”).  Capitalized terms used but not defined herein shall have the meanings given to them in the First Lien Credit Agreement identified below (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “First Lien Credit Agreement”), receipt of a copy of which is hereby acknowledged by the Assignee.  The Standard Terms and Conditions set forth in Annex I attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.

For an agreed consideration, each Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee hereby irrevocably purchases and assumes from each Assignor, subject to and in accordance with the Standard Terms and Conditions and the First Lien Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below, (i) all of the applicable Assignor’s rights and obligations in its capacity as a Term Lender under the First Lien Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the principal amount of Initial Term  B Loans identified opposite such Assignor’s name in the table set out in Section 6 below under the caption “Aggregate Amount of Initial Term  B Loans held immediately prior to the First Amendment Effective Date” and (ii) to the extent permitted to be assigned under applicable Requirements of Law, all claims, suits, causes of action and any other right of the applicable Assignor (in its capacity as a Term Lender) against any Person, whether known or unknown, arising under or in connection with the First Lien Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned pursuant to clauses (i) and (ii) above being referred to herein collectively as the “Assigned Interest”).  Upon the assignment by each Assignor of all of such Assignor’s rights and obligations under the First Lien Credit Agreement immediately prior to the First Amendment Effective Date pursuant to this Assignment and Assumption, such Assignor shall cease to be a party thereto but shall continue to be entitled to the benefits of Sections 2.15,  2.16,  2.17 and 9.03 of the First Lien Credit Agreement with respect to facts and circumstances occurring on or prior to the Effective Date identified below and subject to its obligations hereunder and under Section 9.13 of the First Lien Credit Agreement.  Such sale and assignment is (i) subject to acceptance and recording thereof in the Register by the Administrative Agent pursuant to Section 9.05(b)(v) of the First Lien Credit Agreement, (ii) without recourse to the applicable Assignor and (iii) except as expressly provided in this Assignment and Assumption, without representation or warranty by the applicable Assignor.

By purchasing the Assigned Interest, the Assignee agrees that, for purposes of that certain First Amendment to Credit Agreement dated as of April  7, 2017 (the “First Amendment”), by and among the Borrowers, Holdings, certain subsidiaries of the Top Borrower, the Required Lenders, the Replacement Lender and the Consenting Lenders referred to therein, the Administrative Agent, it shall be deemed to have consented and agreed to the First Amendment.

A-II-1

1.Assignor:Each person identified in the column entitled “Assignor” in the table set out in Section 6 below.

2.Assignee:JPMorgan Chase Bank, N.A.

3.Borrowers:  (i) Cotiviti Corporation and (ii) Cotiviti Domestic Holdings, Inc..

4.Administrative Agent:  JPMorgan Chase Bank, N.A., as administrative agent under the First Lien Credit Agreement

5.First Lien Credit Agreement:  That certain Amended and Restated First Lien Credit Agreement, dated as of September 28, 2016 (as amended, restated, amended and restated, supplemented or otherwise modified and in effect on the date hereof, the “First Lien Credit Agreement”), by and among, inter alios,  Cotiviti Intermediate Holdings, Inc., a Delaware Corporation, as Holdings, Cotiviti  Corporation, a Delaware Corporation, as the Top Borrower, and the other Borrower party thereto, the Lenders from time to time party thereto and JPMorgan Chase Bank, N.A., in its capacities as the swingline lender and as administrative agent and collateral agent for the Lenders.

6.Assigned Interest1:

ASSIGNOR	Aggregate Amount of Initial Term B  Loans held immediately prior to the First Amendment Effective Date	Aggregate Amount of Initial Term  B Loans held immediately following to the First Amendment Effective Date	CUSIP Number
	$	$-
	$	$-

Effective Date:  [  ]

7.THE PARTIES HERETO ACKNOWLEDGE THAT ANY ASSIGNMENT TO ANY DISQUALIFIED INSTITUTION WITHOUT OBTAINING THE REQUIRED CONSENT OF THE TOP BORROWER OR, TO THE EXTENT THE TOP BORROWER’S CONSENT IS REQUIRED UNDER SECTION 9.05 OF THE FIRST LIEN CREDIT AGREEMENT, TO ANY OTHER PERSON, SHALL BE NULL AND VOID, AND, IN THE EVENT OF ANY SUCH ASSIGNMENT (AND ANY ASSIGNMENT TO ANY AFFILIATE OF ANY DISQUALIFIED INSTITUTION (OTHER THAN A BONA FIDE DEBT FUND)), ANY BORROWER SHALL BE ENTITLED TO PURSUE THE REMEDIES DESCRIBED IN SECTION 9.05 OF THE FIRST LIEN CREDIT AGREEMENT.

[Signature Page Follows]

¹ Additional pages shall be attached hereto at the discretion of the Administrative Agent, to the extent deemed necessary or advisable by the Administrative Agent to reflect calculation of amounts and percentages of assignments.

A-II-2

The terms set forth in this Assignment and Assumption are hereby agreed to:

□ASSIGNEE HAS EXAMINED THE LIST OF DISQUALIFIED INSTITUTIONS AND (I) REPRESENTS AND WARRANTS THAT (A) IT IS NOT IDENTIFIED ON SUCH LIST AND (B) IT IS NOT AN AFFILIATE OF ANY INSTITUTION IDENTIFIED ON SUCH LIST AND (II) ACKNOWLEDGES THAT ANY ASSIGNMENT MADE TO AN AFFILIATE OF A DISQUALIFIED INSTITUTION (OTHER THAN A BONA FIDE DEBT FUND) SHALL BE SUBJECT TO SECTION 9.05 OF THE FIRST LIEN CREDIT AGREEMENT.

ASSIGNEE

JPMORGAN CHASE BANK, N.A.

By:

Name:

Title:

Consented to and Accepted:

JPMORGAN CHASE BANK, N.A.,

as Administrative Agent

By:

Name:

Title:

Consented to:

COTIVITI Corporation,

as the Top Borrower

By:

Name:

Title:

A-II-3

STANDARD TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION

1.Representations and Warranties.

1.1Assignor.  Each Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim, and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby; and (b) makes no representation or warranty and assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the First Lien Credit Agreement, any other Loan Document or any other instrument or document furnished pursuant thereto (other than this Assignment and Assumption) or any collateral thereunder, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Top Borrower, any of its Restricted Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by Holdings, the Top Borrower, any of its Restricted Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.

1.2Assignee.  The Assignee (a) represents and warrants that (i) it is an Eligible Assignee and has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the First Lien Credit Agreement, (ii) it satisfies the requirements, if any, specified in the First Lien Credit Agreement that are required to be satisfied by it in order to acquire the Assigned Interest and become a Lender, (iii) from and after the Effective Date, it shall be bound by the provisions of the First Lien Credit Agreement and the other Loan Documents as a Lender thereunder and, to the extent of the Assigned Interest, shall have the obligations of a Lender thereunder and (iv) it has received a copy of the First Lien Credit Agreement and the Intercreditor Agreement, together with copies of the most recent financial statements referred to in Section 4.01(c) or the most recent financial statements delivered pursuant to Section 5.01 thereof, as applicable, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase the Assigned Interest on the basis of which it has made such analysis and decision independently and without reliance on the Administrative Agent or any other Lender, (v) it has examined the list of Disqualified Institutions and it is not (A) a Disqualified Institution or (B) an Affiliate of a Disqualified Institution and (vi) if it is a Foreign Lender, attached to the Assignment and Assumption is any documentation required to be delivered by it pursuant to Section 2.17 of the First Lien Credit Agreement, duly completed and executed by the Assignee and (b) agrees that (i) it will, independently and without reliance on the Administrative Agent, the Assignor or any other Lender, and based on such documents and information as it deems appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, (ii) it appoints and authorizes the Administrative Agent to take such action on its behalf and to exercise such powers and discretion under the First Lien Credit Agreement, the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto as are delegated to the Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto, and (iii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.

2.Payments.  From and after the Effective Date, the Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignor for amounts which have accrued to but excluding the Effective Date and to the Assignee for amounts which have accrued from and after the Effective Date.

ANNEX II-1

3.General Provisions.  This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and permitted assigns.  This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument.  Delivery of an executed counterpart of a signature page of this Assignment and Assumption by facsimile or by email as a “.pdf” or “.tif” attachment shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption.  This Assignment and Assumption shall be construed in accordance with and governed by the laws of the State of New York.

ANNEX II-2

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, J. Douglas Williams, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cotiviti Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Intentionally omitted;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 3, 2017	/s/ J. DOUGLAS WILLIAMS
	J. Douglas Williams Chief Executive Officer (Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, Steve Senneff, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cotiviti Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Intentionally omitted;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 3, 2017	/s/ STEVE SENNEFF
	Steve Senneff Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Cotiviti Holdings, Inc. (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, J. Douglas Williams, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:    May 3, 2017

/s/ J. DOUGLAS WILLIAMS

J. Douglas Williams

Chief Executive Officer

(Principal Executive Officer)

The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Cotiviti Holdings, Inc. (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steve Senneff, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:   May 3, 2017

/s/ STEVE SENNEFF

Steve Senneff

Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.

XML

Document and Entity Information	3 Months Ended
	Mar. 31, 2017 shares
Document and Entity Information
Entity Registrant Name	Cotiviti Holdings, Inc.
Entity Central Index Key	0001657197
Document Type	10-Q
Document Period End Date	Mar. 31, 2017
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding	91,838,470
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q1

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Current assets
Cash and cash equivalents	$ 128,458	$ 110,635
Restricted cash	7,232	9,103
Accounts receivable, net of allowance for doubtful accounts of $648 and $851 at March 31, 2017 and December 31, 2016, respectively; and net of estimated allowance for refunds and appeals of $35,518 and $41,020 at March 31, 2017 and December 31, 2016, respectively	62,072	67,735
Prepaid expenses and other current assets	17,847	14,957
Total current assets	215,609	202,430
Property and equipment, net	70,286	67,640
Goodwill	1,196,121	1,196,024
Intangible assets, net	518,131	533,305
Other long-term assets	2,746	2,864
TOTAL ASSETS	2,002,893	2,002,263
Current liabilities:
Current maturities of long-term debt	18,000	18,000
Customer deposits	7,232	9,103
Accounts payable and accrued other expenses	26,736	23,162
Accrued compensation costs	29,379	58,589
Estimated liability for refunds and appeals	61,766	62,539
Total current liabilities	143,113	171,393
Long-term liabilities:
Long-term debt	758,348	762,202
Other long-term liabilities	5,765	8,799
Deferred tax liabilities	119,759	120,533
Total long-term liabilities	883,872	891,534
Total liabilities	1,026,985	1,062,927
Commitments and contingencies (Note 6)
Stockholders' equity:
Common stock ($0.001 par value; 600,000,000 shares authorized, 91,845,947 and 90,748,740 issued, and 91,838,470 and 90,741,340 outstanding at March 31, 2017 and December 31, 2016, respectively)	92	91
Additional paid-in capital	921,186	911,582
Retained earnings	60,892	33,917
Accumulated other comprehensive loss	(6,161)	(6,156)
Treasury stock, at cost (7,477 and 7,400 shares at March 31, 2017 and December 31, 2016, respectively)	(101)	(98)
Total stockholders' equity	975,908	939,336
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 2,002,893	$ 2,002,263

XML

Consolidated Balance Sheets (Parentheticals) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Consolidated Balance Sheets
Allowance for doubtful accounts	$ 648	$ 851
Estimated allowance for refunds and appeals	$ 35,518	$ 41,020
Common stock, par value per share	$ 0.001	$ 0.001
Common stock, shares authorized	600,000,000	600,000,000
Common stock, shares issued	91,845,947	90,748,740
Common stock, shares outstanding	91,838,470	90,741,340
Treasury stock, shares	7,477	7,400

XML

Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Consolidated Statements of Comprehensive Income (Loss)
Net revenue	$ 160,133	$ 142,718
Cost of revenue (exclusive of depreciation and amortization, stated separately below):
Compensation	56,288	53,461
Other costs of revenue	6,686	5,398
Total cost of revenue	62,974	58,859
Selling, general and administrative expenses (exclusive of depreciation and amortization, stated separately below):
Compensation	24,693	19,110
Other selling, general and administrative expenses	16,879	15,229
Total selling, general and administrative expenses	41,572	34,339
Depreciation and amortization of property and equipment	5,575	4,835
Amortization of intangible assets	15,199	15,207
Transaction-related expenses	731	240
Total operating expenses	126,051	113,480
Operating income	34,082	29,238
Other expense (income):
Interest expense	8,421	16,060
Other non-operating (income) expense	(453)	(299)
Total other expense (income)	7,968	15,761
Income before income taxes	26,114	13,477
Income tax (benefit) expense	(861)	5,393
Net income	26,975	8,084
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments	57	(26)
Change in fair value of derivative instruments	(62)	(482)
Total other comprehensive (loss) income	(5)	(508)
Comprehensive income	$ 26,970	$ 7,576
Earnings per share
Basic (in dollars per share)	$ 0.30	$ 0.10
Diluted (in dollars per share)	$ 0.28	$ 0.10

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Cash flows from operating activities:
Net income	$ 26,975	$ 8,084
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Deferred income taxes	1,877	(5,405)
Depreciation and amortization	20,774	20,042
Stock-based compensation expense	2,083	1,074
Amortization of debt issuance costs	645	1,348
Accretion of asset retirement obligations	48	46
Changes in operating assets and liabilities:
Restricted cash	1,871	(1,518)
Accounts receivable	5,663	12,266
Other assets	(2,612)	7,493
Customer deposits	(1,871)	1,518
Accrued compensation	(29,210)	(8,452)
Accounts payable and accrued other expenses	(841)	(2,225)
Estimated liability for refunds and appeals	(774)	2,262
Other long-term liabilities	247	144
Other	(303)	(324)
Net cash provided by operating activities	24,572	36,353
Cash flows from investing activities:
Expenditures for property and equipment	(9,660)	(9,467)
Other investing activities		2
Net cash used in investing activities	(9,660)	(9,465)
Cash flows from financing activities:
Proceeds from exercise of stock options	7,363	16
Purchase of treasury shares	(3)
Repayment of debt	(4,500)	(2,025)
Net cash provided by (used in) financing activities	2,860	(2,009)
Effect of foreign exchanges on cash and cash equivalents	51	8
Net increase in cash and cash equivalents	17,823	24,887
Cash and cash equivalents at beginning of period	110,635	149,365
Cash and cash equivalents at end of the period	128,458	174,252
Supplemental disclosures of cash flow information:
Cash paid for income taxes	649	590
Cash paid for interest	7,587	14,565
Noncash investing activities (accrued property and equipment purchases)	$ 6,738	$ 9,052

XML

Description of Business

3 Months Ended

Mar. 31, 2017

Description of Business

Description of Business 10-Q

Note 1. Description of Business

Cotiviti Holdings, Inc. (collectively with its subsidiaries, “we,” “our,” “Cotiviti” or the “Company”) is a leading provider of analytics‑driven payment accuracy solutions, focused primarily on the healthcare sector. Our integrated solutions help clients enhance payment accuracy in an increasingly complex healthcare environment. We leverage our robust technology platform, configurable analytics, proprietary information assets and expertise in healthcare reimbursement to help our clients enhance their claims payment accuracy. We help our healthcare clients identify and correct payment inaccuracies. We work with over 40 healthcare organizations, including over 20 of the 25 largest U.S. commercial, Medicare and Medicaid managed health plans, as well as CMS. We are also a leading provider of payment accuracy solutions to over 35 retail clients, including eight of the ten largest retailers in the United States.

XML

Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2017

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

Our accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). All significant intercompany balances and transactions have been eliminated in consolidation. These consolidated financial statements are unaudited and have been prepared by us following the rules and regulations of the SEC. In our opinion they reflect all adjustments, including normal recurring items, that are necessary to present fairly the results of interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted as permitted by such rules and regulations; however, we believe that the disclosures are adequate to make the information presented not misleading. Operating results for the periods presented herein are not necessarily indicative of the results that may be expected for other interim periods or the entire fiscal year. Certain prior year amounts have been reclassified to conform to the current year presentation.

Estimated Liability for Refunds and Appeals and Unbilled Receivables

The estimated liability for refunds and appeals representing our estimate of claims that may be overturned related to revenue which had already been received was $61,766 and $62,539 at March 31, 2017 and December 31, 2016, respectively. The estimated allowance for refunds and appeals representing our estimate of claims that may be overturned related to amounts in accounts receivable was $35,518 and $41,020 at March 31, 2017 and December 31, 2016, respectively.

Unbilled receivables represent revenue recognized related to claims for which clients have received economic value that were not invoiced at the balance sheet date. Unbilled receivables of approximately $49,676 and $51,643 as of March 31, 2017 and December 31, 2016, respectively, are included in accounts receivable on our Consolidated Balance Sheets.

Certain unbilled receivables arise when a portion of our earned fee is deferred at the time of the initial invoice. At a later date (which can be up to a year after original invoice, and at other times during the year after completion of the audit period based on contractual terms or as agreed with our client), we invoice the unbilled receivable amount. Notwithstanding the deferred due date, our clients acknowledge we have earned this unbilled receivable at the time of the original invoice, but we have agreed to defer billing the client for the related services. Unbilled receivables of this nature were approximately $6,087 and $6,137 as of March 31, 2017 and December 31, 2016, respectively, and are included in accounts receivable on our Consolidated Balance Sheets.

We record periodic changes in unbilled receivables and refund liabilities as adjustments to revenue.

Recently Issued Accounting Standards

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment (“ASU2017-04”), which is intended to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of the goodwill. Instead, an entity should compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The guidance is effective for public companies with annual reporting periods beginning after December 15, 2019, and interim periods within those annual periods. Early adoption is permitted. We are evaluating this new guidance and do not believe it will have a material impact on our consolidated financial statements and related disclosures as the fair values of our reporting units exceed their carrying values.

In November 2016, the FASB issued ASU 2016-18, Restricted Cash (“ASU 2016-18”), which requires that restricted cash be included with cash and cash equivalents when reconciling the beginning and end of period total amounts shown on the statement of cash flows. The guidance is effective for public companies with annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted. We are evaluating this guidance and its impact on our consolidated financial statements and related disclosures and expect the adoption of this ASU could impact the disclosure of our cash flows from operations.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”) which addresses eight specific cash flow issues in order to reduce diversity in practice. The guidance is effective for public companies with annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted. We are evaluating this guidance and its impact on our consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”) which changes the accounting recognition, measurement and disclosure for leases in order to increase transparency. ASU 2016-02 requires lease assets and liabilities to be recognized on the balance sheet and key information about leasing arrangements to be disclosed. The guidance is effective for public companies with annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted. We are evaluating this new guidance and its impact on our consolidated financial statements and related disclosures.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”) which changes the current financial instruments model primarily impacting the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. The guidance is effective for public companies with annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. We are evaluating this new guidance and do not believe it will have a material impact on our consolidated financial statements and related disclosures.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which supersedes existing revenue recognition guidance and provides clarification of principles for recognizing revenue from contracts with customers. ASU 2014-09 sets forth a five-step model for determining when and how revenue is recognized. The core principle of the new standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. Additional disclosures will be required to describe the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. The two permitted transition methods under ASU 2014-09 are the full retrospective method, in which case the new guidance would be applied to each prior reporting period presented and the cumulative effect of applying the standard would be recognized at the earliest period shown, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of the initial application. The guidance is effective for public companies with annual periods beginning after December 15, 2017 and interim periods within that reporting period. The FASB will permit companies to adopt the new standard early, but not before the original effective date of annual reporting periods beginning after December 15, 2016.

In 2016, we formed an internal team to evaluate and quantify the potential impact of this new revenue guidance. As of the date of this filing, we have made significant progress on our contract reviews and policy drafting. We will continue to evaluate this new guidance and plan to provide additional information about our method of adoption and the impact, if any, on our consolidated financial statements and related disclosures in future filings.

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Property and Equipment

3 Months Ended

Mar. 31, 2017

Property and Equipment

Property and Equipment

Note 3. Property and Equipment

Property and equipment by major asset class for the periods presented consisted of the following:

	March 31,		December 31,
	2017		2016
Computer equipment	$	41,106	$	40,349
Software		53,837		42,614
Furniture and fixtures		8,802		8,652
Leasehold improvements		4,895		4,392
Projects in progress		7,234		12,001
Property and equipment, gross	$	115,874	$	108,008
Less: accumulated depreciation and amortization		45,588		40,368
Property and equipment, net	$	70,286	$	67,640

In December 2015, we purchased a perpetual software license, which is included in the software total above. We are paying for this software over a two year period ending in January 2018. As such, there is approximately $3,256 and $3,351 included in accounts payable and accrued other expenses on our Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016, respectively, and $3,225 included in other long-term liabilities on our Consolidated Balance Sheets as of December 31, 2016.

Total depreciation and amortization expense related to property and equipment, including capitalized software costs, was $5,575 and $4,835 for the three months ended March 31, 2017 and 2016, respectively.

XML

Intangible Assets

3 Months Ended

Mar. 31, 2017

Intangible Assets

Intangible Assets

Note 4. Intangible Assets

Intangible asset balances by major asset class for the periods presented were as follows:

							Weighted
	Gross				Net		Average
	Carrying		Accumulated		Carrying		Amortization
	Amount		Amortization		Amount		Period
March 31, 2017:
Customer relationships	$	640,095	$	156,549	$	483,546	13.7	years
Acquired software		82,400		52,015		30,385	6.2	years
Connolly trademark		4,200		—		4,200	indefinite-lived
Total	$	726,695	$	208,564	$	518,131	12.8	years
December 31, 2016:
Customer relationships	$	640,052	$	144,768	$	495,284	13.7	years
Acquired software		82,400		48,579		33,821	6.2	years
Connolly trademark		4,200		—		4,200	indefinite-lived
Total	$	726,652	$	193,347	$	533,305	12.8	years

Amortization expense was $15,199 and $15,207 for the three months ended March 31, 2017 and 2016, respectively.

As of March 31, 2017 amortization expense for the next 5 years is expected to be:

Remainder of 2017	$	42,628
2018		53,898
2019		53,898
2020		53,898
2021		49,576

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Goodwill

3 Months Ended

Mar. 31, 2017

Goodwill

Goodwill

Note 5. Goodwill

Total goodwill in our Consolidated Balance Sheets was $1,196,121 and $1,196,024 as of March 31, 2017 and December 31, 2016, respectively.

Changes in the carrying amount of goodwill by our Healthcare and Global Retail and Other segments for the three months ended March 31, 2017 were as follows:

			Global Retail
	Healthcare		and Other
December 31, 2016	$	1,147,771	$	48,253
Foreign currency translation		—		97
March 31, 2017	$	1,147,771	$	48,350

There was no impairment related to goodwill for any period presented.

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2017

Commitments and Contingencies

Commitments and Contingencies

Note 6. Commitments and Contingencies

We may be involved in various legal proceedings and litigation arising in the ordinary course of business. While any legal proceeding or litigation has an element of uncertainty, management believes the ultimate disposition of these matters will not have a material adverse effect on our consolidated financial position, results of operations, or liquidity.

Medicare RAC Contract Contingency

In August 2014, CMS announced it would allow providers to remove all eligible claims currently pending in the appeals process by offering to pay hospitals 68% of the original claim amount. This settlement was offered to the providers and it was unknown what, if any, impact there would be for the Medicare RACs. On July 1, 2015, CMS issued a Technical Direction Letter to the Medicare RACs, including ourselves, indicating that Medicare RACs will only be entitled to the contract contingency fee on the settled amounts of the claims, or 32% of the original inpatient claim amounts. Based on the initial lists of finalized settlements provided by CMS, we would be required to refund CMS approximately $22,308 due to the related adjustments in Medicare RAC contingency fees. CMS further advised that as the hospital settlement project continues, additional settlement lists will be matched to Medicare RAC claims which may result in updated refund amounts to those initially provided. While there are uncertainties in any dispute resolution and results are uncertain, we have disputed CMS’s findings based on our interpretation of the terms of the Medicare RAC contract and our belief that the backup data provided by CMS is inaccurate and/or incomplete. Our liability for estimated refunds and appeals includes amounts for these settled claims based on our best estimates of the amount we believe will be ultimately payable to CMS based on our interpretation of the terms of the Medicare RAC contract. We believe that it is possible that we could be required to pay an additional amount up to approximately $13,000 in excess of the amount we accrued as of March 31, 2017 based on the claims data we have received from CMS to date. As CMS completes its settlement process with the providers and updated files are provided to us, the potential amount owed by us may change. On September 28, 2016, CMS announced a second settlement process to allow eligible providers to settle their inpatient claims currently under appeal beginning December 1, 2016. This second settlement process could result in additional amounts owed to CMS. CMS has not yet provided us with any information and accordingly the amount of any such additional claims cannot presently be determined.

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Long-term Debt

3 Months Ended

Mar. 31, 2017

Long-term Debt

Long-term Debt

Note 7. Long‑term Debt

Long‑term debt for the periods presented was as follows:

	March 31,		December 31,
	2017		2016
First Lien Term A Loan	$	243,580	$	246,694
First Lien Term B Loan		543,130		544,345
Revolver		—		—
Total debt		786,710		791,039
Less: debt issuance costs		10,362		10,837
Less: current portion		18,000		18,000
Total long-term debt	$	758,348	$	762,202

The Restated Credit Agreement includes certain binding affirmative and negative covenants, including delivery of financial statements and other reports, maintenance of existence and transactions with affiliates. The negative covenants restrict our ability, among other things, to incur indebtedness, grant liens, make investments, sell or otherwise dispose of assets or enter into a merger, pay dividends or repurchase stock. There is a required financial covenant applicable only to the Revolver and the Term A Loan, pursuant to which we agree not to permit our Secured Leverage Ratio to exceed 5.50:1.00 through September 2018, 5.25:1.00 through September 2019 and 5.00:1.00 through June 2021. In addition, the Restated Credit Agreement includes certain events of default including payment defaults, failure to perform affirmative covenants, failure to refrain from actions or omissions prohibited by negative covenants, the inaccuracy of representations or warranties, bankruptcy and insolvency related defaults and a change of control default. We were in compliance with all such covenants as of March 31, 2017 and December 31, 2016, respectively.

The Restated Credit Agreement requires mandatory prepayments based upon annual excess cash flows commencing with the year ended December 31, 2017. The mandatory prepayment is contingently payable in the second quarter based on an annual excess cash flow calculation for the proceeding year as defined within the Restated Credit Agreement. 

As of March 31, 2017, the aggregate maturities of long‑term debt (excluding any amounts that may become payable with respect to the aforementioned mandatory prepayment provision for annual excess cash flows) for each of the next five years are expected to be $13,500 for the remainder of 2017, $18,000 in 2018, $24,250 in 2019, $30,500 in 2020 and $183,625 in 2021.  

In April 2017, we entered into and executed the First Amendment Agreement to the then outstanding Restated Credit Agreement, which, among other things, provided for a 25 basis point reduction in applicable interest rate spread over LIBOR associated with the First Lien Term B Loan. As a result, we expect to record a loss on extinguishment of approximately $3,000, which will be included in our Consolidated Statements of Comprehensive Income during the second quarter of 2017.

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Derivative Instruments

3 Months Ended

Mar. 31, 2017

Derivative Instruments

Derivative Instruments

Note 8. Derivative Instruments

We are exposed to fluctuations in interest rates on our long‑term debt. We manage our exposure to fluctuations in the 3‑month LIBOR through the use of interest rate cap agreements designated as cash flow hedges. We are meeting our objective by hedging the risk of changes in cash flows related to changes in LIBOR by capping the interest on our floating rate debt linked to LIBOR to approximately 3%. We do not utilize derivatives for speculative or trading purposes.

As of March 31, 2017 and December 31, 2016, we had $540,000 in notional debt outstanding related to these interest rate caps, which cover quarterly interest payments through September 2019. The notional amount decreases over time.

All of our outstanding interest rate cap contracts qualify for cash flow hedge accounting treatment in accordance with ASC 815, Derivatives and Hedging. Cash flow hedge accounting treatment allows for gains and losses on the effective portion of qualifying hedges to be deferred in accumulated other comprehensive (loss) income until the underlying transaction occurs, rather than recognizing the gains and losses on these instruments in earnings during each period they are outstanding. When the actual interest payments are made on our variable rate debt and the related derivative contract settles, any effective portion of realized interest rate hedging derivative gains and losses previously recorded in accumulated other comprehensive (loss) income is recognized in interest expense. We recognized interest expense of $201 and $82 related to interest rate caps during the three months ended March 31, 2017 and 2016, respectively.

Ineffectiveness results, in certain circumstances, when the change in total fair value of the derivative instrument differs from the change in the fair value of our expected future cash outlays for the related interest payment and is recognized immediately in interest expense. There was no ineffectiveness recorded during the three months ended March 31, 2017 and 2016, respectively. Likewise, if the hedge does not qualify for hedge accounting, the periodic changes in its fair value are recognized in the period of the change in interest expense. All cash flows related to our interest rate cap agreements are classified as operating cash flows.

Any outstanding derivative instruments expose us to credit loss in the event of nonperformance by the counterparties to the agreements, but we do not expect that the counterparty will fail to meet their obligations. The amount of such credit exposure is generally the positive fair value of our outstanding contracts. To manage credit risks, we select counterparties based on credit assessments, limit our overall exposure to any single counterparty and monitor the market position of any counterparty.

The table below reflects quantitative information related to the fair value of our derivative instruments and where these amounts are recorded in our consolidated financial statements as of the period presented:

	March 31,		December 31,
	2017		2016
Liability fair value recorded in other long-term liabilities	$	1,691	$	1,729
Liability fair value recorded in accounts payable and accrued other expenses		1,046		1,065
Estimated amount of existing losses expected to be reclassified into earnings in the next 12 months		(2,200)		(1,783)

We record deferred hedge premiums which are being paid over the life of the hedge in accumulated other comprehensive (loss) income until the related hedge ultimately settles and interest payments are made on the underlying debt. As of March 31, 2017, we have made payments of $2,945 related to these deferred premiums. We expect to pay an additional $3,449 in deferred premiums through 2019 related to our outstanding interest rate cap agreements which is reflected in the fair value of these derivatives in the table above.

Comprehensive income includes changes in the fair value of our interest rate cap agreements which qualify for hedge accounting. Changes in other comprehensive income for the periods presented related to derivative instruments classified as cash flow hedges were as follows:

	Three Months Ended March 31,
	2017		2016
Balance at beginning of period, January 1	$	(3,334)	$	(2,968)
Reclassifications in earnings, net of tax of $76 and $31, respectively		125		51
Change in fair value of derivative instrument, net of tax of $112 and $323, respectively		(187)		(533)
Balance at end of period, March 31	$	(3,396)	$	(3,450)

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Fair Value Measurements

3 Months Ended

Mar. 31, 2017

Fair Value Measurements

Fair Value Measurements

Note 9. Fair Value Measurements

We measure assets and liabilities at fair value based on assumptions market participants would use in pricing an asset or liability in the principal or most advantageous market. Authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value whereby inputs are assigned a hierarchical level. The hierarchical levels are:

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

Level 2: Observable prices, other than quoted prices included in Level 1 inputs for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Unobservable inputs for the asset or liability used to measure fair value to the extent observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

The following table summarizes our financial instruments measured at fair value within the Consolidated Balance Sheets:

	March 31, 2017						December 31, 2016
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Liabilities:
Long-term debt	$	—	$	—	$	786,710	$	—	$	—	$	791,039
Interest rate cap agreements		—		2,737		—		—		2,794		—
Total	$	—	$	2,737	$	786,710	$	—	$	2,794	$	791,039

The fair value of our private debt is determined based on fluctuations in current interest rates, the trends in market yields of debt instruments with similar credit ratings, general economic conditions and other quantitative and qualitative factors. The carrying value of our debt approximates its fair value. Refer to Note 7 for more information on our long-term debt.

The fair value of the interest rate cap agreements is determined using the market standard methodology of discounting the future expected variable cash receipts that would occur if interest rates rose above the strike rate of the caps. The analysis reflects the contractual terms of the derivatives, including period to maturity and remaining deferred premium payments, and uses observable market‑based inputs, including interest rates and implied volatilities. The variable cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rates. As such, the estimated fair values of these liabilities are classified as Level 2 in the fair value hierarchy. Refer to Note 8 for more information on our interest rate cap agreements.

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Income Taxes

3 Months Ended

Mar. 31, 2017

Income Taxes

Income Taxes

Note 10. Income Taxes

The following table presents our income tax provision and effective income tax rate: 

	Three Months Ended
	March 31,
	2017			2016
Income tax provision	$	(861)		$	5,393
Effective income tax rate		(3.3)	%		40.0	%

Our effective income tax rate was (3.3)% and 40.0% for the three months ended March 31, 2017 and 2016, respectively. The decrease in the effective tax rate is primarily due to a $10,422 tax benefit related to stock option exercises. Additionally, we realized a tax benefit of $337 during the three months ended March 31, 2017 related to the settlement of an uncertain tax position as a result of the closure of our audit with the Internal Revenue Service for the tax year ended December 31, 2014 and the iHealth Technologies, Inc. audit for the tax years ended December 31, 2012, December 31, 2013 and May 13, 2014. 

We file income taxes with the U.S. federal government and various states and foreign jurisdictions. We operate in a number of state and local jurisdictions and as such are subject to state and local income tax examinations based upon various statutes of limitations in each jurisdiction. We are currently under audit by the State of New York for the tax year ended December 31, 2014 and for iHealth Technologies for the tax years ended December 31, 2012, December 31, 2013, May 13, 2014 and December 31, 2014.

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Stockholders' Equity

3 Months Ended

Mar. 31, 2017

Stockholders' Equity

Stockholders' Equity

Note 11. Stockholders’ Equity

Secondary Offering

On March 7, 2017 we completed a secondary public offering of 9,683,000 shares of our common stock by certain of our stockholders, including 1,263,000 shares sold to the underwriters pursuant to their option to purchase additional shares, at a public offering price of $36.00 per share. All of the shares offered were sold by selling stockholders.  Accordingly, we did not receive any proceeds from the sale of the shares. In connection with this offering, we incurred approximately $600 in professional services expenses, which are included in transaction-related expenses on our Consolidated Statements of Comprehensive Income for the three months ended March 31, 2017.

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Earnings per Share

3 Months Ended

Mar. 31, 2017

Earnings per Share

Earnings per Share

Note 12. Earnings per Share

Basic earnings per share (“EPS”) is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period. For all periods presented, potentially dilutive outstanding shares consisted solely of equity incentive awards. Our potential common shares consist of the incremental common shares issuable upon the exercise of stock options or vesting of RSUs. The dilutive effect of outstanding equity incentive awards is reflected in diluted earnings per share by application of the treasury stock method. For all periods presented, all outstanding common stock consisted of a single class.

Basic and diluted earnings per share are computed as follows:

	Three Months Ended
	March 31,
	2017		2016
Net income available to common stockholders	$	26,975	$	8,084
Weighted average outstanding shares of common stock		91,138,356		77,231,196
Dilutive effect of stock-based awards		3,766,874		526,162
Adjusted weighted average outstanding and assumed conversions for diluted EPS		94,905,230		77,757,358
Earnings per share:
Basic	$	0.30	$	0.10
Diluted		0.28		0.10

Employee stock options and restricted stock units (“RSUs”) that were excluded from the calculation of diluted earnings per share because their effect is anti‑dilutive for the periods presented were as follows:

	Three Months Ended
	March 31,
	2017	2016
Employee stock-based awards	361,566	2,019,649

The criteria associated with all of our outstanding performance-based stock options as defined in the terms of the applicable award agreements, were satisfied as of September 30, 2016 and, as a result, outstanding performance-based stock options were included in the calculation of diluted earnings per share for the three months ended March 31, 2017. Performance-based stock options of 2,794,910 were not included in the calculation of diluted earnings per share for the three months ended March 31, 2016 as the vesting conditions had not yet been satisfied.

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Stock-Based Compensation

3 Months Ended

Mar. 31, 2017

Stock-Based Compensation

Stock-Based Compensation

Note 13. Stock‑Based Compensation

Stock Options

The following is a summary of stock option activity under the Plans:

				Weighted
		Weighted		average
		average		remaining	Aggregate
	Outstanding	exercise price		contractual life	Intrinsic Value
	Options	per share		(Years)	(in thousands)
Outstanding at December 31, 2016	5,997,372	$	10.18	7.30	$	145,270
Granted	534,262		34.39			—
Forfeited	(35,008)		12.58			—
Exercised	(1,096,999)		6.86			—
Expired	(2,893)		13.79			—
Outstanding at March 31, 2017	5,396,734	$	13.23	7.56	$	153,263
Vested, exercisable, expected to vest
at March 31, 2017	5,396,734	$	13.23	7.56	$	153,263
Exercisable at March 31, 2017	3,188,518	$	9.95	6.99	$	101,004

Aggregate intrinsic value represents the difference between our estimated fair value of common stock and the exercise price of outstanding in‑the‑money options. The fair value per share of common stock was $41.63 as of March 31, 2017 based upon the closing price of our common stock on the NYSE. The total intrinsic value of stock options exercised was $33,482 for the three months ended March 31, 2017 and insignificant for the three months ended March 31, 2016.  

Restricted Stock Units

The following is a summary of RSU activity under the 2016 Plan:

		Weighted
		average
		grant date fair value
	Number of Awards	per share
Outstanding at December 31, 2016	67,295	$	25.88
Granted	235,412		34.39
Forfeited	(3,875)		24.70
Vested and converted to shares, net of units withheld for taxes	(131)		19.00
Units withheld for taxes	(77)		19.00
Outstanding at March 31, 2017	298,624	$	32.59
Expected to vest at March 31, 2017	298,624	$	32.59

Employee Stock Purchase Plan

We have an ESPP for US and non-US employees (collectively, “ESPP”), both of which have a series of six month offering periods, with a new offering period beginning on the first day of January and July each year. The ESPP was adopted by our Board of Directors in May 2016. In order for the US ESPP to qualify as an “employee stock purchase plan” under the requirements of Section 423 of the United States Internal Revenue Code of 1986, as amended, the ESPP is subject to stockholder approval at our first annual meeting of stockholders to be held on May 25, 2017. The ESPP was effective January 1, 2017 with the first purchase date scheduled for June 30, 2017. Employees may contribute up to 10% of their pay towards the purchase of common stock via payroll deductions to a maximum of $10 per year, or $5 per offering period. Purchase dates occur on the last business day of June and December of each year.

Stock Compensation Expense

We used the following weighted average assumptions to estimate the fair value of stock options granted for the periods presented as follows:

	Three Months Ended March 31,
		2017
Expected term (years)			6.25
Expected volatility			40.00	%
Expected dividend yield			0.00	%
Weighted average risk-free interest rate			1.93	%
Weighted average grant date fair value		$	14.45

No stock options were granted during the three months ended March 31, 2016.

We recorded total stock‑based compensation expense of $2,083 and $1,074 for the three months ended March 31, 2017 and 2016, respectively. As of March 31, 2017, we had total unrecognized compensation cost related to 2,506,840 unvested stock options and RSUs under the Plans of $25,037 which we expect to recognize over the next 2.9 years.

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Segment Information

3 Months Ended

Mar. 31, 2017

Segment Information

Segment Information

Note 14. Segment Information

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

We evaluate the performance of each segment based on segment net revenue and segment operating income. Operating income is calculated as net revenue less operating expenses and is not affected by other expense (income) or by income taxes. Indirect costs are generally allocated to the segments based on the segments’ proportionate share of revenue and expenses directly related to the operation of the segment. We do not allocate interest expense, other non-operating (income) expense or the provision for income taxes, since these items are not considered in evaluating the segment’s overall operating performance. Our Chief Operating Decision Maker does not receive or utilize asset information to evaluate performance of operating segments. Accordingly, asset-related information has not been presented.

Our operating segment results for the periods presented were as follows:

	Three Months Ended
	March 31,
	2017		2016
	(unaudited)
Net Revenue
Healthcare	$	139,803	$	124,130
Global Retail and Other		20,330		18,588
Consolidated net revenue	$	160,133	$	142,718
Operating Income
Healthcare	$	31,161	$	26,622
Global Retail and Other		2,921		2,616
Consolidated operating income	$	34,082	$	29,238

Operating segment net revenue by product type for the periods presented was as follows:

	Three Months Ended March 31,
	2017		%	2016		%
	(unaudited)
Healthcare
Retrospective claims accuracy	$	77,516	48.4	$	65,270	45.7
Prospective claims accuracy		59,717	37.3		55,410	38.8
Transaction services		2,570	1.6		3,450	2.5
Total Healthcare		139,803	87.3		124,130	87.0
Global Retail and Other
Retrospective claims accuracy		19,674	12.3		17,990	12.6
Other		656	0.4		598	0.4
Total Global Retail and Other		20,330	12.7		18,588	13.0
Consolidated net revenue	$	160,133	100.0	$	142,718	100.0

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Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2017

Summary of Significant Accounting Policies

Basis of Presentation

Basis of Presentation

Our accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). All significant intercompany balances and transactions have been eliminated in consolidation. These consolidated financial statements are unaudited and have been prepared by us following the rules and regulations of the SEC. In our opinion they reflect all adjustments, including normal recurring items, that are necessary to present fairly the results of interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted as permitted by such rules and regulations; however, we believe that the disclosures are adequate to make the information presented not misleading. Operating results for the periods presented herein are not necessarily indicative of the results that may be expected for other interim periods or the entire fiscal year. Certain prior year amounts have been reclassified to conform to the current year presentation.

Estimated Liability for Refunds and Appeals and Unbilled Receivables

Estimated Liability for Refunds and Appeals and Unbilled Receivables

The estimated liability for refunds and appeals representing our estimate of claims that may be overturned related to revenue which had already been received was $61,766 and $62,539 at March 31, 2017 and December 31, 2016, respectively. The estimated allowance for refunds and appeals representing our estimate of claims that may be overturned related to amounts in accounts receivable was $35,518 and $41,020 at March 31, 2017 and December 31, 2016, respectively.

Unbilled receivables represent revenue recognized related to claims for which clients have received economic value that were not invoiced at the balance sheet date. Unbilled receivables of approximately $49,676 and $51,643 as of March 31, 2017 and December 31, 2016, respectively, are included in accounts receivable on our Consolidated Balance Sheets.

Certain unbilled receivables arise when a portion of our earned fee is deferred at the time of the initial invoice. At a later date (which can be up to a year after original invoice, and at other times during the year after completion of the audit period based on contractual terms or as agreed with our client), we invoice the unbilled receivable amount. Notwithstanding the deferred due date, our clients acknowledge we have earned this unbilled receivable at the time of the original invoice, but we have agreed to defer billing the client for the related services. Unbilled receivables of this nature were approximately $6,087 and $6,137 as of March 31, 2017 and December 31, 2016, respectively, and are included in accounts receivable on our Consolidated Balance Sheets.

We record periodic changes in unbilled receivables and refund liabilities as adjustments to revenue.

Recently Issued Accounting Standards

Recently Issued Accounting Standards

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment (“ASU2017-04”), which is intended to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of the goodwill. Instead, an entity should compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The guidance is effective for public companies with annual reporting periods beginning after December 15, 2019, and interim periods within those annual periods. Early adoption is permitted. We are evaluating this new guidance and do not believe it will have a material impact on our consolidated financial statements and related disclosures as the fair values of our reporting units exceed their carrying values.

In November 2016, the FASB issued ASU 2016-18, Restricted Cash (“ASU 2016-18”), which requires that restricted cash be included with cash and cash equivalents when reconciling the beginning and end of period total amounts shown on the statement of cash flows. The guidance is effective for public companies with annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted. We are evaluating this guidance and its impact on our consolidated financial statements and related disclosures and expect the adoption of this ASU could impact the disclosure of our cash flows from operations.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”) which addresses eight specific cash flow issues in order to reduce diversity in practice. The guidance is effective for public companies with annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted. We are evaluating this guidance and its impact on our consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”) which changes the accounting recognition, measurement and disclosure for leases in order to increase transparency. ASU 2016-02 requires lease assets and liabilities to be recognized on the balance sheet and key information about leasing arrangements to be disclosed. The guidance is effective for public companies with annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted. We are evaluating this new guidance and its impact on our consolidated financial statements and related disclosures.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”) which changes the current financial instruments model primarily impacting the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. The guidance is effective for public companies with annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. We are evaluating this new guidance and do not believe it will have a material impact on our consolidated financial statements and related disclosures.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which supersedes existing revenue recognition guidance and provides clarification of principles for recognizing revenue from contracts with customers. ASU 2014-09 sets forth a five-step model for determining when and how revenue is recognized. The core principle of the new standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. Additional disclosures will be required to describe the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. The two permitted transition methods under ASU 2014-09 are the full retrospective method, in which case the new guidance would be applied to each prior reporting period presented and the cumulative effect of applying the standard would be recognized at the earliest period shown, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of the initial application. The guidance is effective for public companies with annual periods beginning after December 15, 2017 and interim periods within that reporting period. The FASB will permit companies to adopt the new standard early, but not before the original effective date of annual reporting periods beginning after December 15, 2016.

In 2016, we formed an internal team to evaluate and quantify the potential impact of this new revenue guidance. As of the date of this filing, we have made significant progress on our contract reviews and policy drafting. We will continue to evaluate this new guidance and plan to provide additional information about our method of adoption and the impact, if any, on our consolidated financial statements and related disclosures in future filings.

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Property and Equipment (Tables)

3 Months Ended

Mar. 31, 2017

Property and Equipment

Schedule of property and equipment by major asset class

	March 31,		December 31,
	2017		2016
Computer equipment	$	41,106	$	40,349
Software		53,837		42,614
Furniture and fixtures		8,802		8,652
Leasehold improvements		4,895		4,392
Projects in progress		7,234		12,001
Property and equipment, gross	$	115,874	$	108,008
Less: accumulated depreciation and amortization		45,588		40,368
Property and equipment, net	$	70,286	$	67,640

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Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2017

Intangible Assets

Schedule of intangible asset balances by major asset class

							Weighted
	Gross				Net		Average
	Carrying		Accumulated		Carrying		Amortization
	Amount		Amortization		Amount		Period
March 31, 2017:
Customer relationships	$	640,095	$	156,549	$	483,546	13.7	years
Acquired software		82,400		52,015		30,385	6.2	years
Connolly trademark		4,200		—		4,200	indefinite-lived
Total	$	726,695	$	208,564	$	518,131	12.8	years
December 31, 2016:
Customer relationships	$	640,052	$	144,768	$	495,284	13.7	years
Acquired software		82,400		48,579		33,821	6.2	years
Connolly trademark		4,200		—		4,200	indefinite-lived
Total	$	726,652	$	193,347	$	533,305	12.8	years

Schedule of intangible asset amortization expense

Remainder of 2017	$	42,628
2018		53,898
2019		53,898
2020		53,898
2021		49,576

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Goodwill (Tables)

3 Months Ended

Mar. 31, 2017

Goodwill

Schedule of changes in the carrying amount of goodwill by segment

			Global Retail
	Healthcare		and Other
December 31, 2016	$	1,147,771	$	48,253
Foreign currency translation		—		97
March 31, 2017	$	1,147,771	$	48,350

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Long-term Debt (Tables)

3 Months Ended

Mar. 31, 2017

Long-term Debt

Schedule of long-term debt

	March 31,		December 31,
	2017		2016
First Lien Term A Loan	$	243,580	$	246,694
First Lien Term B Loan		543,130		544,345
Revolver		—		—
Total debt		786,710		791,039
Less: debt issuance costs		10,362		10,837
Less: current portion		18,000		18,000
Total long-term debt	$	758,348	$	762,202

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Derivative Instruments (Tables)

3 Months Ended

Mar. 31, 2017

Derivative Instruments

Schedule of fair value and location of derivative instruments

	March 31,		December 31,
	2017		2016
Liability fair value recorded in other long-term liabilities	$	1,691	$	1,729
Liability fair value recorded in accounts payable and accrued other expenses		1,046		1,065
Estimated amount of existing losses expected to be reclassified into earnings in the next 12 months		(2,200)		(1,783)

Schedule of changes in other comprehensive income related to derivative instruments classified as cash flow hedges

	Three Months Ended March 31,
	2017		2016
Balance at beginning of period, January 1	$	(3,334)	$	(2,968)
Reclassifications in earnings, net of tax of $76 and $31, respectively		125		51
Change in fair value of derivative instrument, net of tax of $112 and $323, respectively		(187)		(533)
Balance at end of period, March 31	$	(3,396)	$	(3,450)

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Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2017

Fair Value Measurements

Summary of financial instruments measured at fair value

	March 31, 2017						December 31, 2016
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Liabilities:
Long-term debt	$	—	$	—	$	786,710	$	—	$	—	$	791,039
Interest rate cap agreements		—		2,737		—		—		2,794		—
Total	$	—	$	2,737	$	786,710	$	—	$	2,794	$	791,039

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Income Taxes (Tables)

3 Months Ended

Mar. 31, 2017

Income Taxes

Schedule of income tax provision and effective income tax rate

	Three Months Ended
	March 31,
	2017			2016
Income tax provision	$	(861)		$	5,393
Effective income tax rate		(3.3)	%		40.0	%

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Earnings per Share (Tables)

3 Months Ended

Mar. 31, 2017

Earnings per Share

Schedule of computation of basic and diluted earnings per share

	Three Months Ended
	March 31,
	2017		2016
Net income available to common stockholders	$	26,975	$	8,084
Weighted average outstanding shares of common stock		91,138,356		77,231,196
Dilutive effect of stock-based awards		3,766,874		526,162
Adjusted weighted average outstanding and assumed conversions for diluted EPS		94,905,230		77,757,358
Earnings per share:
Basic	$	0.30	$	0.10
Diluted		0.28		0.10

Schedule of antidilutive securities excluded from earnings per share

	Three Months Ended
	March 31,
	2017	2016
Employee stock-based awards	361,566	2,019,649

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Stock-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2017

Stock-Based Compensation

Summary of stock options outstanding, vested and exercisable

				Weighted
		Weighted		average
		average		remaining	Aggregate
	Outstanding	exercise price		contractual life	Intrinsic Value
	Options	per share		(Years)	(in thousands)
Outstanding at December 31, 2016	5,997,372	$	10.18	7.30	$	145,270
Granted	534,262		34.39			—
Forfeited	(35,008)		12.58			—
Exercised	(1,096,999)		6.86			—
Expired	(2,893)		13.79			—
Outstanding at March 31, 2017	5,396,734	$	13.23	7.56	$	153,263
Vested, exercisable, expected to vest
at March 31, 2017	5,396,734	$	13.23	7.56	$	153,263
Exercisable at March 31, 2017	3,188,518	$	9.95	6.99	$	101,004

Summary of restricted stock units activity

		Weighted
		average
		grant date fair value
	Number of Awards	per share
Outstanding at December 31, 2016	67,295	$	25.88
Granted	235,412		34.39
Forfeited	(3,875)		24.70
Vested and converted to shares, net of units withheld for taxes	(131)		19.00
Units withheld for taxes	(77)		19.00
Outstanding at March 31, 2017	298,624	$	32.59
Expected to vest at March 31, 2017	298,624	$	32.59

Schedule of weighted average assumptions to estimate the fair value of stock options granted

	Three Months Ended March 31,
		2017
Expected term (years)			6.25
Expected volatility			40.00	%
Expected dividend yield			0.00	%
Weighted average risk-free interest rate			1.93	%
Weighted average grant date fair value		$	14.45

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Segment Information (Tables)

3 Months Ended

Mar. 31, 2017

Segment Information

Schedule of operating segment results

	Three Months Ended
	March 31,
	2017		2016
	(unaudited)
Net Revenue
Healthcare	$	139,803	$	124,130
Global Retail and Other		20,330		18,588
Consolidated net revenue	$	160,133	$	142,718
Operating Income
Healthcare	$	31,161	$	26,622
Global Retail and Other		2,921		2,616
Consolidated operating income	$	34,082	$	29,238

Schedule of operating segment net revenue by product type

	Three Months Ended March 31,
	2017		%	2016		%
	(unaudited)
Healthcare
Retrospective claims accuracy	$	77,516	48.4	$	65,270	45.7
Prospective claims accuracy		59,717	37.3		55,410	38.8
Transaction services		2,570	1.6		3,450	2.5
Total Healthcare		139,803	87.3		124,130	87.0
Global Retail and Other
Retrospective claims accuracy		19,674	12.3		17,990	12.6
Other		656	0.4		598	0.4
Total Global Retail and Other		20,330	12.7		18,588	13.0
Consolidated net revenue	$	160,133	100.0	$	142,718	100.0

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Description of Business (Details)	Mar. 31, 2017 customer company
Healthcare | Minimum
Description of business
Number of clients	40
Commercial, Medicaid and Medicare managed health plans | United States
Description of business
Number of largest companies in the industry sector | company	25
Commercial, Medicaid and Medicare managed health plans | United States | Minimum
Description of business
Number of largest companies in the industry sector that are customers	20
Retail | Minimum
Description of business
Number of clients	35
Retail | United States
Description of business
Number of largest companies in the industry sector that are customers	8
Number of largest companies in the industry sector | company	10

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Summary of Significant Accounting Policies - Revenue Recognition, Unbilled Receivables, and Estimated Liability for Refunds and Appeals (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Summary of Significant Accounting Policies
Estimated liability for refunds and appeals	$ 61,766	$ 62,539
Estimated allowance for refunds and appeals	35,518	41,020
Accounts receivable
Summary of Significant Accounting Policies
Unbilled receivables	49,676	51,643
Unbilled receivables arising from deferred billing	$ 6,087	$ 6,137

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Summary of Significant Accounting Policies - Recently Issued Accounting Standards (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Dec. 31, 2016
Summary of Significant Accounting Policies
Excess tax benefit related to stock option exercises resulting from the early adoption of ASU 2016-09	$ 10,422
Long-term deferred tax liabilities	119,759	$ 120,533
Debt issuance costs, net	$ 10,362	$ 10,837

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Property and Equipment - Balances by Major Asset Class (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Property and equipment
Property and equipment, gross	$ 115,874	$ 108,008
Less: Accumulated depreciation and amortization	45,588	40,368
Property and equipment, net	70,286	67,640
Computer equipment
Property and equipment
Property and equipment, gross	41,106	40,349
Software
Property and equipment
Property and equipment, gross	53,837	42,614
Furniture and fixtures
Property and equipment
Property and equipment, gross	8,802	8,652
Leasehold improvements
Property and equipment
Property and equipment, gross	4,895	4,392
Projects in progress
Property and equipment
Property and equipment, gross	$ 7,234	$ 12,001

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Property and Equipment - Perpetual Software License (Details) - Perpetual software license - USD ($) $ in Thousands	1 Months Ended
	Dec. 31, 2015	Mar. 31, 2017	Dec. 31, 2016
Recorded obligation
Remaining payment period	2 years
Accounts payable and accrued other expenses
Recorded obligation
License obligation		$ 3,256	$ 3,351
Other long-term liabilities
Recorded obligation
License obligation			$ 3,225

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Property and Equipment - Depreciation and Amortization Expense (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Property and Equipment
Depreciation and amortization expense related to property and equipment	$ 5,575	$ 4,835

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Intangible Assets - Balances by Major Asset Class and Amortization Expense (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Intangible assets with definite lives
Accumulated Amortization	$ 208,564		$ 193,347
Amortization expense	15,199	$ 15,207
Intangible assets
Gross Carrying Amount	726,695		726,652
Net Carrying Amount	$ 518,131		$ 533,305
Weighted average
Intangible assets with definite lives
Amortization period	12 years 9 months 18 days		12 years 9 months 18 days
Connolly Trademark
Intangible assets with indefinite lives
Gross Carrying Amount	$ 4,200		$ 4,200
Net Carrying Amount	4,200		4,200
Customer relationships
Intangible assets with definite lives
Gross Carrying Amount	640,095		640,052
Accumulated Amortization	156,549		144,768
Net Carrying Amount	$ 483,546		$ 495,284
Customer relationships | Weighted average
Intangible assets with definite lives
Amortization period	13 years 8 months 12 days		13 years 8 months 12 days
Acquired software
Intangible assets with definite lives
Gross Carrying Amount	$ 82,400		$ 82,400
Accumulated Amortization	52,015		48,579
Net Carrying Amount	$ 30,385		$ 33,821
Acquired software | Weighted average
Intangible assets with definite lives
Amortization period	6 years 2 months 12 days		6 years 2 months 12 days

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Intangible Assets - Balances by Major Asset Class - Future Amortization Expense (Details) $ in Thousands	Mar. 31, 2017 USD ($)
Amortization expense for the next 5 years
Remainder of 2017	$ 42,628
2018	53,898
2019	53,898
2020	53,898
2021	$ 49,576

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Goodwill (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Changes in the carrying amount of goodwill
Balance	$ 1,196,024
Balance	1,196,121
Impairment related to goodwill	0	$ 0
Healthcare
Changes in the carrying amount of goodwill
Balance	1,147,771
Foreign currency translation and other
Balance	1,147,771
Global Retail and Other
Changes in the carrying amount of goodwill
Balance	48,253
Foreign currency translation and other	97
Balance	$ 48,350

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Commitments and Contingencies - Legal and Other Matters (Details) - Unfavorable action - Centers for Medicare and Medicaid Services (CMS) - USD ($) $ in Thousands		1 Months Ended
	Jul. 01, 2015	Aug. 31, 2014	Mar. 31, 2017
Loss contingency
Settlement on original claim amount offered by CMS to allow providers to remove eligible claims pending in appeals process (as a percent)		68.00%
RAC contract contingency fee on original amount of settled claims under CMS July 1, 2015 Technical Direction Letter (as a percent)	32.00%
Maximum possible additional amount of refund payable in excess of amount accrued			$ 13,000
Estimated liability for refunds and appeals
Loss contingency
Estimated refund liability on settled claims			$ 22,308

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Long-term Debt - Summary of Components (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Long-term debt components
Total debt	$ 786,710	$ 791,039
Less: debt issuance costs	10,362	10,837
Less: current portion	18,000	18,000
Total long-term debt	758,348	762,202
Term Loan A | Restated Credit Agreement
Long-term debt components
Total debt	243,580	246,694
Term Loan B | Restated Credit Agreement
Long-term debt components
Total debt	$ 543,130	$ 544,345

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Long-term Debt - Other Covenant Terms (Details) - Restated Credit Agreement - Maximum	3 Months Ended	12 Months Ended
	Mar. 31, 2017	Dec. 31, 2016
Term Loan A
Ratio requirements
Secured Leverage Ratio covenant, through September 2018	5.50	5.50
Secured Leverage Ratio covenant, through September 2019	5.25	5.25
Secured Leverage Ratio covenant, through June 2021	5.00	5.00
Revolver
Ratio requirements
Secured Leverage Ratio covenant, through September 2018	5.50	5.50
Secured Leverage Ratio covenant, through September 2019	5.25	5.25
Secured Leverage Ratio covenant, through June 2021	5.00	5.00

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Long-term Debt - Aggregate Maturities (Details) $ in Thousands	Mar. 31, 2017 USD ($)
Aggregate maturities of long term debt
Remainder of 2017	$ 13,500
2018	18,000
2019	24,250
2020	30,500
2021	$ 183,625

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Long-term Debt - First Amendment Agreement (Details) - Term Loan B - First Amendment Agreement $ in Thousands	1 Months Ended
	Apr. 30, 2017 USD ($)
Extinguishment of debt
Loss on extinguishment of debt	$ 3,000
LIBOR
Extinguishment of debt
Decrease in interest rate (as a percent)	0.25%

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Derivative Instruments - Interest Rate Cap Contracts (Details) - Interest rate cap agreements - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
LIBOR
Interest rate derivatives
Interest rate cap on floating rate debt (as a percent)	3.00%
Cash flow hedge
Cash flow hedge activity
Ineffectiveness recorded	$ 0	$ 0
Cash flow hedge | Interest expense
Cash flow hedge activity
Expense recognized	201	$ 82
Designated as Hedge
Interest rate derivatives
Notional amount	$ 540,000		$ 540,000

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Derivative Instruments - Quantitative Information Related to Fair Value (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Interest rate cash flow hedges
Estimated amount of existing losses expected to be reclassified into earnings in the next 12 months	$ (2,200)	$ (1,783)
Interest rate cap agreements
Interest rate cash flow hedges
Deferred hedge premiums paid and recorded in accumulated other comprehensive (loss) income	2,945
Expected additional payments of deferred premiums	3,449
Designated as Hedge | Interest rate cap agreements | Other long-term liabilities
Interest rate cash flow hedges
Derivative liability	1,691	1,729
Designated as Hedge | Interest rate cap agreements | Accounts payable and accrued other expenses
Interest rate cash flow hedges
Derivative liability	$ 1,046	$ 1,065

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Derivative Instruments - Changes in Other Comprehensive Income Related to Cash Flow Hedges (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Changes in other comprehensive income related to derivative instruments classified as cash flow hedges
Balance at beginning of period	$ (3,334)	$ (2,968)
Reclassifications in earnings, net of tax of $76 and $31, respectively	125	51
Change in fair value of derivative instrument, net of tax of $112 and $323, respectively	(187)	(533)
Balance at end of period	(3,396)	(3,450)
Other comprehensive income, tax effect
Reclassifications in earnings, tax	76	31
Change in fair value of derivative instrument, tax	$ 112	$ 323

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Fair Value Measurements (Details) - Recurring - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Level 2
Liabilities
Interest rate cap agreements	$ 2,737	$ 2,794
Total	2,737	2,794
Level 3
Liabilities
Long-term debt	786,710	791,039
Total	$ 786,710	$ 791,039

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Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Income Taxes
Income tax provision	$ (861)	$ 5,393
Effective income tax rate (as a percent)	(3.30%)	40.00%
Excess tax benefit related to stock option exercises resulting from the early adoption of ASU 2016-09	$ 10,422
Decrease in effective tax rate due to settlement of an uncertain tax position recorded in prior period	$ 337

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Stockholders' Equity - Issuance of Common Stock (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands		3 Months Ended
	Mar. 07, 2017	Mar. 31, 2017
Secondary Offering
Issuance of stock
Proceeds from issuance of common stock		$ 0
Offering expenses		$ 600
Secondary Offering | Selling Stockholders
Issuance of stock
Shares sold in secondary offering	9,683
Offering price (in dollars per share)	$ 36.00
Underwriters option
Issuance of stock
Shares sold in secondary offering	1,263

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Earnings per Share - Basic and Diluted Computation (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Basic and diluted earnings per share computation
Net income available to common stockholders	$ 26,975	$ 8,084
Weighted average outstanding shares of common stock	91,138,356	77,231,196
Dilutive effect of stock-based awards	3,766,874	526,162
Adjusted weighted average outstanding and assumed conversions for diluted EPS	94,905,230	77,757,358
Earnings per share
Basic (in dollars per share)	$ 0.30	$ 0.10
Diluted (in dollars per share)	$ 0.28	$ 0.10

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Earnings per Share - Awards Excluded from Diluted Calculation (Details) - shares	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Performance-based stock options
Anti-dilutive securities and other information
Share-based awards excluded because vesting conditions not satisfied		2,794,910
Service based stock options and RSUs
Anti-dilutive securities and other information
Stock-based awards excluded from calculation of diluted earnings per share (in shares)	361,566	2,019,649

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Stock-Based Compensation - Stock Option Activity (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Shares
Outstanding at beginning of period (in shares)	5,997,372
Granted (in shares)	534,262	0
Forfeited (in shares)	(35,008)
Exercised (in shares)	(1,096,999)
Expired (in shares)	(2,893)
Outstanding at end of period (in shares)	5,396,734		5,997,372
Vested, exercisable, expected to vest (in shares)	5,396,734
Exercisable (in shares)	3,188,518
Weighted average exercise price
Outstanding at beginning of period (in dollars per share)	$ 10.18
Granted (in dollars per share)	34.39
Forfeited (in dollars per share)	12.58
Exercised (in dollars per share)	6.86
Expired (in dollars per share)	(13.79)
Outstanding at end of period (in dollars per share)	13.23		$ 10.18
Vested, exercisable, expected to vest (in dollars per share)	13.23
Exercisable (in dollars per share)	$ 9.95
Weighted Average Remaining Contractual Term
Outstanding	7 years 6 months 22 days		7 years 3 months 18 days
Vested, exercisable, expected to vest	7 years 6 months 22 days
Exercisable (in years)	6 years 11 months 27 days
Aggregate Intrinsic Value
Outstanding	$ 153,263		$ 145,270
Vested, exercisable, expected to vest	153,263
Exercisable	101,004
Total intrinsic value of options exercised	$ 33,482
Common stock
Aggregate Intrinsic Value
Fair value of stock (in dollars per share)	$ 41.63

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Stock-Based Compensation - Restricted Stock Units Vesting and Activity (Details) - 2016 Plan - Restricted stock units	3 Months Ended
	Mar. 31, 2017 $ / shares shares
Shares
Outstanding at beginning of period | shares	67,295
Granted (in shares) | shares	235,412
Forfeited (in shares) | shares	(3,875)
Vested (in shares) | shares	(131)
Units withheld for taxes ( in shares) | shares	(77)
Outstanding at end of period | shares	298,624
Expected to vest at end of period | shares	298,624
Weighted average grant date fair value
Outstanding at beginning of period (in dollars per share) | $ / shares	$ 25.88
Granted (in dollars per share) | $ / shares	34.39
Forfeited (in dollars per share) | $ / shares	24.70
Vested (in dollars per share) | $ / shares	19.00
Units withheld for taxes (in dollars per share) | $ / shares	19.00
Outstanding at end of period (in dollars per share) | $ / shares	32.59
Expected to vest at end of period | $ / shares	$ 32.59

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Stock-Based Compensation - Employee Stock Purchase Plan (Details) - Employee Stock Purchase Plan $ in Thousands	3 Months Ended
	Mar. 31, 2017 USD ($)
Employee Stock Purchase Plan
Offering period	6 months
Contribution maximum percentage of pay	10.00%
Contribution maximum amount per year	$ 10
Contribution maximum amount per offering period	$ 5

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Stock-Based Compensation - Weighted Average Assumptions to Estimate Fair Value of Stock Options (Details) - $ / shares	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Assumptions used to estimate fair value of stock options granted
Granted (in shares)	534,262	0
Stock options | Weighted average
Assumptions used to estimate fair value of stock options granted
Expected term	6 years 3 months
Expected volatility (as a percent)	40.00%
Expected dividend yield (as a percent)	0.00%
Risk-free interest rate (as a percent)	1.93%
Weighted average grant date fair value (in dollars per share)	$ 14.45

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Stock-Based Compensation - Expense Recorded (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Stock-based compensation expense
Stock-based compensation expense	$ 2,083	$ 1,074
Service based stock options and RSUs
Stock-based compensation expense
Unvested service-based stock options and RSU awards (in shares)	2,506,840
Unrecognized compensation cost	$ 25,037
Period of recognition of unrecognized compensation cost	2 years 10 months 24 days

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Segment Information - Operating Segment Results (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2017 USD ($) segment	Mar. 31, 2016 USD ($)
Segment information
Number of reportable segments | segment	2
Net Revenue	$ 160,133	$ 142,718
Operating Income	34,082	29,238
Healthcare
Segment information
Net Revenue	139,803	124,130
Operating Income	31,161	26,622
Global Retail and Other
Segment information
Net Revenue	20,330	18,588
Operating Income	$ 2,921	$ 2,616

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Segment Information - Operating Segment Net Revenue by Product Type (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Net revenue by product type
Net revenue	$ 160,133	$ 142,718
Product | Total net revenue
Net revenue by product type
Net revenue	$ 160,133	$ 142,718
Proportionate share of total (as a percent)	100.00%	100.00%
Healthcare
Net revenue by product type
Net revenue	$ 139,803	$ 124,130
Healthcare | Product | Total net revenue
Net revenue by product type
Net revenue	$ 139,803	$ 124,130
Proportionate share of total (as a percent)	87.30%	87.00%
Healthcare | Retrospective claims accuracy | Product | Total net revenue
Net revenue by product type
Net revenue	$ 77,516	$ 65,270
Proportionate share of total (as a percent)	48.40%	45.70%
Healthcare | Prospective claims accuracy | Product | Total net revenue
Net revenue by product type
Net revenue	$ 59,717	$ 55,410
Proportionate share of total (as a percent)	37.30%	38.80%
Healthcare | Transaction services | Product | Total net revenue
Net revenue by product type
Net revenue	$ 2,570	$ 3,450
Proportionate share of total (as a percent)	1.60%	2.50%
Global Retail and Other
Net revenue by product type
Net revenue	$ 20,330	$ 18,588
Global Retail and Other | Product | Total net revenue
Net revenue by product type
Net revenue	$ 20,330	$ 18,588
Proportionate share of total (as a percent)	12.70%	13.00%
Global Retail and Other | Retrospective claims accuracy | Product | Total net revenue
Net revenue by product type
Net revenue	$ 19,674	$ 17,990
Proportionate share of total (as a percent)	12.30%	12.60%
Global Retail and Other | Other | Product | Total net revenue
Net revenue by product type
Net revenue	$ 656	$ 598
Proportionate share of total (as a percent)	0.40%	0.40%