UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 FORM 10-K

(Mark One)

☒ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 For the fiscal year ended December 31, 2015

Commission File No. 001-34930

EXAMWORKS GROUP, INC.

(Exact name of registrant as specified in its charter)  

Delaware	27-2909425
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

3280 PEACHTREE ROAD, N.E., SUITE 2625

ATLANTA, GEORGIA 30305

(Address of principal executive offices) (Zip code) 

Registrant’s telephone number, including area code: (404) 952-2400

Securities registered pursuant to Section 12(b) of the Act:  

Title of each class	Name of each exchange on which registered
COMMON STOCK, $.0001-PAR VALUE PER SHARE	NEW YORK STOCK EXCHANGE

  Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒ Yes ☐ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No

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 Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

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

Large accelerated filer  ☒ Accelerated filer  ☐ Non-accelerated filer  ☐ Smaller reporting company  ☐

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

The aggregate market value of ExamWorks Group, Inc.’s Common Stock held by non-affiliates on June 30, 2015, the last business day of the registrant’s most recently completed second fiscal quarter, was $1,539,000,000 based on the closing price on the New York Stock Exchange on June 30, 2015 of $39.10 per share.

ExamWorks Group, Inc. had 41,050,000 shares of Common Stock outstanding as of February 16, 2016.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement relating to its 2016 Annual Meeting of Shareholders are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated.  Such Proxy Statement will be filed with the U.S. Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates. 

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

DECEMBER 31, 2015

FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business	2
Item 1A.	Risk Factors	16
Item 1B.	Unresolved Staff Comments	25
Item 2.	Properties	25
Item 3.	Legal Proceedings	25
Item 4.	Mine Safety Disclosures	26
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	27
Item 6.	Selected Financial Data	29
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	53
Item 8.	Financial Statements and Supplementary Data	54
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	54
Item 9A.	Controls and Procedures	54
Item 9B.	Other Information	55
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	56
Item 11.	Executive Compensation	56
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	56
Item 13.	Certain Relationships and Related Transactions, and Director Independence	56
Item 14.	Principal Accounting Fees and Services	56
PART IV
Item 15.	Exhibits, Financial Statement Schedules	57

Forward-looking Statements 

This report contains forward-looking statements that involve risks and uncertainties. Forward-looking statements convey current expectations or forecasts of future events for ExamWorks Group, Inc. and its consolidated subsidiaries (also referred to herein as “we,” “our,” “us,” “Company” or “ExamWorks”). Statements made in this report that express ExamWorks’ intentions, plans, beliefs, expectations or predictions of future events are forward-looking statements, which ExamWorks intends to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. All statements contained in this report other than statements of historical fact, including statements regarding our future results of operations and financial position, business strategy and plans, and our objectives for future operations, are forward-looking. Forward-looking statements often include words such as “may,” “will,” “would,” “could,” “can,” “should,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” or “project,” or the negative of these terms or other similar expressions that convey uncertainty of future events or outcomes. Forward-looking statements may include information concerning ExamWorks’ possible or assumed future results of operations, including descriptions of ExamWorks’ revenues, profitability, outlook and overall business strategy. You should not place undue reliance on these statements because they are subject to numerous uncertainties and factors relating to ExamWorks’ operations and business environment, all of which are difficult to predict and many of which are beyond ExamWorks’ control. You should be aware that many uncertainties and factors (including the factors described in the section entitled “Risk Factors” in this report) could affect ExamWorks’ actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements, including but not limited to:

●  our ability to compete successfully;

● our ability to implement our growth strategy, including our acquisition program;

● our ability to integrate completed acquisitions;

● our expansion into international markets and our ability to operate in such markets;

● our increasing reliance on national account clients;

● our ability to secure additional financing;

● regulation of our industry, including changes in regulations affecting our client’s needs for our services or enactment of regulations impacting our business;

● our information technology and data management systems and the risk of security and data breaches;

● our ability to effectively and efficiently continue to develop and update our information technology platform;

● our ability to protect our intellectual property rights and other information, including non-public medical related personal information and other client data;

● our ability to monitor and retain qualified physicians and other medical providers;

● our ability to retain or expand our client relationships, or obtain new ones;

● our ability to provide our services in an accurate, timely and efficient manner;

● our ability to comply with existing and future regulation;

● our ability to retain key management personnel; and

● restrictions in our credit facility, the senior notes indenture, and future indebtedness.

There are a number of important factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements. These important factors include those that we discuss in this report under the caption “Risk Factors.” You should read these factors and the other cautionary statements made in this report as being applicable to all related forward-looking statements wherever they appear in this report. If one or more of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. You should keep in mind that any forward-looking statement made in this report speaks only as of the date on which made. ExamWorks expressly disclaims any intent, obligation or undertaking to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.

This report also contains statistical data and estimates, including those relating to market size and growth rates of the markets in which we participate, that we obtained from industry publications and generated with internal analysis and estimates. These publications include forward-looking statements made by the authors of such reports. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions. Actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Some data and information are also based on our good faith estimates, which are derived from our review of internal surveys as well as the independent sources listed above. Although we believe these sources are reliable, we have not independently verified the information and cannot assure you of its accuracy or completeness.

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Part I

Item 1. Business

Our Company

ExamWorks is a leading provider of independent medical examinations (“IMEs”), peer reviews, bill reviews, Medicare compliance, case management, record retrieval, document management and other related services (“IME services” or the “IME industry”). We provide the majority of these IME services through our medical panel of credentialed physicians and other medical providers. Our clients include property and casualty insurance carriers, law firms, third-party claim administrators, and government agencies that use independent services to confirm the veracity of claims by sick or injured individuals and to facilitate the delivery and quality of cost–effective care for workers’ compensation, automotive, personal injury liability and disability insurance coverage. We help our clients manage costs and enhance their risk management and compliance processes by verifying the validity, nature, cause and extent of claims, identifying fraud and providing fast, efficient and quality IME services.

We deliver our services in all 50 U.S. states, Canada, the United Kingdom and Australia. Our operating model enables us to offer our clients the localized services they are accustomed to, while realizing the benefits of scale that accrue to a larger, integrated company. We provide our clients with the local presence, expertise and broad geographic coverage they increasingly require. Our size and geographic reach give our clients access to our medical panel and proprietary information technology infrastructure that has been specifically designed to streamline the complex process of coordinating referrals, scheduling appointments, complying with regulations and client reporting. Our primary service is to provide IMEs that give our clients authoritative and accurate answers to questions regarding the nature and permanency of medical conditions or personal injury, their cause and appropriate treatment. Additionally, we provide peer reviews, which consist of medical opinions by members of our medical panel without conducting physical exams; Medicare compliance services, which include workers’ compensation and liability, Medicare set-aside solutions and related services that help mitigate costs and promote compliance; case management services, which include managing the medical and vocational cases of injured workers to facilitate timely recovery and/or return to work; bill reviews, which consist of the review of physician and hospital bills to examine medical care rendered and its conformity to accepted standards of care and/or pricing; and record retrieval and document management services, which consist of retrieving, sorting and summarizing records and other documents used to resolve insurance claims or facilitate other IME services.

The qualifications, experience and availability of physicians and other medical providers are critical to the IME industry, as they are the primary determinants of the speed and quality with which IME services are performed. We provide our physicians and other medical providers with seamless document management, scheduling, transcription and tracking systems, helping them increase efficiency and optimize the number of IME services they can conduct based on their availability. Our ability to minimize administrative burden, including the efficient scheduling of appointments, encourages physicians and other medical providers to perform IME services through us. Based on client and physician feedback, we believe our medical panel effectively meets our clients’ needs.

Our revenues consist primarily of fees per IME service performed. Our fees vary by physician/medical provider, specialty and type of service. Our primary costs are the payments made to physicians and other medical providers on our medical panel. For the majority of our revenues, our costs are variable as most medical panel members are independent contractors, allowing us to maintain and manage our operating margins more effectively. Our long-standing relationships with clients have resulted in historically consistent and recurrent demand for our services.

From July 14, 2008 through the date of this filing, we have acquired 56 IME services businesses, including leading IME services businesses in the U.S., Canada, the United Kingdom and Australia, as well as a leading provider of software solutions to the IME industry.  As a result of our corporate infrastructure and scale, we have developed and refined our services by identifying and integrating processes from acquired businesses throughout our entire organization that require accountability, set clear sales goals, and track progress effectively.

We also maintain industry-specific accreditations, such as URAC, that demonstrate that we have consistently met meaningful standards of quality and compliance in the delivery of our services. In addition, we maintain other certifications and conduct audits that provide further assurances about the quality and integrity of our IME services and processes. For example, our AT 101 SOC 2 Type 2 certification, awarded upon the successful completion of an AT 101 SOC 2 Type 2 Audit in North America, validates the robust nature of our technology platform and information security controls. In addition, our private cloud computing platform allows us to maintain some of the industry’s most rigorous controls for the protection of confidential information.

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Industry Opportunity

We believe the IME industry, excluding case management services, record retrieval services and document management services, represents sales volumes of approximately $4.0 billion in the U.S., $0.5 billion in Australia, $0.4 billion in Canada and $0.5 billion in the United Kingdom based on our analysis of data reported by the U.S. National Association of Insurance Commissioners (“U.S. NAIC”), Australia state workcover and motor accident commissions, the Insurance Bureau of Canada, the Association of Workers’ Compensation Boards of Canada and the Association of British Insurers regarding the number of claims made for which IME services may be requested in insurance lines we service, the estimated average price for IMEs and our knowledge of the IME market, our competitors and potential acquisition targets. The IME industry is highly fragmented, consisting of an estimated 500 companies in the U.S., most of which are privately owned and generate less than $10.0 million in annual revenues, and thousands of independent physicians and other medical providers. Many of these companies provide IME services to only one line of business and only at a local level. In contrast, the needs and requirements of IME clients are increasingly sophisticated, requiring a broader portfolio of services, uniform quality standards, consistent reporting and robust administrative and information systems necessary to meet their needs across multiple geographic regions and lines of business.

The following clients routinely request IME services:

Clients		Description
Insurance Companies	Mainly claims adjusters and in-house counsel for major insurance companies covering workers’ compensation, automotive, personal injury liability and disability insurance claims.
Law Firms	Attorneys who request IME services based on specific claims for insurance carriers.
Third-Party Claim Administrators (“TPA”)	Administrators of claims and benefits for large self-insured corporations that outsource claims management.
Government Agencies	Government agencies across the federal, state and local levels (e.g., U.S. Department of Labor and Health Canada).
State Funds	State-run payors that provide mandatory workers’ compensation insurance to companies.

 IME Industry Growth Drivers

We believe the IME industry presents IME services providers like us with continued potential for growth and profitability through consolidation, growth in international markets, and capture of market share from IME services companies without a national infrastructure, large credentialed medical panel, robust technology platform and/ or ability to provide quality complementary services. The following are some of the factors that contribute to these opportunities:

● IME services are frequently used for a number of claims.  IME services are regularly used by insurance companies, law firms, TPAs, government agencies and stated funds for the evaluation of non-litigated and litigated claims.  In the U.S. IME market, we estimate, based on data reported by the U.S. NAIC, that approximately 25 million workers’ compensation, automotive, personal injury liability and disability insurance claims are made per year, which are potentially subject to IME services.  Particular types of claims with high economic value, such as permanent disability, typically require IMEs and have shown strong demand in recent years.

● Cost containment and risk management will be primary areas of focus.  Current macroeconomic, demographic and regulatory trends, including increased medical costs and administrative and regulatory burdens, will continue to pressure users of IME services to better manage costs, mitigate risks and ensure compliance.  If settled, claims are usually paid as a multiple of medical expenses and other costs accrued.  Consequently, clients increasingly demand fast, accurate and efficient provision of IME services to help manage costs.

● Demand for IME services due to the prevalence of fraud.  The National Insurance Crime Bureau reports that approximately 10% or more of insurance claims are fraudulent based on insurance industry studies. A Deloitte & Touche white paper “A Call to Action: Identifying Strategies to Win the War Against Insurance Claims Fraud”, published August 9, 2012, estimated that fraud costs property and casualty insurers $30 billion annually.

Fraud erodes profit margins and increases premiums. Insurance industry executives are intensifying their efforts to address healthcare and insurance fraud, and we expect the demand for IME services to increase.

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● Sources of low-risk revenue are increasingly attractive to physicians.  Pressure in the healthcare industry on physician compensation encourages physicians to take on additional work, including performing IME services to supplement their incomes.  There is almost no reimbursement risk associated with performing IME services as physicians are paid on a per service basis at a pre-negotiated rate.  Consequently, demand from physicians to perform IME services is expected to remain strong.

● International markets represent key growth opportunities.  There are several international markets with demand for IME services either due to regulatory requirements, such as national health programs, or private-sector adoption of claims validation practices, to better manage costs and mitigate risks.

● Industry fragmentation, inefficiencies and lack of scale present challenges for smaller IME services companies.  The IME industry is highly fragmented and smaller IME services companies may provide IME services inefficiently and with inconsistent quality.  With ongoing pressure in the IME industry to reduce costs, improve quality and improve workflow efficiency, we believe the market opportunity for IME services companies with a comprehensive portfolio of services and broad geographic coverage is significant.

Our Competitive Strengths

While we compete with a large number of primarily local and regional IME providers, we believe our competitive strengths include the following:

● Leading market positions in a stable industry.  We believe, based on our knowledge of the IME market, our competitors, our acquired businesses and our potential acquisition targets, that we are the largest provider of IME services in the U.S. based on revenues, and the only U.S.-based provider with significant global operations in Canada, the United Kingdom and Australia.  We believe demand for IME services has historically been driven by cost containment initiatives in response to rising medical costs, the need to efficiently manage substantial administrative and regulatory requirements, and the prevalence of fraudulent claims, all of which are expected to continue.

● Growing brand names associated with market leading capabilities.  Our brands have distinct geographic and market strengths which continue to grow stronger as we build our national and international presence.  We are known by our clients as having industry leading capabilities and continue to position ourselves as the optimal IME services provider for insurance companies and other clients as well as physicians and other medical providers.  As we acquire companies, we seek to maintain the relationships and recognition associated with the acquired brands.  We believe that as the strength of our brands improve, we will continue to attract clients and qualified physicians and other medical providers to our medical panel.

● Well positioned to capture market share.  With our focus on national accounts, our long-standing local relationships and our national and international footprint and technology infrastructure that allows us to automate workflow processes, we believe we are well positioned to continue to capture market share at the local and national level.  We have been successful in adding national accounts to our client list as clients seek to consolidate their vendors and seek vendors with scale and a robust technology infrastructure. Our national account clients generally require the use of our services throughout their organizations. As we continue to add national accounts and proactively sell our services to our clients through our sales force, we expect to continue to gain new business and grow our market share.  The quality of long-standing relationships with our clients has historically also provided consistent and recurrent demand for our services.

● Large, qualified and experienced medical panel.  We believe our medical panel represents one of the IME industry’s leading groups of widely accessible, experienced and credible physicians and other medical providers. We have relationships with physicians and other medical providers across nearly every medical specialty. We are able to attract and retain our highly qualified medical panel through our ability to fill schedules and offer a full range of administrative services. We believe that quality of service, professionalism and speed of IME or review completion are key areas of focus for our clients and we work with our medical panel to ensure that we meet or exceed client expectations.

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● Leading technology platform.  Our proprietary and scalable technology platform streamlines our business processes and reduces administrative operating costs with industry leading coordination of patient referrals, appointment scheduling, client reporting and real-time case tracking. We believe that the complexities of the IME industry and client demand for a broader, more cost-effective portfolio of services will continue to benefit companies like us, which remain at the forefront of technological innovation.  Further, the architecture of our technology platform is built in a private virtual cloud computing network (“Private Cloud Network”), which allows us to maintain some of the industry's most rigorous controls for data protection.  We believe our emphasis on safeguarding and controlling access to data positions us favorably with clients who increasingly seek vendors with robust data security measures to comply with privacy regulations and to secure protections against data breaches, fines and costly remediation.

● Proven track record of successfully completing and integrating key acquisitions. Our growth is supplemented by selective, disciplined acquisitions to expand our geographic coverage, provide new or complementary lines of business, expand our portfolio of services and increase our market share. Since our founding, we have acquired 56 IME services businesses and have a track record of successfully integrating acquired businesses into our operations. Through rapid and effective integration, we have been able to utilize acquired platforms to cross-sell IME services. To date, we have successfully realized several key benefits through our acquisition strategy, including (i) the scale to operate efficiently while retaining the critical local office presence, (ii) the ability to offer our clients a leading medical panel, (iii) service-specific processes which are rapidly shared throughout our entire Company and (iv) the opportunity to introduce new products and services, and enter new markets and geographic regions.

● Experienced management team. Our management team has an in-depth understanding of the IME industry as well as extensive experience growing companies profitably, both organically and through acquisitions. Prior to founding our Company, our senior executive team founded and operated three successful public companies. They bring extensive experience in growing businesses organically and acquisitively, having successfully integrated over 100 acquisitions during their careers. Many of the members of the executive management team have worked together closely over the past 19 years.  In addition, our acquisitions have added experienced industry executives to our management team worldwide.

Our Growth Strategies

Our objective is to continue to be a leading provider of IME services, and to build on our position as an essential and trusted service provider in claims validation and verification processes.

We believe the following initiatives will allow us to continue to grow:

● Continued Focus on National Accounts. We will continue to work to achieve greater connectivity with existing national clients and to acquire new national accounts. As national clients continue to consolidate vendors and understand the advantages of our scale and technology infrastructure, we should continue to benefit from these sources of revenue in a manner that our smaller competitors cannot. This, in turn, has the added benefit of incentivizing those smaller competitors to be acquired by us. At the same time, we will continue to drive sales growth through a relentless focus on our local and regional clients that still account for the majority of our revenue.

● Sell additional services to existing clients. With locations serving the U.S., Canada, the United Kingdom and Australia, we are able to use our large network to efficiently share services expertise within our sales force. By accelerating the knowledge transfer and cross-selling capabilities of our sales force, we are able to offer additional IME services to existing clients (for example, peer and bill reviews, Medicare compliance, and with the acquisition of ABI Document Support Services, Inc. (“ABI”) in January 2016, record retrieval and document management services). This will allow us to capture additional market share and grow our presence in markets by increasing utilization of our existing platform across all IME service offerings.

● Cross-sell into other insurance lines of business. Currently, we have many clients that use our services for a specific line of business. We can increase sales to existing clients through cross-selling into additional lines of business, such as workers’ compensation, automotive, personal injury liability and disability. 

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● Drive sales growth. As many of our acquired companies were family-owned businesses built on local relationships, they often did not have well-developed management strategies, policies and procedures. We have been able to implement processes on a nationwide basis that require accountability, set clear sales goals, and track progress effectively, with the goal of increasing the number of IME services provided to existing clients. This, in turn, should lead to increased growth and profitability.

● Pursue accretive strategic acquisitions. We believe that our fragmented industry provides many opportunities for acquisitions. We plan to continue pursuing acquisitions to grow our business in our existing markets and add new service areas and geographic regions. We have a history of successfully integrating acquired businesses that have allowed us to diversify our portfolio of services and expand our geographic footprint.

Business Segments

We conduct our business through four geographic segments: the United States, Canada, the United Kingdom and Australia. See Note 13 to the Consolidated Financial Statements for further information on our business segments.

Our Services, Medical Panel and Technology Platform

Our services primarily include IMEs and peer reviews which are provided by members of our medical panel. Our portfolio of IME services meets the urgent claims evaluation needs of our clients by verifying the validity, nature, cause and extent of claims, identifying fraud and providing fast, efficient and quality IME services. In addition, we also provide Medicare compliance services, bill review services, case management services and with the acquisition of ABI in January 2016, record retrieval and document management services. 

Independent Medical Examinations

Our primary service is to arrange for the provision of IMEs that give our clients authoritative and accurate answers to questions regarding the nature and permanency of medical conditions or personal injury, their cause and appropriate treatment. Clients use IMEs as part of their claims or liability management process in order to confirm the veracity of claims by sick or injured individuals for workers’ compensation, automotive, personal injury liability and disability insurance coverage. Our independent and clearly written opinions, prepared by our credentialed panel of physicians and other medical providers, address both medical and legal competencies. In most cases, clients cannot perform the services in-house, as there is a need to perform IMEs independently, objectively and in a cost-effective manner. IMEs are also used by attorneys for legal disputes and proceedings related to personal injury and other claims. In the case of litigated claims, physicians and medical providers on our medical panel are able to provide expert testimony.

Peer Reviews

We offer a full range of peer review services, including medical record reviews, nurse file reviews and utilization reviews by members of our medical panel. Our peer reviews, which are performed by members of our medical panel, provide an informed, credible, and evidence-based medical opinion of a claimant’s condition and treatment. These reviews examine and include opinions as to (i) causal relationships, (ii) reasonableness and appropriateness of treatment, (iii) mitigating conditions with relevant associated and degenerative conditions, and (iv) the necessity of medical service and treatment, all for the purpose of facilitating the fair and proper handling of claims.

Medicare Compliance Services

Our primary Medicare compliance service is Medicare set-asides (“MSA”) for worker’s compensation and liability payors.  An MSA is an amount set aside in an account set up to pay future Medicare covered expenses for a claimant that would have been covered by Medicare had compensation for the injury not been the responsibility of the primary payor.  Under the Medicare Secondary Payer Statute and related guidance, insurers settling or paying workers compensation, liability, and disability claims meeting certain criteria could have exposure if they do not take the interests of Medicare into account in their settlement process. We provide the analysis of what portion of the settlement should be set-aside by the claimant to either reimburse Medicare for payments already made or to pay for future expenses.  We provide a dedicated case coordinator, as a single point of contact on a case, who is supported by a multidisciplinary team of attorneys, pharmacists, nurses and cost analysts. We also assist insurers with reporting obligations to Medicare required by law.

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Case Management

Our case management services consist of assessing medical information to determine an injured or impaired individual’s specific health care needs in order to facilitate a timely recovery and/or return to work. These services are provided through our skilled medical and vocational case managers. Medical case managers help to ensure that an injured or impaired individual receives quality care that is appropriate and medically necessary, and to anticipate future care needs to ensure plans and proper mechanisms are in place to meet maximum rehabilitation in the most efficient and cost effective manner. Vocational case managers perform activities that are designed to assist an individual to obtain employment consistent with their post-injury restrictions. Both medical and vocational case managers act as liaisons between patients, family members, employers, providers, insurance companies and/or healthcare personnel.

Bill Reviews

We offer a full range of bill review services, including physician and hospital bill reviews and surgical cost estimates. Bill reviews examine the specific medical care rendered and how its relevance and cost conform to industry accepted standards of care. Physician and hospital bill reviews are used to facilitate the adjudication, settlement or resolution of a medical bill or claim, through a line item audit for every charge on the bill, based on service rates from local market data. Our surgical cost estimates, performed by credentialed registered nurses on our medical panel, highlight ways in which costs can be anticipated, managed, and reduced. This service provides insight into prospective procedures, likely rehabilitation and implications for disability and costs, and is particularly helpful in addressing claims where medical severity continues to increase.

Record Retrieval and Document Management

With the acquisition of ABI in January 2016, we expanded our services offerings to include record retrieval, document management and electronic summary services. We provide a comprehensive technology-driven solution to suit all record retrieval and document management needs, which services are critical for efficient and effective handling of claims and litigation processes, including the provision of IMEs. Our virtual platform, including our innovative eSummary software, provides end-to-end automation and record review customization, streamlining the ordering, scanning, analysis, summarization and retrieval of medical and legal records. 

Other IME-related services

We also offer a variety of other IME-related services, including litigation support services, administrative support services and managed technology services. Litigation support services include expert medical testimony, subpoena preparation and discovery assistance services. Administrative support services are performed by an ExamWorks employee and involve the completion and submission of forms required for the request of exams on behalf of our clients.  Managed technology services are performed by our information technology team and involve providing customized technology solutions to streamline operations and increase data security.

Medical Panel

The majority of our IME services are performed by a panel of experienced and credentialed physicians and other medical providers, which include orthopedists, dentists, chiropractors, psychologists, acupuncturists, physical therapists, neurologists and nurses, among others. Our medical panel consists of physicians and other medical providers who have performed services and received compensation from us and our acquired businesses. For most of our services, IME physicians and other medical providers are engaged by us on an independent contractor basis, which is customary in the IME industry. Because most members of our IME medical panel are independent contractors, as opposed to employees, we do not withhold income or other employment related taxes, pay employment related taxes, provide workers’ compensation insurance, or directly assume any malpractice liability with respect to them. Utilization of members on our IME medical panel is heavily dependent on geographic location and certain specialties, including orthopedic, chiropractic, rehabilitation and neurology specialties. Importantly, our medical panel costs are variable, allowing us to effectively maintain and manage our operating margins. We have been able to attract and retain members of our own panel through our ability to fill schedules and offer a full range of administrative services. We also employ in-house recruiters who are responsible for the identification and recruitment of members of our medical panel, and members of our panel also serve as a source of referrals for other panel members.

Members of our medical panel must have extensive applicable experience, clinical backgrounds, active medical practices, and/or hold positions in a reputable medical or clinical facilities. To the extent applicable, we require our physicians and other medical providers to (i) be board certified, licensed or accredited practitioners of related and supporting medical specialties, (ii) have proof of medical malpractice insurance; (iii) pass background checks for disciplinary action; (iv) maintain offices that are well kept and clean; (v) submit to regularly scheduled site inspections to ensure that the highest standards of courtesy and professionalism are observed; and (vi) be available to testify when needed.

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The credentialing of physicians and other medical providers is a critical component of our ability to provide and maintain the integrity and quality of our services and compete effectively. All physicians and other medical providers on our panel must comply with requests for information and with our credentialing procedures. The process starts with each physician and other medical provider completing a comprehensive questionnaire that is reviewed carefully using primary source verification methods to verify his or her license status and other professional qualifications. Primary source verification involves a direct contact with the sources of licenses and qualifications to confirm that information provided to us about licenses and qualifications are legitimate and current. As we acquire businesses, we implement our credentialing policies and procedures to ensure that all of our acquired businesses operate on a consistent basis and in conformity with our procedures as quickly as reasonably possible after being acquired.

In addition, our quality management program provides oversight to, and ensures quality performance of IMEs by our medical panel, through recruitment, credentialing, auditing, and ongoing education. Under the leadership of our Chief Medical Director and our compliance and network development directors, our quality management committee monitors and provides ongoing evaluation of all aspects of the IME process to ensure the consistent delivery of high quality IME services to our clients.

Technology Platform

Through our acquisition of IME Software Solutions in July 2009, we acquired IME*Centric, a leading platform software solution for the IME industry. We are able to customize specific software initiatives to meet our clients’ needs and to support our strategic objectives. With IME*Centric, we provide clients with access to our web portal and computing network that automates a host of tasks that can otherwise consume a significant amount of time for both our staff and our clients. Specific functions of our technology platform include central data collection, data privacy controls, elimination of cost centers, business continuity procedures, and data mining capabilities. We use real-time feedback from our clients to improve functionality and performance of our technology and processes and incorporate these improvements into our portfolio of services on a regular basis.

IME*Centric links our clients with our IME platform and medical panel and allows for the following functionality:

● online referrals and electronic record submission;

● automated forms generation;

● search and scheduling;

● review and comment on documents and physician reports; and

● tracking and auditing.

The architecture of our IME*Centric technology platform is built in a Private Cloud Network. This platform consists of a fully virtualized, yet private, system, which allows us to maintain some of the most rigorous data protection and access controls in the industry.

In addition, through our acquisition of MES in February 2011, we acquired OMS, a robust proprietary software platform. The OMS software solution shares many of the features of IME*Centric and is fully deployed throughout all of MES’ service centers. To date, the IME*Centric software solution has been deployed in the majority of our other service centers. As we continue to run IME*Centric and OMS, our ownership of both solutions provides us with the flexibility to build a technology platform that combines the strengths of both systems.

Through our acquisition of ABI in January 2016, we also acquired what we believe is the leading technology platform for efficiently retrieving, processing and delivering records and related documents. Our technology provides a highly automated record retrieval process that organizes, analyzes and summarizes documents more thoroughly and efficiently than competitive platforms. Our eSummary software platform is a web-based, user-friendly tool that clients use to analyze, summarize and sort records. Among other things, eSummary’s smart search tools allows client users to navigate through hundreds or even thousands of documents that have been collected in a fraction of the time needed with traditional methods. eSummary is also available through a mobile application that allows instant access to critical documents that are frequently referenced during claims processes.

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The development and deployment of our technology platform is led by our Chief Information Officer and managed centrally by dedicated team leaders and other members of our information technology department. We plan to continue developing our technological capabilities nationally and internationally and enhancing the competitive advantages our technology platform provides.

Acquisitions

We have substantial experience in identifying, acquiring and integrating IME services businesses. Since our inception, we have acquired 56 IME services businesses and have a track record of successfully integrating acquired businesses into our operations. These acquisitions have enabled us to establish a presence in new markets, strengthen our position in existing markets and add new or complementary lines of business to our portfolio of services. Our management team executes our growth strategy by being involved in the process of identifying complementary acquisition opportunities in new and existing markets. Our management team is experienced, having collectively coordinated due diligence, negotiation and execution for all acquisitions to date.

We anticipate that we will continue to acquire companies in geographic regions in which we currently have a limited presence or that offer a complementary portfolio of services to those that we already provide, and would consider suitable acquisition candidates, characterized by several, if not all, of the following attributes:

● an experienced and talented management team prepared to make a commitment to executing our strategic business plan;

● specialization in certain services that may be beneficial to or complement our existing services; and

● a demonstrated record of organic growth and profitability, or capability of achieving our minimum financial performance targets in the near term.

Our process to source, execute and integrate acquisition targets has been successful to date, as we have been able to identify suitable targets efficiently and close the vast majority of transactions we have initiated. Our acquisition process includes several key steps. During sourcing, we either identify potential targets directly or receive inbound requests from IME or IME-related businesses interested in joining ExamWorks. Our preliminary assessment consists of an evaluation of the target’s financial performance and fit with our business model and culture. If a proposal is considered, we formulate a suitable bid based on a critical assessment of the target’s historical and projected performance. We always aim to negotiate and complete purchase agreements as efficiently as possible. During the final stage of closing and integration, we strive to introduce concrete goals and objectives and implement professional management practices to ensure that the target’s culture and processes are consistent with those of ExamWorks.

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ExamWorks Acquisitions 

From our inception through the date of this filing, we have completed the following acquisitions:

Acquisition Date	Name
January 19, 2016	•	Advanced Medical Reviews
January 8, 2016	•	ABI
November 23, 2015	•	Argent
October 30, 2015	•	First Choice
July 13, 2015	•	Karen Rucas & Associates
April 14, 2015	•	Landmark Exams & Maven Exams
January 2, 2015	•	ReliableRS
August 22, 2014	•	Expert Medical Opinions
June 6, 2014	•	Ability Services Network and MedAllocators
May 30, 2014	•	Solomon Associates
February 14, 2014	•	Assess Medical
February 3, 2014	•	Gould & Lamb
January 16, 2014	•	Newton Medical Group
January 13, 2014	•	Cheselden
December 20, 2013	•	Evaluation Resource Group
December 10, 2013	•	AGS Risk Limited
December 19, 2012	•	PMG
August 31, 2012	•	MedHealth
July 12, 2012	•	Makos
October 27, 2011	•	Bronshvag
October 24, 2011	•	Matrix Health Management
October 3, 2011	•	Capital Vocational Specialists
	•	North York Rehabilitation Centre
September 28, 2011	•	MLS Group of Companies
	•	Medicolegal Services
May 10, 2011	•	Premex Group
February 28, 2011	•	MES Group
February 18, 2011	•	National IME Centres
December 20, 2010	•	Royal Medical Consultants
October 1, 2010	•	BMEGateway
September 7, 2010	•	UK Independent Medical Services
September 1, 2010	•	Health Cost Management
August 6, 2010	•	Verity Medical
	•	Exigere
June 30, 2010	•	SOMA Medical Assessments
	•	Direct IME
	•	Network Medical Review
	•	Independent Medical Services
	•	401 Diagnostics
March 26, 2010	•	Metro Medical Services
March 15, 2010	•	American Medical Bill Review
	•	Medical Evaluations
December 31, 2009	•	Abeton
	•	Medical Assurance Group
	•	MedNet I.M.S.
	•	Qualmed
	•	IME Operations of Physicians' Practice
August 14, 2009	•	The Evaluation Group
August 4, 2009	•	Benchmark Medical Consultants
July 7, 2009	•	IME Software Solutions
May 21, 2009	•	Florida Medical Specialists
	•	Marquis Medical Administrators
April 17, 2009	•	Ricwel
July 14, 2008	•	CFO Medical Services
	•	Crossland Medical Review Services
	•	Southwest Medical

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Geographic Information

The following tables detail revenues and long-lived assets by geographic segment:

Revenues:	For the years ended December 31,
	2013		2014		2015
United States	$	374,817	$	468,419	$	511,324
Canada		31,131		32,889		37,473
United Kingdom		143,418		189,755		190,204
Australia		66,650		84,552		80,566
Totals	$	616,016	$	775,615	$	819,567

Long-lived assets: (1) (2)	December 31,
	2014		2015
United States	$	473,800	$	467,664
Canada		18,178		16,063
United Kingdom		96,635		134,464
Australia		73,721		60,130
Totals	$	662,334	$	678,321

 (1) Long-lived assets are noncurrent assets excluding deferred tax assets and deferred financing costs.

 (2) Long-lived assets include goodwill. Goodwill recorded in connection with certain tax benefits to be realized in our U.S. income tax returns has been reflected in the United States segment. 

Sales and Marketing

We employ a direct sales force of approximately 160 representatives with in-depth knowledge of the IME industry. Given the experience of our sales team and the constant sharing of market data and other relevant information from each of our 70 service centers, we believe our sales force provides us with a competitive advantage. Our sales force promotes and sells our services to existing and new clients and seeks to expand the services we provide to our existing client base. We focus on both our clients who request IME services and the physicians and other medical providers who perform them.

Physician and other medical providers’ enrollment and retention are critical aspects of our sales strategy. It is important for us to have a large, motivated network of physicians and other medical providers who collectively offer diverse expertise and enable accelerated IME and review times. We recruit physicians and other medical providers through various channels, including med-legal conferences, referrals and continuing medical education seminars. Our ability to recruit physicians and other medical providers has been supported by the increasing prominence of our brands, both domestically and abroad.

Our marketing efforts focus on creating strong brand identities through industry trade shows, websites, print media and development of industry related seminars and continuing medical education opportunities. Our brand awareness in the IME industry has resulted in several companies proactively reaching out to us to join ExamWorks, and aided in our national account program. We have developed, and intend to continue to develop, local, regional, national and international marketing programs designed to create strong brand identities, emphasizing our wide geographic footprint, capabilities and technology platform.

Clients

Our clients include insurance companies, law firms, TPAs, government agencies and state funds. Our client base is diversified, with no client contributing more than 10% of total revenues in each of the years ended December 31, 2013, 2014 and 2015.

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Competitive Landscape

Our competitors primarily consist of significantly smaller, local and regional companies in a fragmented landscape. In the U.S., we estimate that there are approximately 500 mainly private companies and thousands of independent physicians and medical providers that provide IME services. Small, local and regional providers often lack the scale and experience to provide multiple products across multiple service lines. We indirectly compete with local providers, HMOs and non-profit hospitals utilizing staff physicians, insurance companies employing in-house staff, and public companies providing services as a subset of a core line of business. In the U.S., Canada, the United Kingdom and Australia, IME providers compete on the basis of their geographic footprint, the strength of their client relationships, quality of reports, availability of qualified physicians and other medical providers, service offerings and, to a lesser extent, price. IME providers in all four countries also compete on the ability of their technology platforms to streamline the IME business processes of their clients.

The competitive landscapes in Canada, the United Kingdom and Australia have similar characteristics in that IME services are mainly provided by smaller companies and independent physicians. We estimate that there are in excess of 70 companies in Canada, 40 companies in the United Kingdom, and 30 companies in Australia that provide IME services. We believe there is an opportunity for an IME services company such as ExamWorks, with broad infrastructure and extensive experience, to grow and expand in these markets. Some of our competitors may have more significant historical relationships with clients in their geographic regions.

Government Regulation 

As a participant in the medical industry, our operations and relationships with our clients, physician contractors and other medical professionals are subject to a variety of government regulations. These laws and regulations are broad in scope and they are subject to evolving interpretations, which could require us to incur substantial costs associated with compliance and/or to alter one or more of our practices. We devote significant efforts to establish and maintain compliance with all regulatory requirements that we believe are applicable to our business and the services we offer. Specifically, but without limitation, the following laws and regulations may affect our operations and contractual relationships:

Government Regulation of Health Information

HIPAA. The Health Insurance Portability and Accountability Act of 1996, as amended (including by the Health Information Technology for Economic and Clinical Health Act (“HITECH”)), including the regulations issued and effective thereunder, which we collectively refer to as HIPAA, contains substantial restrictions and requirements with respect to the use and disclosure of individuals’ protected health information. HIPAA applies to covered entities, such as certain healthcare providers and health plans, as well as business associates that perform functions on behalf of or provide services to covered entities.

As a result of our dealings with clients, suppliers and contractors in the medical industry which may be considered covered entities under or otherwise subject to the requirements of HIPAA, we are, in some circumstances, considered a business associate under HIPAA. As a business associate, we are subject to the HIPAA requirements relating to the privacy and security of protected health information. Among other things, HIPAA requires business associates to (i) maintain physical, technical and administrative safeguards to prevent protected health information from misuse, (ii) report security incidents and other inappropriate uses or disclosures of the information, including to individuals and governmental authorities, and (iii) assist covered entities from which we obtain health information with certain of their duties under HIPAA.

Other Laws. In addition to HIPAA, many other jurisdictions, including most U.S. states, have enacted confidentiality laws that protect against the unauthorized disclosure of confidential health information, and many U.S. states have adopted or are considering further legislation in this area, including privacy safeguards, security standards and data security breach notification requirements. Further state and local laws, if more stringent than federal requirements, may not be preempted by the federal requirements, and we must comply with them even though they may be subject to different interpretations by various courts and other governmental authorities. In addition, numerous other state and federal laws govern the collection, dissemination, use, accesses to, confidentiality and retention of health information.

False or Fraudulent Claim Laws

There are numerous federal and state laws that forbid submission of false information or the failure to disclose information in connection with the submission and payment of physician claims for reimbursement. In some cases, these laws also forbid abuse of existing systems for such submission and payment, for example, by systematic over treatment or duplicate billing of the same services to collect increased or duplicate payments.

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In particular, in the U.S., the federal False Claims Act, or FCA, prohibits a person from knowingly presenting or causing to be presented a false or fraudulent claim for payment or approval by an officer, employee or agent of the U.S. In addition, the FCA prohibits a person from knowingly making, using, or causing to be made or used a false record or statement material to such a claim. The FCA’s “reverse false claim” provision also creates liability for persons who knowingly and improperly conceal the retention of an overpayment of government money. Violations of the FCA may result in treble damages, significant monetary penalties, and other collateral consequences including, potentially, exclusion from participation in federally funded health care programs. The scope and implications of the “Fraud Enforcement and Recovery Act” amendments have yet to be fully determined or adjudicated and as a result it is difficult to predict how future enforcement initiatives may impact our business.

In addition, under the Civil Monetary Penalty Act of 1981, the U.S. Department of Health and Human Services Office of Inspector General has the authority to impose administrative penalties and assessments against any person, including an organization or other entity, who, among other things, knowingly presents, or causes to be presented, to a state or federal government employee or agent certain false or otherwise improper claims.

Laws and Licenses Relating to our Lines of Business

We are subject to various federal, state, local and international laws, rules and regulations relating to our industry and our specific lines of business, including, without limitation, workers’ compensation, auto-injury, civil procedure and insurance laws. These laws are wide-ranging in scope and effect and range from requiring that we register with a governmental agency to imposing specific limitations on how medical assessments must be scheduled and conducted and how payment must be collected.

In addition, in some jurisdictions, these laws require us to obtain and maintain licenses, certifications and/or accreditations in order to conduct business (as, for example, an independent review organization or utilization review agent). We are subject to periodic inspection by governmental and other authorities to assure continued compliance with the various standards necessary for licensing and accreditations. We are taking the steps that we believe are required to maintain or obtain all requisite licenses and certifications and to comply with these laws.

Laws Regarding Prohibition of Corporate Practice of Medicine and Fee Splitting Arrangements

The practice of most healthcare professions requires appropriate licensing under applicable U.S. state law. Some states prohibit general business entities, such as we are, from practicing medicine, controlling physicians’ medical decisions and engaging in some practices such as fee-splitting. Among other things, we currently contract with physicians to facilitate provision of IMEs in all 50 U.S. states. Although we are not in the business of providing healthcare or practicing medicine, and believe that we have structured our operations appropriately, we could be alleged or found to be in violation of some or all of these laws. If a state determines that some portion of our business violates these laws, it may seek to have us discontinue those portions or subject us to penalties, fines, certain license requirements or other measures. Any determination that we have acted improperly in this regard may result in liability to us. Even an unsuccessful challenge by regulatory authorities or others of our practices could result in adverse publicity and be costly to respond to.

Healthcare Reform Law

On March 23, 2010, the U.S. healthcare reform bill passed into law as the Patient Protection and Affordable Care Act as amended by the Healthcare and Education Reconciliation Act (together, “PPACA”). This law and related measures call for increased scrutiny of, and impose requirements on, physicians, employer plans and insurance companies, and their third party contractors; while we are not in the business of providing healthcare, to the extent we contract with these parties, these reforms may affect our business.  For example, PPACA now requires claims made under certain self-insured plans to be reviewed in accordance with certain appeal and external review processes, which has resulted in a need for PPACA peer review services. Many of the provisions of PPACA are either still being implemented or interpreted. As a result, we cannot yet predict the full effect of PPACA and related measures; however, as of this time, these reforms have not had, and we do not believe that these reforms will have, a significant negative impact on our business.

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Foreign Government Regulations and Regulation of Foreign Operations

In General. Our operations in Australia, Canada and the U.K. are subject to a variety of federal, regional and local regulations, including those related to privacy, security and employment, and those relating to our various lines of business.  In addition, doing business on a worldwide basis requires us to comply with the laws and regulations of the U.S. government and various international jurisdictions which may apply both inside and outside of the jurisdictions enacting them. These regulations may place restrictions on our operations, trade practices and partners and investment decisions. In particular, our operations are subject to U.S. and foreign anti-corruption laws and regulations, such as the U.S. Foreign Corrupt Practices Act (“FCPA”) and the Bribery Act, as described below. The FCPA prohibits us from providing anything of value to foreign officials for the purposes of influencing official decisions or obtaining or retaining business. As part of our business, we may directly or indirectly provide services to state-owned business enterprises, the employees of which may be considered foreign officials for purposes of the FCPA.  Violations of these regulations are punishable by civil penalties, including fines, injunctions, asset seizures, debarment from government contracts and revocations or restrictions of licenses, as well as criminal fines and imprisonment.

Australia. In Australia the federal Privacy Act 1988 (Cth) establishes and regulates a national scheme for the collection, use and disclosure of personal data by organizations, which includes private organizations that provide services in the health services sector.  This is the primary point of regulation regarding the disclosure of personal information and the protection of information held by our Australian businesses.

Canada. The Personal Information Protection and Electronic Documents Act (“PIPEDA”) is federal legislation that applies to federally regulated private sector organizations, including organizations in the transportation, communications, broadcasting and banking sectors, and to provincially regulated private sector organizations in provinces that have not enacted “substantially similar” legislation. PIPEDA applies to personal information which is collected, used or disclosed in the course of commercial activity that takes place across the Canadian border, between provinces, or within a Canadian province that has not enacted substantially similar legislation, and among other things, imposes consent obligations on the collection, use or disclosure of information, and requires that collected information be protected with reasonable privacy and security measures.  The province of British Columbia and Alberta have enacted the British Columbia Personal Information Protection Act and the Alberta Personal Information Protection Act, respectively.  In these provinces, the provincial legislation, which has been declared “substantially similar” to PIPEDA, applies to the use of personal information by private sector organizations in place of PIPEDA. In certain circumstances and provinces, additional provincial legislation may apply in addition to, or in the place of PIPEDA. Physicians and other persons providing services to us may also be subject to other provincial laws governing health information that is transmitted to us in connection with these services.

 United Kingdom. In the United Kingdom, the collection and use of personal data is principally governed by the Data Protection Act 1998 (the “Data Protection Act”). The Data Protection Act applies to the “processing” of “personal data”, with both of these terms being widely defined. Consequently, virtually every business operating in the United Kingdom holding information about employees, customers or anyone else is required to comply with the Data Protection Act which is administered and enforced by the Information Commissioner.  Subject to some limited exceptions, the Data Protection Act requires those subject to it to notify the Information Commissioner prior to commencing the processing of information. Notifications need to include specific information including: (i) the processor’s name, (ii) a description of the personal information being processed, (iii) the reasons the information needs to be processed, (iv) security measures in place relating to the information and (v) details about whom the information is processed by.

The Data Protection Act also imposes obligations on those processing personal data including: (i) a right for the individual to inspect their personal data, (ii) restrictions on the transfer of data outside the European Economic Area without adequate safeguards, (iii) a need to have in place appropriate security measures to safeguard the personal data, (iv) a requirement that the data held is not excessive in relation to the purpose for holding the information and (v) an obligation not to retain data longer than necessary. A breach of data protection legislation can result in civil and criminal sanctions as well as the risk of adverse publicity.  The European Union (“EU”) confirmed in late 2015 that it had agreed to the text of the new Data Protection Directive (“DP Directive”), which will have direct effect in all member states of the EU. The final text of the DP Directive has not yet been released but may require us to comply with requirements which are more stringent than the Data Protection Act. The DP Directive is due to come into force in early 2018. The future of the UK’s membership in the EU is currently uncertain as the UK will have a referendum before the end of 2017 to determine whether to remain as a member of the EU. If the UK elects not to remain as a member of the EU, whether the UK is required comply with EU legislation is also uncertain.

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 The Bribery Act 2012 (the “Bribery Act”) came into force in the United Kingdom in 2011, and it applies to both individuals and companies.  The Bribery Act makes it a criminal offense to give or receive a bribe, and it is also a corporate offense if a company fails to prevent bribery.  Non-U.K. companies are covered by the Bribery Act provided that they have some operations in the United Kingdom and could be prosecuted by the Serious Fraud Office in the United Kingdom.  A company will not be liable under the Bribery Act, however, if it can demonstrate that it had adequate procedures in place to prevent bribery.  Accordingly, we have implemented anti-bribery policies and procedures and have undertaken anti-bribery training with applicable staff throughout our U.K. operations.

In May 2012, the United Kingdom passed the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (“LASPO”).   LASPO imposed requirements and restrictions regarding personal injury and automobile insurance claims and the legal processes and procedures around them. While LAPSO does not regulate us directly, the legislation imposes restrictions on solicitor firms, claims management companies and other entities with which we do business, which could consequently affect our operations within the United Kingdom. To date, we have not experienced any significant changes in the manner in which our clients undertake business relations with us as a result of LASPO.

In October 2014, the United Kingdom government made changes to the Civil Procedure Rules (which govern civil litigation in England and Wales) (“CPR”). These changes introduced fixed fees for medical reports used in personal injury claims where the claimant is the occupant of a motor vehicle and the significant injury suffered by the claimant is a soft tissue injury (“Fixed Fee Report”). The fees chargeable by us following the introduction of the new fixed fee regime in respect of the relevant medical reports are lower than those that had been customarily charged by us prior to October 2014.

In April 2015, the United Kingdom government made additional changes to the CPR resulting in solicitors being required to source Fixed Fee Reports from a portal known as “Medco”, operated on behalf of the Ministry of Justice. At this time, Medco is a tiered system offering solicitors the option of instructing a medical expert directly or instructing one of a number of proposed medical agencies to obtain a medical report. At this time, the number of medical agencies returned in each search is subject to challenge, and, accordingly, we cannot yet predict the full effect of the changes to the CPR and the introduction of the Medco portal, and whether this will have an effect on, or present additional opportunities for, our business.

Intellectual Property

Our success and ability to compete depend in part on our ability to protect our intellectual property rights. We rely on a combination of copyright, trademark, trade secret and other related laws and confidentiality procedures and contractual provisions to protect, maintain and enforce our proprietary technology and intellectual property rights. Our two main intellectual properties are the registered trademark of “ExamWorks” and our ExamWorks domain name. We also own the copyright to the IME*Centric and eSummary software as well as the trademarks and service marks for the names of our acquired businesses and their domain names. With our acquisition of MES in 2011, we acquired the copyright to the MES OMS software as well as the registered trademark of “MES Solutions”. We own no patents.  In the U.S. and many foreign jurisdictions, trademark protection can potentially be perpetual, provided the relevant mark is still used in commerce and all applicable fees are paid. Likewise, domain names typically can be renewed perpetually upon the payment of applicable registrar and renewal fees. Copyrights have a limited duration, but such duration, in the U.S. for works made for hire, is 95 years from publication or 120 years from creation, whichever is earlier. As such, almost all copyrightable works are protected beyond their useful life. In the case of IME*Centric, the copyright is protected for approximately 70 years. All of our trademarks are currently used in commerce and we have paid all applicable trademark, domain name and copyright fees.

Despite our efforts to protect our proprietary technology and intellectual property rights, we may fail to adequately protect our copyright, trademark or trade secret rights, while trademark, copyright, and trade secret protection may be unavailable or limited in some countries or may expire or provide us commercial advantage for only a limited period of time. Furthermore, third parties may use our proprietary technology and intellectual property rights without our consent. As such, it is possible we will not be able to protect, maintain, or enforce our proprietary technology and intellectual property rights.

Employees

As of February 16, 2016, we had approximately 3,400 employees, approximately 2,900 of whom were full-time employees. None of our employees are represented by a union or collective bargaining agreement. We believe our relationship with our employees to be positive, which is a key component of our operating strategy. 

Our employees are required to participate in various training sessions each year. Our ongoing training and executive learning programs are modeled after the practices of companies that we believe have reputations for service excellence.

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Independent Contractors

We also have a medical panel consisting of credentialed physicians and other medical providers. Our member panel costs are variable, as members of our medical panel are mostly independent contractors, allowing us to effectively maintain and manage our operating margins.

Corporate Information

Our executive offices are located at 3280 Peachtree Road, N.E., Suite 2625, Atlanta, GA 30305 and our telephone number at this location is (404) 952-2400.

Our website is www.examworks.com.  Our annual reports on Form 10-K, including this Form 10-K, as well as our quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports are available, free of charge, on our website.  These reports are available as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission (“SEC”).  Information included or referred to on, or otherwise accessible through, our website is not intended to form a part of or be incorporated by reference into this report.

Item 1A. Risk Factors

Our operations and financial results are subject to various risks and uncertainties, including without limitation those described below, that could materially and adversely affect our business, financial condition, results of operations, performance and the trading price of our common stock. You should carefully consider the following risks as well as the other information included in this Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this Form 10-K.

We may not be able to maintain or increase our profitability.

We may not succeed in maintaining or increasing our profitability on an annual basis or could incur quarterly or annual losses in future periods. We expect to, among other things, continue to increase our operating expenses as we grow our business. We also expect to continue to make investments in our technology infrastructure, sales and marketing, and other resources as we seek to grow, thereby incurring additional costs. If our revenue does not increase to offset these increases in costs, our operating results would be negatively affected. You should not consider our historic revenue growth rates as indicative of future growth rates.

We may be unable to successfully integrate completed acquisitions and such acquisitions may fail to achieve the financial results we expected.

Since July 2008, we have acquired 56 IME services businesses. These acquisitions have involved, and could continue to involve, the integration of a separate company that previously operated independently and had different systems, processes and cultures, into our existing operations. While we expect to continue to evaluate potential strategic acquisitions that might augment our existing services, we may be unable to successfully integrate businesses we acquire, including our recently completed acquisitions, and such acquisitions may fail to achieve the financial results we expected. Integrating completed acquisitions into our existing operations, particularly larger acquisitions, involves numerous risks, including loss of clients, diversion of our management’s attention, failure to retain key personnel, and failure of the acquired business to be financially successful. In addition, we cannot be certain of the extent of any unknown or contingent liabilities of any acquired business, including liabilities for failure to comply with applicable laws. We may incur material liabilities for past activities of acquired businesses. Also, depending on the location of the acquired business, we may be required to comply with laws and regulations that may differ from those of the jurisdictions in which our operations are currently conducted. Our inability to successfully integrate businesses we acquire, or if such businesses do not achieve the financial results we expect, may increase our costs and have a material adverse impact on our financial condition and results of operations.

We may not be successful in implementing our growth strategy, including acquiring companies that complement our business, which would adversely impact our growth and profitability.

Our growth strategy is, in part, dependent on acquiring and integrating the operations of companies in the IME industry. To continue this strategic growth, we will need to continue to identify appropriate businesses to acquire and successfully undertake the acquisition of these businesses on reasonable terms. Although we expect to continue to evaluate acquisitions, we may not be successful in pursuing acquisition opportunities and implementing our growth strategy if, without limitation:

●  suitable acquisition candidates are not available;

●  acquisitions cannot be completed on reasonable terms;

● we inherit or assume significant liabilities relating to acquired entities or businesses, including liabilities for failure to comply with applicable laws; or

● we are unable to raise the funds necessary to make acquisitions.

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In addition, we may compete for acquisitions with other potential acquirers, some of which may have greater financial or operational resources than we do. If we are not successful in finding attractive acquisition candidates that we can acquire on satisfactory terms, or if we cannot complete those acquisitions that we identify, we will not be able to realize the benefit of this part of our growth strategy which could harm our future profitability.

If we finance acquisitions by issuing equity securities or securities convertible into equity securities, our existing stockholders will be diluted. If we finance an acquisition with debt, it will result in higher leverage and interest costs. As a result, if we fail to evaluate and execute acquisitions properly, we might not achieve the anticipated benefits of these acquisitions, and we may increase our acquisition costs.

The terms of certain of our acquisitions have included, and may in the future include, earnout provisions or the issuance of indebtedness to the seller. Such earnout provisions may require us to make additional payments in cash which would reduce the amount of cash available to us or could cause us to incur additional indebtedness or cause us to issue additional shares resulting in an increase in the number of our outstanding shares. In addition, these arrangements may make it more difficult to consummate such acquisitions and can sometimes complicate integration efforts.

Our international expansion and operations in foreign markets expose us to risks associated with international sales and operations.

We have significant operations in select foreign markets. Managing a global organization is difficult, time consuming, and expensive. Conducting international operations subjects us to risks that could be different than those faced by us in the United States. These risks include: lack of familiarity with and unexpected changes in foreign regulatory requirements; longer accounts receivable payment cycles and difficulties in collecting accounts receivable; difficulties in managing and staffing international operations; fluctuations in currency exchange rates; potentially adverse tax consequences, including foreign value added tax systems, and restrictions on the repatriation of earnings; the burdens of complying with a wide variety of foreign laws and legal standards; increased financial accounting and reporting burdens and complexities; and political, social, and economic instability abroad. Operating in international markets also requires significant management attention and financial resources. The investment and additional resources required to operate and manage growth in other countries may not produce desired levels of revenue or profitability.

New lines of business or new products and services may subject us to additional risks.

From time to time, we may implement or may acquire new lines of business or offer new products and services within existing lines of business. There are risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed or are evolving. In developing and marketing new lines of business and new products and services, we may invest significant time and resources. External factors, such as regulatory compliance obligations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on our business, results of operations and financial condition.

We are sensitive to regional weather conditions that may adversely affect our operations.

Our operations are directly affected in the short-term by the weather conditions in certain of our regions of operation. Therefore our business is sensitive to the weather conditions of these regions. Unusually inclement weather, including significant rain, snow, sleet, freezing rain or ice, can temporarily affect our operations if clients are forced to close operational centers, and physicians and claimants are unable to travel to their appointments. Accordingly, our operating results may vary from quarter to quarter, depending on the impact of these weather conditions.

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Natural and other disasters may adversely affect our business.

We may be vulnerable to damage from severe weather conditions or natural disasters, including hurricanes, fires, floods, earthquakes, power loss, communications failures and similar events, including the effects of war or acts of terrorism.  If a disaster were to occur, our ability to operate our business could be seriously or completely impaired or destroyed. The insurance we maintain may not be adequate to cover our losses resulting from disasters or other business interruptions.

We may need additional capital to fund our operations and finance our growth, and we may not be able to secure such capital on terms acceptable to us, or at all.

In order for us to grow and successfully execute our business plan, we may require additional financing which may not be available or may not be available on acceptable terms. If such financing is available, it may dilute the existing stockholders’ ownership interests in the Company. Failure to obtain financing may have a material adverse effect on our financial position and may cause you to lose your entire investment in the Company. In addition, if we are unable to secure additional financing on acceptable terms or at all, it will impact our ability to consummate acquisitions.

Our industry is regulated at the federal, state and local levels and government authorities may determine that we have failed to comply with applicable laws and regulations.

As a company involved in the provision of IME services, we are subject to certain federal, state and local laws and regulations. There are significant costs involved in complying with these laws and regulations. Moreover, if we are found to have violated any applicable laws and regulations, we could be subject to civil and/or criminal damages, fines, sanctions, or penalties and have our licenses revoked. If our arrangements or business practices become subject to government scrutiny or are found to violate laws or regulations, we could incur significant costs and may be required to modify certain aspects of our operations. Government audits, investigations and prosecutions, even if we ultimately are found to be without fault, can be costly and disruptive to our business and could result in the loss of clients. Any of these actions could have a material adverse effect on our business, financial condition and results of operations.

Our international operations require us to comply with applicable U.S. and international laws and regulations.

 Doing business on a worldwide basis requires us to comply with the laws and regulations of the U.S. government and various international jurisdictions. These regulations may place restrictions on our operations, trade practices and partners and investment decisions. In particular, our international operations are subject to U.S. and foreign anti-corruption laws and regulations, such as the FCPA and Bribery Act. Violations of these regulations are punishable by civil penalties, including fines, injunctions, asset seizures, debarment from government contracts and revocations or restrictions of licenses, as well as criminal fines and imprisonment. We have established policies and procedures designed to assist us and our personnel and contractors with compliance with applicable U.S. and international laws and regulations. However, there can be no assurance that our policies and procedures will effectively prevent the company and each of our personnel and contractors from violating these regulations in every transaction in which we or they may engage, and such a violation could adversely affect our reputation, business, financial condition, results of operations and cash flows.

Unintended consequences of health reform legislation in the U.S. may adversely affect our business.

The healthcare industry is undergoing fundamental changes resulting from political, economic and regulatory influences. In the U.S., comprehensive programs under PPACA being implemented that seek to, among other things, increase access to healthcare for the uninsured and control the escalation of healthcare expenditures within the economy. While we do not believe PPACA has had or will have a direct negative impact on our business, the legislation is still in the early stages of implementation and may have unintended consequences or indirectly impact our business. Also, in some instances our clients are health insurers that will be subject to limitations on their administrative expenses and new federal review of “unreasonable” rate increases which could impact the prices they are willing to pay for our services. If the legislation or related regulations cause such unintended consequences or indirect impact, it could have a material adverse effect on our business, financial condition and results of operations.

Changes in government regulations could increase our costs of operations and/or reduce the demand for our services, which would negatively impact our growth and profitability.

Governmental bodies in any of the regions in which we operate may review and consider legislation that may impact our business and our industry. Secondly, state, provincial and local administrative regulatory bodies may enact new regulations or interpret existing rules and regulations in a way that impacts our business and industry. If new laws, rules or regulations are implemented or changes are made to existing laws or regulations impacting the IME industry, we may be required to incur additional costs or make changes to our services which could have a material adverse impact on our financial condition and results of operations.

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In addition, the confidentiality and security of patient records and the circumstances under which such information may be used or released are subject to substantial regulation by state and federal laws and regulations. The provisions of HIPAA and other regulations governing privacy, security, and electronic health data transmissions, are evolving rapidly through regulation and are often unclear and difficult to apply. If we violate HIPAA, or other applicable state, federal or local laws or regulations, we could be subject to fines and penalties. Further, final or new regulations may require costly system purchases or additional modifications to our policies and procedures, which could have a material adverse impact on our financial condition and results of operations.

Changes in laws, at either the national,  state, or local level, making it more difficult to bring certain kinds of cases or that limit jury awards, commonly referred to as tort reform, could decrease the demand for our services.

Changes in laws making it more difficult to bring certain kinds of cases or that limit jury awards, commonly referred to as tort reform, could lead to a smaller number of insurance or other claims, which in turn could result in a decrease in demand for services we provide. The same is true of changes in laws that allow insurers to settle claims without the requirement of an IME in certain cases. Such a decrease in demand for our services could have a material adverse impact on our financial condition and results of operations.

We may not be able to maintain or expand our accreditation, which may adversely affect our ability to market our services.

Certain of our subsidiaries and divisions are accredited by third-party accreditation bodies. However, we may not be able to maintain or expand our accreditation which may adversely impact our ability to competitively market our services. The costs of initial accreditation and maintenance of accreditation may exceed our expectations, and the benefits of accreditation may be outweighed by the related costs.

If we cannot update and maintain our information technology platform so that we can meet critical client requirements, the competitiveness of our business will suffer.

Our information technology platform is critical to our competitive position and success. If we are unable, for technological or other reasons, to develop and introduce new software solutions or enhance our existing ones in a cost-effective and timely manner and to respond to changing market conditions or client requirements, our business, results of operations and financial conditions may be adversely affected.

We rely on a combination of internal development and strategic relationships to develop our infrastructure platform and software solutions. Our information technology platform is built in a Private Cloud Network. Our development and implementation of new generation software solutions and an information technology infrastructure may take longer than originally expected and require the acquisition of additional personnel and other resources, which may adversely affect our business, results of operations and financial condition. We devote significant resources to protecting our information and updating our software and systems. Expenses associated with these steps are significant and could increase. Also, any inability to deploy our technology platform through our entire organization could cause us to operate different platforms, slow integration efforts and increase costs.

Failures of, interruptions of, or a breach in security relating to, our information systems could adversely affect us.

Any system failure that causes an interruption in service or availability of our information technology infrastructure could adversely affect our operations. Even though we have implemented network security measures, our servers may be vulnerable to computer viruses, cyber-attacks, break-ins and similar disruptions from unauthorized tampering. In addition, certain of our services are based upon the collection, distribution and protection of sensitive private data. Unauthorized users might access that data, and human error or technological failures might cause the wrongful dissemination of that data. The occurrence of any of the events described above could result in interruptions, delays, the loss or corruption of data, cessations in the availability of systems or liability under privacy laws or contracts, each of which could have a material adverse effect on our financial position and results of operations.

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Our intellectual property rights are valuable, and if we are unable to protect them or are subject to intellectual property rights claims, our business may be harmed.

Our intellectual property rights include certain trademarks, copyrights and trade secrets, which are important assets for our business. Although we take precautions to protect our intellectual property rights, these efforts may not be sufficient or effective. In addition, various events outside of our control pose a threat to our intellectual property rights as well as to our business. For example, we may be subject to third-party intellectual property rights claims. Regardless of the merits of the claims, any intellectual property claims could be time-consuming and expensive to litigate or settle. In addition, if any claims against us are successful, we may have to pay substantial monetary damages or discontinue any of our practices that are found to be in violation of another party’s rights. We may also have to seek a license to continue such practices, which may significantly increase our operating expenses or may not be available to us at all. Any significant impairment of our intellectual property rights could harm our business or our ability to compete.

Our operations and reputation may be harmed if we do not adequately secure information.

Federal and state laws regulate the disclosure of certain medical test results and other nonpublic medical-related personal information. If we do not adequately safeguard such information and it were to become available to persons or entities that should not have access to it, our business could be impaired, our reputation could suffer and we could be subject to fines, penalties and litigation. In addition, any incidents with respect to the handling of such information could involve us in litigation or indemnification claims with members of our medical panel, our clients or other parties. Although we have implemented security measures to protect confidential information, our infrastructure is vulnerable to computer viruses, break-ins and similar disruptive problems caused by our clients or others, which could potentially jeopardize the security of confidential information stored physically at our locations or electronically in our computer systems. Such an event could damage our reputation, cause us to lose existing clients and deter potential clients, as well as expose us to liability to parties whose security or privacy has been infringed. Moreover, if we do not protect the confidentiality of private information in accordance with applicable laws, we could face significant civil or criminal sanctions. The occurrence of any of the foregoing events could adversely impact our business.

Competition in the IME industry could result in a reduction in our revenues and earnings and adversely affect our financial condition.

The IME industry is highly fragmented and competitive. Our primary competitors in the IME industry include companies and individual physicians that specialize in one or more services similar to those offered by us on a local or regional basis as well as insurance companies and other organizations which have established an in-house capability of performing such services. It is also possible that our clients may establish the in-house capability of performing certain services offered by us or decide to continue to use any of our numerous small local or regional competitors to service their needs. We also compete with national, regional and local firms specializing in case management, record retrieval, document management, medical records reviews and other services we provide. It is possible that now or in the future some of our competitors could have greater financial and market resources than us. Competition from existing competitors or new entrants to our key markets could cause us to lose clients, prevent price increases for our services or could require price reductions for our services, which would adversely affect our results of operations.

If we are unable to attract and retain qualified physicians and other medical providers to perform IME services on our behalf, our financial condition may suffer.

Our performance and future success depends on the talents and efforts of the physicians and other medical providers on our medical panel who perform the IME services on our behalf and on our ability to maintain good relations with those physicians and other medical providers. If we do not succeed in attracting qualified physicians and other medical providers, or retaining or motivating physicians or other medical providers, our performance may suffer and we may be unable to grow our business effectively. Further, we may be required to enhance compensation in order to recruit and retain physicians and other medical providers. As a result, our medical panel costs could increase and we may not be able to raise rates to offset these increased costs, which could have a material adverse effect on our results of operations.

Our clients may terminate their relationships with us or reduce the fees they pay us, which may have a negative impact on our business.

Our operations depend upon our relationships with our clients. Our clients are primarily insurance companies, law firms, TPAs, government agencies and state funds. We do not have formal written agreements with many of our clients and to the extent we do, such agreements do not generally restrict our clients from terminating or deciding not to renew our contracts. If clients attempt to introduce unfavorable terms or limit the services and products we provide them, our revenues could be negatively impacted. In addition, the termination of business by any of our clients, particularly our national account clients, could have a material adverse effect on our operations. There is no guarantee that we will be able to grow or retain our existing clients, particularly after acquisitions, or develop relationships with new clients, particularly national account clients.

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We may be subject to possible litigation and legal liability, which could adversely affect our business or results of operations.

Our medical panel members make recommendations concerning the appropriateness of providers’ medical treatment plans throughout the U.S., Canada, the United Kingdom and Australia, and we could share in potential liabilities for adverse medical consequences if the medical provider negligently provides its services or we and/or the medical provider are alleged to have inappropriately failed to certify a condition requiring care or treatment plans. We do not grant or deny claims for payment of benefits and we do not believe that we engage in the practice of medicine or the delivery of medical services. However, we may be or become subject to claims or litigation related to the grant or denial of claims for payment of benefits or allegations that we engage in the practice of medicine or the delivery of medical services. We credential our medical panel in a variety of ways, including utilizing a reputable contractor in many cases. If such credentialing is not carried out appropriately or if we do not re-credential at appropriate intervals to identify changes in licensure or other status, we may become subject to claims or litigation. Our clients might also allege that we negligently failed to detect provider fraud. Further, in performing our services, we or the medical provider may provide services that rely on the interpretation of reports or data prepared or gathered by third parties. If such information is not properly prepared or gathered, or is not accurate or complete, we may become subject to claims or litigation. In addition, we may become subject to other litigation that may adversely affect our business or results of operations. We maintain professional liability and other insurance as we believe are reasonable in light of our experience to date. However, such insurance may not be sufficient or available in the future at a reasonable cost to protect us from liability, which might adversely affect our business or results of operations.

If we lose our key management personnel or if we are unable to attract, hire, integrate and retain key personnel and other necessary employees, our business would be harmed.

We are dependent on our executive officers and other key personnel and those of the acquired companies, the loss of one or more of whom could materially and adversely affect us. Some of these personnel are new to the industry and some have been part of target companies for many years but may not have experience managing a larger company and integrating the separate operations of newly acquired entities. Currently, we do not have employment agreements with any of our executive officers. Our success will depend in large part on our ability to attract and retain talented and qualified employees as well as our executive officers. We may not be able to retain our executive officers and key employees or attract, assimilate and retain other qualified personnel in the future.

The terms of our indebtedness could restrict our operations, particularly our ability to respond to changes in our business or to take specified actions.

Our existing credit facility and the indenture governing our senior unsecured notes (the “Indenture”) contain, and any future indebtedness would likely contain, a number of restrictive covenants that impose significant operating and financial restrictions on us, including restrictions on our ability to take actions that may be in our best interests.

The credit facility and the Indenture include covenants, including requirements that:

●  restrict our ability to pay dividends on, repurchase or make distributions in respect of our capital stock or make other restricted payments;

●  limit our ability to make certain investments or sell or transfer assets;

●  limit our ability to incur additional debt;

●  restrict our ability to create certain liens; and

●  restrict our ability to consolidate, merge, sell or otherwise dispose of our properties or assets.

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The credit facility and the Indenture also include covenants which may require that we obtain consent from our lenders or noteholders with respect to acquisitions. Further, the credit facility requires that we grant security interests in newly-acquired companies; and that we do not impair our lenders’ security interest in our assets.

A breach of any of these covenants could result in a default under the credit facility and/or the Indenture. Upon the occurrence of an event of default, our lenders or noteholders could elect to declare all amounts outstanding to be immediately due and payable and our lenders could terminate all commitments to extend further credit. In addition, if we were unable to repay those amounts, the lenders under the credit facility could proceed against the collateral granted to them to secure such indebtedness. We have pledged all of our assets and personal property as collateral under the credit facility. If any of the lenders accelerate the repayment of borrowings, we may not have sufficient funds to repay our existing debt.

Our ability to comply with these provisions may be affected by general economic conditions, industry conditions and other events beyond our control. As a result, we may not be able to comply with these covenants. Our failure to comply with the covenants contained in our credit facility or the Indenture, including failure as a result of events beyond our control, could result in an event of default, which could materially and adversely affect our operating results and our financial condition.

We may be able to incur substantially more debt, which could further exacerbate the risks we face.

We and our subsidiaries have the ability to incur additional indebtedness in the future, subject to the restrictions contained in our credit facility and the Indenture. If we amend the credit facility and/or the Indenture to increase the level of our indebtedness or if we enter into new facilities to incur more debt, we may be faced with additional risks and restrictions on our operations, including the following:

●  an increase in our vulnerability to downturns or adverse changes in general economic, industry or competitive conditions and adverse changes in government regulations;

●  a requirement to dedicate a substantial portion of cash flow from operations to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities;

●  a limit on our ability to make strategic acquisitions;

●  a limit on our ability to obtain additional financing for working capital, capital expenditures, debt service requirements and general corporate or other purposes; and

●  a limit on our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors who are less highly leveraged.

The market price of our common stock may be volatile, which could cause the value of our common stock to decline.

The market price of our common stock may be volatile due to a number of factors including, without limitation, those listed in “Risk Factors” and the following, many of which are beyond our control:

●  quarterly variations in our results of operations;

●  results of operations that vary from the expectations of securities analysts and investors;

●  the failure of securities analysts to publish research about us or to make changes in their financial estimates;

●  results of operations that vary from those of our competitors;

●  changes in expectations as to our future financial performance and growth, including financial estimates by securities analysts and investors;

●  announcements by us, our competitors or our vendors of significant contracts, acquisitions, joint marketing relationships, joint ventures or capital commitments;

●  announcements by third parties or governmental entities of significant claims or proceedings against us;

●  new laws and governmental regulations applicable to the IME industry;

●  a default under agreements covering our existing or future indebtedness;

●  changes in currency exchange rates;

●  future sales of our common stock by us, directors, executives and significant stockholders; and

●  changes in economic and political conditions.

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Furthermore, from time to time the stock market experiences extreme volatility that particularly affects the market price of the stock of many smaller companies and that, in some cases, is unrelated or disproportionate to the operating performance of these companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our actual operating performance. Further, securities class action suits have been filed against companies following periods of market volatility in the price of their securities. If such an action is instituted against us, we may incur substantial costs and diversion of management attention and resources, which would seriously harm our business, financial condition and results of operations, regardless of the outcome of such litigation.

Evolving regulation of corporate governance and public disclosure may result in additional expenses and continuing uncertainty.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act, new SEC regulations, the Dodd–Frank Wall Street Reform and Consumer Protection Act and New York Stock Exchange rules are creating uncertainty for public companies. We continually evaluate and monitor developments with respect to new and proposed rules and cannot predict or estimate the amount of the additional costs we may incur or the timing of such costs. These new or changed laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

We are committed to maintaining high standards of corporate governance and public disclosure. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and we may be harmed.

Failure to maintain effective internal controls could have a material adverse effect on our business and stock price.

As a public company, we have significant requirements for financial reporting and internal controls. The process of maintaining and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. If we are unable to maintain appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations on a timely basis, result in material misstatements in our financial statements and harm our operating results. In addition, we are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting every fiscal year. Each assessment includes a disclosure of any material weaknesses identified by our management in our internal control over financial reporting, as well as a statement that our auditors have issued an attestation report on effectiveness of our internal controls. Testing and maintaining internal controls may divert our management’s attention from other matters that are important to our business. We may not be able to conclude in the future that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act or our independent registered public accounting firm may not issue an unqualified report. If either we are unable to conclude in the future that we have effective internal control over financial reporting or our independent registered public accounting firm is unable to provide us with an unqualified report, investors could lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.

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Future sales of shares by existing stockholders or the possibility or perception of such future sales could cause our stock price to decline.

Sales of a substantial number of shares of common stock in the public market, or the perception that these sales could occur, could substantially decrease the market price of our common stock. If our existing stockholders, including our key management personnel, sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the trading price of our common stock could decline. Substantially all of the shares of our common stock are eligible for sale in the public market.

The exercise of options or other equity awards or the issuance and/or payout of additional equity will result in dilution to our stockholders.

Under the Company’s Amended and Restated 2008 Stock Incentive Plan, as amended, the Company granted, and in the future intends to grant, awards of stock options to purchase common stock and other awards to our officers, directors, employees and consultants. As of February 16, 2016, approximately 3.7 million shares of our common stock were subject to issuance upon exercise of outstanding stock options, approximately 1.3 million shares were subject to vesting and payout under outstanding restricted stock units, and approximately 376,000 shares were subject to vesting and payout under outstanding restricted share awards.

Our stockholders’ ownership interest will be diluted by the exercise of any of these outstanding stock options or restricted stock units.

We will in the future grant stock options and other awards to certain current or future officers, directors, employees and consultants of the Company under additional plans or individual agreements. The grant and exercise of these awards, as applicable, will have the effect of diluting our stockholders’ ownership interests in the Company.

Further, we may need to raise additional funds in the future to finance our operations and/or acquire complementary businesses. If we obtain capital in future offerings, the value of the price per share of our stockholders’ common stock could be reduced. In addition, if we issue additional equity securities in a future offering and certain stockholders do not participate in such offering, there will effectively be dilution in their percentage ownership interest in the Company.

We may also issue additional equity securities in connection with other types of transactions, including shares issued as part of the purchase price for acquisitions of assets or other companies from time to time, in connection with strategic partnerships or joint ventures, or as incentives to management or other providers of resources to the Company. Such additional issuances are likely to have the same dilutive effect.

We do not currently intend to pay cash dividends on our common stock for the foreseeable future and our credit facility and Indenture restrict our ability to pay such cash dividends.

To date, the Company has not paid any dividends on its capital stock. The Company does not anticipate making any cash dividends or other distributions to the stockholders in the immediate or foreseeable future, and any future decision to make such distributions will be at the discretion of the Board of Directors of the Company, referred to herein as the “Board of Directors” or the “Board” and, in any event, will be dependent upon the Company’s financial condition, results of operations, capital requirements, contractual restrictions and such other factors as the Board of Directors deems relevant. Further, our existing credit facility and the Indenture restrict our ability to pay cash dividends, and any future financing agreements may also restrict our ability to pay any type of dividends. As a result, you may not receive any return on an investment in your shares of common stock unless you sell such shares for a price greater than that which you paid. In addition, to the extent we do not pay dividends, our common stock may be less valuable because a return on investment will only occur if and to the extent our stock price appreciates.

Your ability to influence corporate matters may be limited because a small number of stockholders beneficially own a substantial amount of our common stock and have substantial control over us.

As of February 16, 2016, our officers, directors and principal stockholders (greater than 5% stockholders) collectively beneficially own approximately 50.14% of our common stock. As a result, these stockholders may be able to exert significant influence over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as a merger or other sale of our Company or its assets, and may have interests that are different from yours and may vote in a way with which you disagree and which may be adverse to your interests. In addition, this concentration of ownership may have the effect of preventing, discouraging or deferring a change of control, which could depress the market price of our common stock.

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Transactions engaged in by our principal stockholders, our officers or directors involving our common stock may have an adverse effect on the price of our stock.

As described above, as of February 16, 2016, our officers, directors and principal stockholders (greater than 5% stockholders) collectively control approximately 50.14% of our common stock. Subsequent sales of our shares by these stockholders could have the effect of lowering our stock price. The perceived risk associated with the possible sale of a large number of shares by these stockholders, or the adoption of significant short positions by hedge funds or other significant investors, could cause some of our stockholders to sell their stock, thus causing the price of our stock to decline. In addition, actual or anticipated downward pressure on our stock price due to actual or anticipated sales of stock by our directors or officers could cause other institutions or individuals to engage in short sales of our common stock, which may further cause the price of our stock to decline.

From time to time our directors and executive officers may sell shares of our common stock on the open market. These sales will be publicly disclosed in filings made with the SEC. In the future, our directors and executive officers may sell a significant number of shares for a variety of reasons unrelated to the performance of our business. Our stockholders may perceive these sales as a reflection on management’s view of the business and result in some stockholders selling their shares of our common stock. These sales could cause the price of our stock to drop.

Certain provisions of our corporate governing documents and Delaware law could make an acquisition of our company more difficult.

Provisions contained in our amended and restated certificate of incorporation and Delaware law impose various procedural and other requirements, which could make it more difficult for a third party to acquire us or for stockholders to effect certain corporate actions. For example, our amended and restated certificate of incorporation authorizes our Board of Directors to determine the rights, preferences, privileges and restrictions of unissued series of preferred stock, without any vote or action by our stockholders. Therefore, the Board of Directors can authorize and issue shares of preferred stock with voting or conversion rights that could adversely affect the voting or other rights of holders of our common stock. In addition, our amended and restated certificate of incorporation and amended and restated bylaws provide for a staggered or classified board of directors consisting of three classes of directors, each serving staggered three-year terms. These rights may have the effect of delaying or deterring a change of control of our Company. These provisions could limit the price that certain investors may be willing to pay in the future for shares of our common stock.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

We lease our corporate headquarters at 3280 Peachtree Road, N.E., Suite 2625, Atlanta, GA 30305 (approximately 18,500 square feet). We also lease office space for our corporate office in New York, New York (approximately 3,100 square feet), as well as lease space for our 70 service centers in the U.S., Canada, the United Kingdom and Australia. The lease for our corporate headquarters in Atlanta, Georgia expires on October 1, 2020. The lease for our corporate office in New York expires on June 30, 2019. We expect to be able to renew each of our leases or to lease comparable facilities on terms commercially acceptable to us at each of our leased locations throughout the U.S., Canada, the United Kingdom and Australia. In addition, we own office facilities in Sarasota, Florida and Buffalo, New York.

We believe that our current facilities are sufficient for our current needs. We intend to add new facilities or expand existing facilities as we add employees or expand our geographic markets, and we believe that suitable additional or substitute space will be available as needed to accommodate any such expansion of our operations.

Item 3. Legal Proceedings

We are currently a party to various legal proceedings arising from the normal course of business activities. While we do not presently believe that the ultimate outcome of such proceedings will have a material adverse effect on our business, operating results or financial condition, litigation is subject to inherent uncertainties. If an unfavorable ruling were to occur, it is possible that such ruling could have a material adverse impact on our business, operating results or financial condition in the period in which the ruling occurs. Our current estimates of the potential impact from such legal proceedings could change in the future.

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Item 4. Mine Safety Disclosures

Not applicable.

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PART II

Item 5.     Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information for Common Stock

On October 28, 2010, our common stock commenced trading on the New York Stock Exchange under the symbol EXAM. The table below sets forth the high and low sales prices for our common stock for the periods indicated. 

	2014				2015
Quarter	High		Low		High		Low
First	$	37.40	$	28.16	$	44.00	$	36.55
Second	$	38.61	$	27.79	$	44.33	$	38.63
Third	$	36.30	$	30.07	$	39.69	$	26.36
Fourth	$	42.49	$	31.96	$	29.61	$	21.98

Stockholders

The number of record holders of our common stock as of February 16, 2016 was approximately 42 (excluding individual participants in nominee security position listings).

Dividend Policy

Since our incorporation in 2007, we have not declared or paid any dividends on our common stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business and do not anticipate paying cash dividends for the foreseeable future. Our existing credit facility and the Indenture restrict our ability to pay cash dividends, and any future financing agreements may also restrict our ability to pay any type of dividends.

Unregistered sales of equity securities sold during 2015

The Company issued shares of common stock upon the exercise of outstanding warrants at an exercise price of $6.63 per share on the dates set forth below. The warrants were issued on May 7, 2010. 

Date	Number of Shares
January 12, 2015	2,059
January 28, 2015	5,588
May 1, 2015	5,092
May 7, 2015	7,590

With respect to each issuance, the Company claims exemption from registration of the shares under Section 4(2) of the Securities Act of 1933, as amended, as a sale not involving a public offering.

Repurchases of Securities

In August 2011, the Company’s Board of Directors authorized the implementation of a share repurchase program to repurchase up to $20.0 million of outstanding shares of its common stock. On November 3, 2015, the Board of Directors approved an increase to the previously authorized share repurchase program. The modified program authorized the Company to repurchase up to $75.0 million of outstanding shares of its common stock. During the quarter ended December 31, 2015, the Company repurchased approximately 800,000 shares of common stock under the share repurchase program. These shares were repurchased at an average cost of $26.58 per share for a total cost of $21.3 million. There is no guarantee as to the number of shares, if any, that we may repurchase, and the Board of Directors may suspend or discontinue the repurchase program at any time.

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Period	Total Number Of Shares Purchased		Average Price Paid Per Share		Total Value of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
October 1 - October 31		—	$	—	$	—	$	10,192,204
November 1 - November 30		—	$	—	$	—	$	65,192,204
December 1 - December 31		800,062	$	26.58	$	21,267,301	$	43,924,903
Total		800,062	$	26.58	$	21,267,301	$	43,924,903

Equity Compensation

The following table provides information as of December 31, 2015 with respect to the shares of our common stock that may be issued under our existing equity compensation plan:  

Plan Category	Number of securities to be issued upon exercise of outstanding options and rights		Weighted average exercise price of outstanding options and rights		Number of securities remaining available for future issuance(2)
Equity compensation plans approved by security holders(1)		5,082,388	$	18.72		4,654,625
Equity compensation plans not approved by security holders		—		—		—
Total		5,082,388	$	18.72		4,654,625

(1) Includes our Amended and Restated 2008 Stock Incentive Plan, as amended.

(2) Number of securities available for future issuance represents securities available under the Amended and Restated 2008 Stock Incentive Plan, as amended.

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Performance Graph

The following performance graph compares the cumulative total shareholder return on an investment of $100 in our common stock on December 31, 2010 until December 31, 2015 with the total return of the Russell 3000 Index on which we are listed, and the S&P 600 Health Care Index on which we are listed.

  

* $100 invested on December 31, 2010 in stock or index including reinvestment of dividends.

	12/31/2010		12/30/2011		12/30/2012		12/31/2013		12/31/2014		12/31/2015
ExamWorks Group, Inc.	$	100.00	$	51.30	$	75.70	$	161.63	$	225.05	$	143.94
Russell 3000 Index	$	100.00	$	99.08	$	112.93	$	147.87	$	163.33	$	160.92
S&P 600 Healthcare Index	$	100.00	$	113.47	$	132.41	$	206.62	$	230.03	$	277.71

The stock performance included in this graph is not necessarily indicative of future stock performance.

Item 6. Selected Financial Data

The following tables set forth, for the periods and as of the dates indicated, our summary consolidated financial data. The summary consolidated statement of operations data for the years ended December 31, 2011 and 2012 is derived from previously audited financial statements, not included in this report.  The summary consolidated balance sheet data as of December 31, 2011, 2012 and 2013 is derived from previously audited financial statements, not included in this report. The summary consolidated statement of operations data for the years in the three-year period ended December 31, 2015 and the summary consolidated balance sheet data as of December 31, 2014 and 2015 are derived from our audited consolidated financial statements. Historical results are not indicative of the results to be expected in the future.

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You should read the following selected consolidated financial data below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”  and the consolidated financial statements, related notes and other financial information included in this Form 10-K. The significant changes in balances impacting comparability are the result of business combinations. See further discussion in Note 3 to the Consolidated Financial Statements.

Consolidated Statement of	For the years ended December 31,
Operations Data:(1)	2011			2012			2013			2014		2015
	(In thousands, except per share data)
Revenues	$	397,860		$	521,237		$	616,016		$	775,615	$	819,567
Costs and expenses:
Costs of revenues		262,242			344,051			405,329			497,038		536,494
Selling, general and administrative expenses		84,133			113,510			133,870			171,197		166,650
Depreciation and amortization		47,439			58,551			62,748			60,280		55,691
Total costs and expenses		393,814			516,112			601,947			728,515		758,835
Income from operations		4,046			5,125			14,069			47,100		60,732
Interest and other expenses, net		16,461			28,051			29,641			32,171		52,537
Income (loss) before income taxes		(12,415	)		(22,926	)		(15,572	)		14,929		8,195
Provision (benefit) for income taxes		(4,082	)		(7,987	)		(5,356	)		4,435		2,604
Net income (loss)	$	(8,333	)	$	(14,939	)	$	(10,216	)	$	10,494	$	5,591
Net income (loss) per share attributable to common stockholders
Basic	$	(0.25	)	$	(0.44	)	$	(0.29	)	$	0.27	$	0.14
Diluted	$	(0.25	)	$	(0.44	)	$	(0.29	)	$	0.25	$	0.13
Weighted average number of common shares outstanding
Basic		33,975			34,141			35,315			38,656		41,111
Diluted		33,975			34,141			35,315			41,232		43,044
Other Financial Data:
Adjusted EBITDA(2)	$	63,304		$	79,789		$	97,461		$	132,140	$	140,745

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	As of December 31,
	2011		2012		2013		2014		2015
						(In thousands)
Consolidated Balance Sheet
Data:(1)
Cash and cash equivalents	$	8,416	$	8,627	$	12,829	$	9,751	$	47,865
Current assets		159,797		159,889		190,250		231,958		312,081
Total assets		627,039		740,501		732,513		930,144		1,051,681
Current portion of working capital facilities		—		5,983		—		40,396		—
Current portion of subordinated unsecured notes payable		1,932		275		318		—		—
Current liabilities		90,113		110,126		116,134		179,899		140,332
Senior unsecured notes		250,000		250,000		250,000		250,000		500,000
Revolving line of credit and working capital facilities, less current portion		44,063		128,402		82,970		143,853		35,243
Long-term subordinated unsecured notes payable, less current portion		717		300		—		—		—
Total liabilities		389,115		496,353		459,642		585,269		691,646
Total stockholders’ equity	$	237,924	$	244,148	$	272,871	$	344,875	$	360,035

(1)     The significant changes in balances impacting comparability are the result of business combinations. See further discussion in Note 3 of the Notes to Consolidated Financial Statements.

(2)     Adjusted EBITDA is a non-GAAP measure that is described and reconciled from net income (loss) below and is not a substitute for the GAAP equivalent. We define Adjusted EBITDA as earnings before interest, taxes, depreciation, amortization, acquisition-related transaction costs, stock based compensation expenses, and other expenses. We believe that Adjusted EBITDA is an important measure of our operating performance because it allows management, lenders, investors and analysts to evaluate and assess our core operating results from period to period after removing the impact of changes to our capitalization structure, acquisition related costs, income tax status, and other items of a non-operational nature that affect comparability. The following table presents a reconciliation of Adjusted EBITDA to net income (loss), the most comparable GAAP measure, for each of the periods indicated. See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Adjusted EBITDA.”

	For the years ended December 31,
	2011			2012			2013			2014		2015
								(In thousands)
Reconciliation to Adjusted
EBITDA:
Net income (loss)	$	(8,333	)	$	(14,939	)	$	(10,216	)	$	10,494	$	5,591
Share-based compensation expense (i)		7,834			13,756			17,157			20,024		22,289
Depreciation and amortization expense		47,439			58,551			62,748			60,280		55,691
Acquisition-related transaction costs		3,107			1,655			2,134			3,535		2,421
Other (income) expenses (ii)		878			702			1,353			1,201		(388	)
Interest and other expenses, net		16,461			28,051			29,641			32,171		52,537
Provision (benefit) for income taxes		(4,082	)		(7,987	)		(5,356	)		4,435		2,604
Adjusted EBITDA	$	63,304		$	79,789		$	97,461		$	132,140	$	140,745

(i) Share-based compensation expense of $2.0 million, $3.0 million, $2.9 million, $2.0 million and $1.2 million is included in costs of revenues for the year ended December 31, 2011, 2012, 2013, 2014 and 2015, respectively, and the remainder is included in SGA expenses.

(ii) Other (income) expenses consist principally of integration related expenses, such as facility termination, severance and relocation costs and gains or losses on earnout settlements associated with our acquisition strategy.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read together with “Selected Consolidated Financial Data,” and our consolidated financial statements and the related notes and the other financial information appearing elsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report, particularly under “Risk Factors” and “Forward-Looking Statements.” All forward-looking statements in this document are based on information available to us as of the date hereof, and we assume no obligation to update any such forward-looking statements.

Our Business

We are a leading provider of IMEs, peer and bill reviews, Medicare compliance, case management and other related services, which include legal support services, administrative support services and medical record retrieval services. We were incorporated as a Delaware corporation on April 27, 2007. From July 14, 2008 through the date of this filing, we have acquired 56 IME services businesses, including a leading provider of software solutions to the IME industry. We currently operate out of 70 service centers servicing all 50 U.S. states, Canada, the United Kingdom and Australia. We conduct our business through four geographic segments: the United States, Canada, the United Kingdom and Australia.

We provide our services to property and casualty insurance carriers, law firms, third-party claim administrators, government agencies, and state funds that use independent services to confirm the veracity of claims by sick or injured individuals and to facilitate the delivery and quality of cost-effective care for workers’ compensation, automotive, personal injury liability and disability insurance coverage. We help our clients manage costs and enhance their risk management processes by verifying the validity, nature, cause and extent of claims, identifying fraud and providing fast, efficient and quality IME services.

We provide our clients with the local presence, expertise and broad geographic coverage they increasingly require. Our size and geographic reach give our clients access to our medical panel of credentialed physicians and other medical providers and our proprietary information technology infrastructure that has been specifically designed to streamline the complex process of coordinating referrals, scheduling appointments, complying with regulations and client reporting. Our primary service is to provide IMEs that give our clients authoritative and accurate answers to questions regarding the nature and permanency of medical conditions or personal injury, their cause and appropriate treatment. Additionally, we provide peer and bill reviews, which consist of medical opinions by members of our medical panel without conducting physical exams, and the review of physician and hospital bills to examine medical care rendered and its conformity to accepted standards of care. Further, we provide Medicare compliance services, including Medicare set-aside and reporting services that help mitigate costs and promote compliance, and case management services, which include managing the medical and vocational cases of injured workers to facilitate timely recovery and/or return to work. Lastly, we provide record retrieval, document management and electronic summary services, which services are critical for efficient and effective handling of claims and litigation processes, including the provision of IMEs. Prior to the MES acquisition in February 2011, we marketed our services primarily under the ExamWorks brand.  Initially with the MES acquisition and subsequently with the Premex and MedHealth acquisitions, we began to market our services under several brands, including but not limited to, ExamWorks, MES, Premex and MedHealth. Further, with the acquisition of Gould & Lamb in February 2014 and Ability Services Network and MedAllocators in June 2014, we expanded our presence in Medicare compliance services, including Medicare set-aside and reporting services, that help mitigate costs and promote compliance, and case management services, which include managing the medical and vocational cases of injured workers to facilitate timely recovery and/or return to work. These services are marketed under ExamWorks Clinical Solutions. Lastly, with the acquisition of ABI in January of 2016, we entered the complementary record retrieval and document management services market of our industry which consists of retrieving, sorting and summarizing records and other documents used to resolve insurance claims or facilitate other IME services. 

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We operate in a highly fragmented industry and have completed numerous acquisitions. A key component of our business strategy is growth through acquisitions that expand our geographic coverage, provide new or complementary lines of business, expand our portfolio of services, and increase our market share. For example, our acquisition of MedHealth in August 2012 enabled us to enter the Australian market, expand our range of clients and services, and increase our international market presence.  Another central feature of our business strategy is to grow our business organically by selling additional services to existing clients, cross-selling into additional insurance lines of business and expanding our geographic footprint with existing clients. For example, our acquisitions of Gould & Lamb, ASN and MedAllocators in 2014 enabled us to expand our presence in the Medicare compliance and case management markets, and our acquisition of ABI in January 2016 enabled us to establish our presence in the record retrieval and document management markets, and expand our range of services to new and existing clients. To date, we have completed the following 56 acquisitions:

Acquisition Date	Name
January 19, 2016	•	Advanced Medical Reviews
January 8, 2016	•	ABI
November 23, 2015	•	Argent
October 30, 2015	•	First Choice
July 13, 2015	•	Karen Rucas & Associates
April 14, 2015	•	Landmark Exams & Maven Exams
January 2, 2015	•	ReliableRS
August 22, 2014	•	Expert Medical Opinions
June 6, 2014	•	Ability Services Network and MedAllocators
May 30, 2014	•	Solomon Associates
February 14, 2014	•	Assess Medical
February 3, 2014	•	Gould & Lamb
January 16, 2014	•	Newton Medical Group
January 13, 2014	•	Cheselden
December 20, 2013	•	Evaluation Resource Group
December 10, 2013	•	AGS Risk Limited
December 19, 2012	•	PMG
August 31, 2012	•	MedHealth
July 12, 2012	•	Makos
October 27, 2011	•	Bronshvag
October 24, 2011	•	Matrix Health Management
October 3, 2011	•	Capital Vocational Specialists
	•	North York Rehabilitation Centre
September 28, 2011	•	MLS Group of Companies
	•	Medicolegal Services
May 10, 2011	•	Premex Group
February 28, 2011	•	MES Group
February 18, 2011	•	National IME Centres
December 20, 2010	•	Royal Medical Consultants
October 1, 2010	•	BMEGateway
September 7, 2010	•	UK Independent Medical Services
September 1, 2010	•	Health Cost Management
August 6, 2010	•	Verity Medical
	•	Exigere
June 30, 2010	•	SOMA Medical Assessments
	•	Direct IME
	•	Network Medical Review
	•	Independent Medical Services
	•	401 Diagnostics
March 26, 2010	•	Metro Medical Services
March 15, 2010	•	American Medical Bill Review
	•	Medical Evaluations
December 31, 2009	•	Abeton
	•	Medical Assurance Group
	•	MedNet I.M.S.
	•	Qualmed
	•	IME Operations of Physicians' Practice
August 14, 2009	•	The Evaluation Group
August 4, 2009	•	Benchmark Medical Consultants
July 7, 2009	•	IME Software Solutions
May 21, 2009	•	Florida Medical Specialists
	•	Marquis Medical Administrators
April 17, 2009	•	Ricwel
July 14, 2008	•	CFO Medical Services
	•	Crossland Medical Review Services
	•	Southwest Medical

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Sources of Revenues and Expenses

Revenues

We derive revenue primarily from fees charged for independent medical examinations, peer and bill reviews, Medicare compliance services, case management services and other related services, which include litigation support services, administrative support services and medical record retrieval and document management services. Revenues are recognized at the time services have been performed and, if applicable, at the time the report is shipped to the end user. We expect revenue to continue to increase through acquisition and organic growth.  Our revenue is derived from services performed in different geographic areas.

Certain agreements with customers in the U.K. include provisions whereby collection of the amounts billed are contingent on the favorable outcome of the claim.  We have deemed these provisions to preclude revenue recognition at the time of performance, as collectability is not reasonably assured and the cash payments are contingent, and are deferring these revenues, net of estimated costs, until the case has been settled and the contingency has been resolved and the cash has been collected.

Costs of revenues

Costs of revenues are comprised of fees paid to members of our medical panel; other direct costs including transcription, film and medical record obtainment and transportation; and other indirect costs including labor and overhead related to the generation of revenue. We expect these operationally driven costs to increase to support future revenue growth and as we continue to grow through acquisitions.

Selling, general and administrative expenses

Selling, general and administrative (“SGA”) expenses consist primarily of expenses for administrative, human resource related, corporate information technology support, legal (primarily from transaction costs related to acquisitions), finance and accounting personnel, professional fees (primarily from transaction costs related to acquisitions), insurance and other corporate expenses. We expect that SGA expenses will increase as we continue to add personnel to support the growth of our business and pursue acquisition growth. As a result, we expect that our SGA expenses will continue to increase in the future but decrease as a percentage of revenue over time as our revenue increases.

Depreciation and amortization

Depreciation and amortization (“D&A”) expense consists primarily of amortization of our finite lived intangible assets obtained through acquisitions completed to date and, to a lesser extent, depreciation of property, equipment and leasehold improvements. We expect that depreciation and amortization expense will decrease as a percentage of revenues as our finite lived intangible assets become fully amortized.

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Results of Operations

The following table sets forth our consolidated statements of operations data for each of the periods indicated (in thousands, except per share data): 

	For the years ended December 31,
	2013			2014		2015
Revenues	$	616,016		$	775,615	$	819,567
Costs and expenses:
Costs of revenues		405,329			497,038		536,494
Selling, general and administrative expenses		133,870			171,197		166,650
Depreciation and amortization		62,748			60,280		55,691
Total costs and expenses		601,947			728,515		758,835
Income from operations		14,069			47,100		60,732
Interest and other expenses, net		29,641			32,171		52,537
Income (loss) before income taxes		(15,572	)		14,929		8,195
Provision (benefit) for income taxes		(5,356	)		4,435		2,604
Net income (loss)	$	(10,216	)	$	10,494	$	5,591
Per share data
Net income (loss) per share:
Basic	$	(0.29	)	$	0.27	$	0.14
Diluted	$	(0.29	)	$	0.25	$	0.13
Weighted average number of common shares outstanding:
Basic		35,315			38,656		41,111
Diluted		35,315			41,232		43,044
Other Financial Data:
Adjusted EBITDA(1)	$	97,461		$	132,140	$	140,745

(1) Adjusted EBITDA is a non-GAAP measure that is described and reconciled to net income (loss) in the next section and is not a substitute for the GAAP equivalent.

Adjusted EBITDA

In connection with the ongoing operation of our business, our management regularly reviews Adjusted EBITDA, a non-GAAP financial measure, to assess our performance. We define Adjusted EBITDA as earnings before interest, taxes, depreciation, amortization, acquisition-related transaction costs, share-based compensation expenses, and other expenses. We believe that Adjusted EBITDA is an important measure of our operating performance because it allows management, lenders, investors and analysts to evaluate and assess our core operating results from period to period after removing the impact of changes to our capitalization structure, acquisition related costs, income tax status, and other items of a non-operational nature that affect comparability.

We believe that various forms of the Adjusted EBITDA metric are often used by analysts, investors and other interested parties to evaluate companies such as ours for the reasons discussed above. Additionally, Adjusted EBITDA is used to measure certain financial covenants in our credit facility. Adjusted EBITDA is also used for planning purposes and in presentations to our Board of Directors as well as in our incentive compensation programs for our employees.

Non-GAAP information should not be construed as an alternative to GAAP information, as the items excluded from the non-GAAP measures often have a material impact on our financial results. Management uses, and investors should use, non-GAAP measures in conjunction with our GAAP results.

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The following table presents a reconciliation to Adjusted EBITDA from net income (loss), the most comparable GAAP measure, for each of the periods indicated (in thousands):

	For the years ended December 31,
	2013			2014		2015
Reconciliation to Adjusted EBITDA:
Net income (loss)	$	(10,216	)	$	10,494	$	5,591
Share-based compensation expense (i)		17,157			20,024		22,289
Depreciation and amortization		62,748			60,280		55,691
Acquisition-related transaction costs		2,134			3,535		2,421
Other (income) expenses (ii)		1,353			1,201		(388	)
Interest and other expenses, net		29,641			32,171		52,537
Provision (benefit) for income taxes		(5,356	)		4,435		2,604
Adjusted EBITDA	$	97,461		$	132,140	$	140,745

(i)  Share-based compensation expense of $2.9 million, $2.0 million and $1.2 million is included in costs of revenues for the year ended December 31, 2013, 2014 and 2015, respectively, and the remainder is included in SGA expenses.

(ii)  Other (income) expenses consist principally of integration related expenses, such as facility termination, severance and relocation costs and gains or losses on earnout settlements associated with our acquisition strategy.

Comparison of the Years Ended December 31, 2015 and 2014

As stated previously, our revenues consist primarily of fees charged for IME services performed. What we are able to charge per IME service performed depends on many factors relating to the type of IME services that our clients request. Those factors include, among others, (1) the line of business (e.g., worker’s compensation, automotive or liability claim), (2) product group (e.g., IME or peer review), (3) the geographic location of the claimant and (4) the medical panel provider we are able to use and his or her specialty. These factors impact the revenue generated by each IME service request differently and are largely out of our control.  As a result, our management team focuses its efforts on increasing the volume of IME service requests received and completed and not necessarily their type. Changes in revenue that we cannot attribute to increases or decreases in volume we attribute to changes in sales mix. Our largest cost is payments made to members of our medical panel. For the majority of our revenues, these costs are variable, as most of the medical panel members are independent contractors, allowing us to maintain and manage our costs of revenues more effectively.

Revenues. Revenues were $819.6 million for the year ended December 31, 2015 compared to $775.6 million for the year ended December 31, 2014, an increase of $44.0 million, or 6%. Of the increase in revenues compared to 2014, $33.3 million, or 4%, was attributable to acquisitions completed in 2014 and 2015 and $10.7 million, or 1%, was due to growth in our existing businesses. 

● U.S. segment revenues were $511.3 million for the year ended December 31, 2015 compared to $468.4 million for the year ended December 31, 2014, an increase of $42.9 million, or 9%. Of the increase in U.S. revenues compared to 2014, $28.3 million, or 6%, was attributable to acquisitions completed in 2014 and 2015 and $14.6 million, or 3%, was due to growth in our existing businesses, of which approximately 60% related to increases in our IME and other related services product group. Of the 3% growth in our existing businesses, approximately 6% of the growth was due to increased service volumes, offset by an unfavorable change in sales mix.

● Canada segment revenues were $37.5 million for the year ended December 31, 2015 compared to $32.9 million for the year ended December 31, 2014, an increase of $4.6 million, or 14%. Of the increase in Canada revenues compared to 2014, $400,000, or 1%, was attributable to an acquisition completed in 2015 and $4.2 million, or 13%, was due to growth in our existing businesses. Excluding the impact of currency, the existing Canada businesses grew 30.5%. The constant currency growth in Canada revenues compared to 2014 was primarily due to increased IME service volumes, and to a lesser extent, a favorable change in sales mix.

● U.K. segment revenues were $190.2 million for the year ended December 31, 2015 compared to $189.8 million for the year ended December 31, 2014, an increase of $449,000, or 0.2%. Of the increase in U.K. revenues compared to 2014, $2.9 million, or 2%, was attributable to acquisitions completed in 2014 and 2015, offset by a decline of $2.4 million, or 1.3%, in our existing businesses. Excluding the impact of currency, the existing U.K. businesses grew 6.4%. The constant currency growth in U.K. revenues compared to 2014 was due to increased IME service volumes.

● Australia segment revenues were $80.6 million for the year ended December 31, 2015 compared to $84.6 million for the year ended December 31, 2014, a decrease of $4.0 million, or 5%. Of the decrease in Australia revenues compared to 2014, $5.7 million, or 7%, was due to a decline in our existing businesses, offset by an increase of $1.7 million, or 2%, attributable to an acquisition completed in 2014. Excluding the impact of currency, the existing Australia business grew 11.9%. The constant currency growth in Australian revenues compared to 2014 was primarily due to increased IME service volumes, and to a lesser extent, a favorable change in sales mix.

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Costs of revenues. Costs of revenues were $536.5 million for the year ended December 31, 2015 compared to $497.0 million for the year ended December 31, 2014, an increase of $39.5 million, or 8%. Of the increase in costs of revenues compared to 2014, $25.7 million, or 5%, was attributable to acquisitions completed in 2014 and 2015 and $13.7 million, or 3%, was related to our existing businesses and was primarily attributable to an increase in fees paid to members of our medical panel, as these fees are variable in nature, and, to a lesser extent, an increase in other direct costs. Costs of revenues as a percentage of revenues was 65.5% for the year ended December 31, 2015, a 1.4% increase from 64.1% for the year ended December 31, 2014.

Selling, general and administrative. SGA expenses were $166.7 million for the year ended December 31, 2015 compared to $171.2 million for the year ended December 31, 2014, a decrease of $4.5 million, or 3%. Of the decrease in SGA expenses compared to 2014, an increase of $5.9 million, or 3%, attributable to acquisitions completed in 2014 and 2015, offset by a decrease of $10.5 million, or 6%, related to our existing businesses primarily attributable to $3.7 million in decreased personnel expenses and the remainder resulting primarily from decreases in referral commissions in our U.K. business. In addition, acquisition-related transaction costs and other expenses decreased $2.7 million primarily due to lower acquisition activity in 2015.

Depreciation and amortization. D&A expenses were $55.7 million for the year ended December 31, 2015 compared to $60.3 million for the year ended December 31, 2014, a decrease of $4.6 million, or 8%. D&A attributable to our existing businesses decreased $10.5 million as historic, finite-lived intangible and tangible assets became fully amortized, offset by an increase of $6.0 million of D&A attributable to acquisitions completed in 2014 and 2015.

Interest and other expenses, net. Interest and other expenses, net were $52.5 million for the year ended December 31, 2015 compared to $32.2 million for the year ended December 31, 2014, an increase of $20.4 million, or 63%. Interest and other expenses, net, increased primarily due to the aggregate $18.6 million loss on early extinguishment of debt charge recorded in the second quarter of 2015 in conjunction with fees associated with the early redemption of the Senior Unsecured Notes and the write-off of previously capitalized financing costs.

Provision (benefit) for income taxes. Provision for income taxes was $2.6 million for the year ended December 31, 2015 compared with a provision for income taxes of $4.4 million for the year ended December 31, 2014, a decrease of $1.8 million, or 41%. Our effective income tax rate was approximately 32% and 30% for the years ended December 31, 2015 and 2014, respectively. The tax rates in the 2015 and 2014 periods were impacted primarily by elections made for certain foreign acquisitions, foreign rate differentials and non-deductible items.

Net income (loss). For the foregoing reasons, net income was $5.6 million for the year ended December 31, 2015 compared to $10.5 million for the year ended December 31, 2014.

Adjusted EBITDA. Adjusted EBITDA was $140.7 million for the year ended December 31, 2015 compared to $132.1 million for the year ended December 31, 2014, an increase of $8.6 million, or 7%. The increase in Adjusted EBITDA was primarily due to the 6% increase in revenues and the positive operating leverage resulting from this increased revenue. Adjusted EBITDA is also described as Segment Profit elsewhere in this Report.

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● U.S. segment Adjusted EBITDA was $82.8 million for the year ended December 31, 2015 compared to $76.1 million for the year ended December 31, 2014, an increase of $6.7 million, or 9%. The increase in U.S. segment Adjusted EBITDA was due to the 9% increase in U.S. segment revenues and a similar percentage increase in costs of revenues and SGA expenses primarily due to an increase in fees paid to members of our medical panel, as these fees are variable in nature, and increased personnel expense to support the growth in our business, excluding share-based compensation.

● Canada segment Adjusted EBITDA was $5.4 million for the year ended December 31, 2015 compared to $4.7 million for the year ended December 31, 2014, an increase of $740,000, or 16%. On a constant currency basis, Canada segment Adjusted EBITDA increased 35%. The constant currency increase in Canada segment Adjusted EBITDA was due to the 32% increase in Canada segment revenues offset by a slightly lower percentage increase in costs of revenues and SGA expenses primarily due to increased fees paid to members of our medical panel, as these fees are variable in nature, reflecting positive operating leverage.

● U.K. segment Adjusted EBITDA was $34.8 million for the year ended December 31, 2015 compared to $32.9 million for the year ended December 31, 2014 an increase of $1.9 million, or 6%. On a constant currency basis, U.K. segment Adjusted EBITDA increased 13%. The constant currency increase in U.K segment Adjusted EBITDA was due to the 8% increase in U.K. segment revenues offset by a 7% increase in costs of revenues and SGA expenses primarily due to increased fees paid to members of our medical panel, as these fees are variable in nature, reflecting positive operating leverage. U.K. segment Adjusted EBITDA was also negatively impacted by a legislative change in the U.K., which impacted revenues and U.K. segment Adjusted EBITDA.

● Australia segment Adjusted EBITDA was $17.8 million for the year ended December 31, 2015 compared to $18.5 million for the year ended December 31, 2014, a decrease of $686,000, or 4%. On a constant currency basis, Australia segment Adjusted EBITDA increased 16%. The constant currency increase in Australia segment Adjusted EBITDA was due to the 14% increase in Australia segment revenues offset by a slightly lower increase in costs of revenues and SGA expenses primarily due to increased fees paid to members of our medical panel, as these fees are variable in nature, and increased personnel expenses, reflecting positive operating leverage.

Comparison of the Years Ended December 31, 2014 and 2013

Revenues. Revenues were $775.6 million for the year ended December 31, 2014 compared to $616.0 million for the year ended December 31, 2013, an increase of $159.6 million, or 26%. Of the increase in revenues compared to 2013, $71.3 million, or 12%, was attributable to acquisitions completed in 2013 and 2014 and $88.3 million, or 14%, was due to growth in our existing businesses.

● U.S. segment revenues were $468.4 million for the year ended December 31, 2014 compared to $374.8 million for the year ended December 31, 2013, an increase of $93.6 million, or 25%. Of the increase in U.S. revenues compared to 2013, $53.6 million, or 14%, was attributable to acquisitions completed in 2013 and 2014 and $40.0 million, or 11%, was due to growth in our existing businesses, of which approximately 65% related to increases in our IME and other related services product group. Of the 11% growth in our existing businesses, approximately 90% of the growth was due to increased service volumes and the balance was due to a change in sales mix.

● Canada segment revenues were $32.9 million for the year ended December 31, 2014 compared to $31.1 million for the year ended December 31, 2013, an increase of $1.8 million, or 6%. Excluding the impact of currency, the existing Canada businesses grew 13%. The constant currency growth in Canada revenues compared to 2013 was due to increased IME service volumes.

● U.K. segment revenues were $189.8 million for the year ended December 31, 2014 compared to $143.4 million for the year ended December 31, 2013, an increase of $46.3 million, or 32%. Of the increase in U.K. revenues compared to 2013, $6.7 million, or 5%, was attributable to acquisitions completed in 2013 and 2014 and $39.6 million, or 27%, was due to growth in our existing businesses. Excluding the impact of currency, the existing U.K. businesses grew 21%. The constant currency growth in U.K. revenues compared to 2013 was primarily due to increased IME service volumes, offset by an unfavorable change in sales mix.

● Australia segment revenues were $84.6 million for the year ended December 31, 2014 compared to $66.7 million for the year ended December 31, 2013, an increase of $17.9 million, or 27%. Of the increase in Australia revenues compared to 2013, $11.0 million, or 17%, was attributable to an acquisition completed in 2014 and $6.9 million, or 10%, was due to growth in our existing businesses. Excluding the impact of currency, the existing Australia business grew 18%. The constant currency growth in Australian revenues compared to 2013 was equally due to increased IME service volumes and a favorable change in sales mix.

Costs of revenues. Costs of revenues were $497.0 million for the year ended December 31, 2014 compared to $405.3 million for the year ended December 31, 2013, an increase of $91.7 million, or 23%. Of the increase in costs of revenues compared to 2013, $34.5 million, or 9%, was attributable to acquisitions completed in 2013 and 2014 and $57.2 million, or 14%, was related to our existing businesses and primarily attributable to increased fees paid to members of our medical panel as these costs are variable in nature and, to a lesser extent, an increase in other direct costs. Costs of revenues as a percentage of revenues was 64.1% for the year ended December 31, 2014, an improvement over the 65.8% for the year ended December 31, 2013.

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Selling, general and administrative. SGA expenses were $171.2 million for the year ended December 31, 2014 compared to $133.9 million for the year ended December 31, 2013, an increase of $37.3 million, or 28%. Of the increase in SGA expenses compared to 2013, $23.3 million, or 17%, was attributable to acquisitions completed in 2013 and 2014 and $14.0 million, or 11%, was related to our existing businesses primarily attributable to $7.6 million in increased personnel expenses, including share-based compensation increases of $3.7 million, and the remainder resulting primarily from increases in referral commissions in our U.K. business and increases in facility costs. In addition, acquisition-related transaction costs and other expenses increased $1.2 million primarily associated with increased acquisition activity in 2014.

Depreciation and amortization. D&A expenses were $60.3 million for the year ended December 31, 2014 compared to $62.7 million for the year ended December 31, 2013, a decrease of $2.4 million, or 4%. D&A attributable to our existing businesses as historic finite-lived intangible and tangible assets became fully amortized decreased $18.3 million, offset by an increase of $15.9 million of D&A attributable to acquisitions completed in 2013 and 2014.

Interest and other expenses, net. Interest and other expenses, net were $32.2 million for the year ended December 31, 2014 compared to $29.6 million for the year ended December 31, 2013, an increase of $2.5 million, or 9%. Interest and other expenses, net, increased primarily due to increased interest expenses related to additional borrowings on our Senior Secured Revolving Credit Facility to fund acquisitions.

Provision (benefit) for income taxes. Provision for income taxes was $4.4 million for the year ended December 31, 2014 compared with an income tax benefit of $5.4 million for the year ended December 31, 2013, a decreased benefit of $9.8 million or 183%. Our effective income tax rate was approximately 30% and 34% for the years ended December 31, 2014 and 2013, respectively. The tax rates in the 2014 and 2013 periods were impacted primarily by elections made for certain foreign acquisitions, foreign rate differentials and non-deductible items.

Net income (loss). For the foregoing reasons, net income was $10.5 million for the year ended December 31, 2014 compared to a net loss of $10.2 million for the year ended December 31, 2013.

Adjusted EBITDA. Adjusted EBITDA was $132.1 million for the year ended December 31, 2014 compared to $97.5 million for the year ended December 31, 2013, an increase of $34.6 million, or 36%. The increase in Adjusted EBITDA was primarily due to the 26% increase in revenues and the positive operating leverage resulting from this increased revenue. Adjusted EBITDA is also described as Segment Profit elsewhere in this Report.

● U.S. segment Adjusted EBITDA was $76.1 million for the year ended December 31, 2014 compared to $46.9 million for the year ended December 31, 2013, an increase of $29.1 million, or 62%. The increase in U.S. segment Adjusted EBITDA was due to the 25% increase in U.S. segment revenues and a 20% increase in costs of revenues and SGA expenses primarily due to an increase in fees paid to members of our medical panel, as these fees are variable in nature and increased personnel expense to support the growth in our business, excluding share-based compensation.

● Canada segment Adjusted EBITDA was $4.7 million for the year ended December 31, 2014 compared to $5.1 million for the year ended December 31, 2013, a decrease of $464,000, or 9%. The decrease in Canada segment Adjusted EBITDA was due to the 6% increase in Canada segment revenues, offset by a 9% increase in costs of revenues and SGA expenses primarily due to an increase in fees paid to members of our medical panel, as these fees are variable in nature.

● U.K. segment Adjusted EBITDA was $32.9 million for the year ended December 31, 2014 compared to $29.4 million for the year ended December 31, 2013, an increase of $3.5 million, or 12%. The increase in U.K. segment Adjusted EBITDA was due to the 32% increase in U.K. segment revenues, offset by a 38% increase in costs of revenues and SGA expenses primarily due to an increase in fees paid to members of our medical panel, as these fees are variable in nature and increased personnel expense to support the growth in our business.

● Australia segment Adjusted EBITDA was $18.5 million for the year ended December 31, 2014 compared to $16.0 million for the year ended December 31, 2013, an increase of $2.5 million, or 16%. The increase in Australia segment Adjusted EBITDA was due to the 27% increase in Australia segment revenues, offset by a 30% increase in costs of revenues and SGA expenses primarily due to an increase in fees paid to members of our medical panel, as these fees are variable in nature.

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Selected Quarterly Financial Data (Unaudited)

2015 - Quarter Ended	March  31		June 30			September 30		December 31
(In thousands, except per share data)
Revenues	$	196,316	$	208,738		$	206,033	$	208,480
Costs and expenses:
Costs of revenues		128,176		136,425			134,446		137,447
Selling, general and administrative expenses		42,152		42,721			40,455		41,322
Depreciation and amortization		14,848		13,729			12,997		14,117
Total costs and expenses		185,176		192,875			187,898		192,886
Income from operations		11,140		15,863			18,135		15,594
Interest and other expenses, net		8,004		28,567			8,000		7,966
Income (loss) before income taxes		3,136		(12,704	)		10,135		7,628
Provision (benefit) for income taxes		1,112		(4,841	)		2,980		3,353
Net income (loss)	$	2,024	$	(7,863	)	$	7,155	$	4,275
Per share data
Net income (loss) per share:
Basic	$	0.05	$	(0.19	)	$	0.17	$	0.10
Diluted	$	0.05	$	(0.19	)	$	0.17	$	0.10
Weighted average number of common shares outstanding:
Basic		40,418		41,015			41,384		41,619
Diluted		42,680		41,015			43,158		43,216
Other Financial Data:
Adjusted EBITDA(1)	$	31,952	$	36,357		$	37,075	$	35,361

2014 - Quarter Ended	March 31			June 30		September 30		December 31
(In thousands, except per share data)
Revenues	$	173,028		$	196,445	$	204,078	$	202,064
Costs and expenses:
Costs of revenues		111,035			124,851		130,597		130,555
Selling, general and administrative expenses		40,528			42,590		43,534		44,545
Depreciation and amortization		14,342			14,858		15,705		15,375
Total costs and expenses		165,905			182,299		189,836		190,475
Income from operations		7,123			14,146		14,242		11,589
Interest and other expenses, net		7,577			8,095		8,355		8,144
Income (loss) before income taxes		(454	)		6,051		5,887		3,445
Provision (benefit) for income taxes		(165	)		2,519		2,472		(391	)
Net income (loss)	$	(289	)	$	3,532	$	3,415	$	3,836
Per share data
Net income (loss) per share:
Basic	$	(0.01	)	$	0.09	$	0.09	$	0.10
Diluted	$	(0.01	)	$	0.09	$	0.08	$	0.09
Weighted average number of common shares outstanding:
Basic		37,089			38,452		39,251		39,827
Diluted		37,089			40,940		41,647		42,216
Other Financial Data:
Adjusted EBITDA(1)	$	28,010		$	34,579	$	36,083	$	33,468

(1) Adjusted EBITDA is a non-GAAP measure that is described and reconciled to net income (loss) below and is not a substitute for the GAAP equivalent. We define Adjusted EBITDA as earnings before interest, taxes, depreciation, amortization, acquisition–related transaction costs, share-based compensation expenses and other expenses. We believe that Adjusted EBITDA is an important measure of our operating performance because it allows management, lenders, investors and analysts to evaluate and assess our core operating results from period to period after removing the impact of changes to our capitalization structure, acquisition–related costs, income tax status, and other items of a non-operational nature that affect our comparability. The following table presents a reconciliation of Adjusted EBITDA to net income (loss), the most comparable GAAP measure, for each of the periods indicated. See also “Results of Operations – Adjusted EBITDA.”

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	March			June			September			December
2015 - Quarter Ended		31			30			30			31
(In thousands)
Net income (loss)	$	2,024		$	(7,863	)	$	7,155		$	4,275
Share-based compensation expense (i)		6,136			6,565			5,393			4,195
Depreciation and amortization expense		14,848			13,729			12,997			14,117
Acquisition-related transaction costs		559			134			634			1,094
Other (income) expenses(ii)		(731	)		66			(84	)		361
Interest and other expenses, net		8,004			28,567			8,000			7,966
Provision (benefit) for income taxes		1,112			(4,841	)		2,980			3,353
Adjusted EBITDA:	$	31,952		$	36,357		$	37,075		$	35,361

	March			June		September		December
2014 - Quarter Ended		31			30		30		31
(In thousands)
Net income (loss)	$	(289	)	$	3,532	$	3,415	$	3,836
Share-based compensation expense (i)		5,353			4,627		4,680		5,364
Depreciation and amortization expense		14,342			14,858		15,705		15,375
Acquisition-related transaction costs		1,192			762		871		710
Other expenses (ii)		—			186		585		430
Interest and other expenses, net		7,577			8,095		8,355		8,144
Provision (benefit) for income taxes		(165	)		2,519		2,472		(391	)
Adjusted EBITDA:	$	28,010		$	34,579	$	36,083	$	33,468

(i) For the quarters ended March 31, June 30, September 30, and December 31, 2015, share-based compensation expense of approximately $469,000, $259,000, $259,000 and $239,000, respectively, is included in costs of revenues, and the remainder is included in SGA expenses. For the quarters ended March 31, June 30, September 30, and December 31, 2014, share-based compensation expense of approximately $694,000, $492,000, $444,000 and $421,000, respectively, is included in costs of revenues, and the remainder is included in SGA expenses.

(ii) Other expenses consist principally of integration related expenses, such as facility termination, severance and relocation costs and gains or losses on earnout settlements associated with our acquisition strategy.

Liquidity and Capital Resources

Our principal capital requirements are to fund operations and acquisitions. We fund our capital needs from cash flow generated from operations and borrowings under our Amended and Restated Credit Facility and working capital facilities. We have historically also funded our acquisition program with equity issuances to sellers. We expect that cash and cash equivalents, availability under our existing credit and working capital facilities, as amended and restated, and cash flow from operations will be sufficient to support our operations, planned capital expenditures and acquisitions for at least the next 12 months.

Although we believe that our current cash and cash equivalents, funds available under our Amended and Restated Credit Facility and working capital facilities will be sufficient to meet our working capital and acquisition plans for at least the next 12 months, we may need to raise additional funds through the issuance of equity or convertible debt securities or increase borrowings to fund acquisitions. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our existing stockholders will be reduced and these securities might have rights, preferences and privileges senior to those of our current stockholders. Additional financing may not be available or, if available, such financing may not be obtained on terms favorable to our stockholders and us.

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Share Repurchase Program

In August 2011, we announced that the Board of Directors authorized the implementation of a share repurchase program to repurchase up to $20.0 million of outstanding shares of our common stock. The program calls for the repurchases to be made at management’s discretion in the open market or privately negotiated transactions, subject to cash requirements for other purposes, and other relevant factors, such as trading price, trading volume, general market and business conditions, and our compliance with certain covenants under our contractual obligations. There is no guarantee as to the exact number of shares, if any, that we may repurchase, and the Board of Directors may suspend or discontinue the repurchase program at any time. For the year ended December 31, 2011, we repurchased approximately 1,009,000 shares of common stock under the share repurchase program. These shares were repurchased at an average cost of $9.34 per share for a total cost of $9.4 million. For the year ended December 31, 2012, we repurchased approximately 39,000 shares of common stock under the share repurchase program. These shares were repurchased at an average cost of $9.91 per share for a total cost of $387,000. For the year ended December 31, 2011 and 2012, we reissued approximately 203,000 and 6,000 shares from treasury, respectively, to fund acquisitions completed in each of those years. There were no share repurchases or re-issuances for the years ended December 31, 2013 and 2014.

On November 3, 2015, our Board of Directors approved an increase in the previously authorized share repurchase program. The modified program authorizes us to repurchase up to $75.0 million of outstanding shares of our common stock, of which approximately $65.1 million was available at the time of the increase. For the year ended December 31, 2015, we repurchased approximately 800,000 shares of common stock under the share repurchase program. These shares were repurchased at an average cost of $26.58 per share for a total cost of $21.3 million. There were no share re-issuances for the year ended December 31, 2015.

Credit Facilities

Credit Facility

In November 2010, in conjunction with the IPO, we repaid $102.4 million of outstanding debt and terminated a credit facility.  This facility was replaced with a new senior secured revolving credit facility with Bank of America, N.A., as administrative agent and the other lenders party thereto (the “Senior Secured Revolving Credit Facility”), which following the exercises of the accordion feature in February 2011 and, subsequently in May 2011, and as amended and restated, provides for borrowings of up to $300.0 million. Further discussion of amendments during the years ending December 31, 2013, 2014 and 2015 follow below.

On May 6, 2011, we increased and fully exercised the accordion features of the Senior Secured Revolving Credit Facility.  The increase and exercise of the accordion feature increased the committed capacity of the credit facility by $55.0 million, from a total of $245.0 million to a total of $300.0 million.  Concurrently with the foregoing, we amended the Senior Secured Revolving Credit Facility to, among other things, (i) permit its maximum senior leverage ratio to temporarily increase from 3.0 to 1 to 3.50 to 1 for the quarters ending June 30 and September 30, 2011 and 3.25 to 1 for the quarter ending December 31, 2011 and 3.0 to 1 thereafter;  and (ii) permit the netting of unrestricted domestic cash in excess of $2.5 million but not exceeding $12.5 million against funded indebtedness for purposes of calculating leverage ratios. 

On July 7, 2011, we entered into a second amendment to our Senior Secured Revolving Credit Facility (the “Second Amendment”), which became effective simultaneously with the consummation of our private offering of $250.0 million aggregate principal senior notes. The Second Amendment amended the Senior Secured Revolving Credit Facility to, among other things, (i) extend the maturity date of the Senior Secured Revolving Credit Facility from November 2013 to July 2016; (ii) permit the issuance and sale of the Senior Unsecured Notes; (iii) replace the consolidated senior leverage ratio with a consolidated senior secured leverage ratio while permitting the maximum consolidated senior secured leverage ratio to be 3.00 to 1; (iv) permit our maximum consolidated leverage ratio to increase from 3.5 to 1 to 4.75 to 1; (v) reduce the borrowing cost; and (vi) allow us to complete acquisitions with a purchase price of up to $75.0 million (previously $50.0 million) without prior lender consent. The Second Amendment also reduced the aggregate revolving commitments under the Senior Secured Revolving Credit Facility by $37.5 million for a maximum commitment of $262.5 million, subject to our right to increase the aggregate revolving commitments by $37.5 million for a maximum commitment of $300.0 million, so long as we are not in default and we satisfy certain other customary conditions.

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On February 27, 2012, we entered into a third amendment to our Senior Secured Revolving Credit Facility (the “Third Amendment”). The Third Amendment amended the Senior Secured Revolving Credit Facility as to the definitions of consolidated fixed charges and consolidated fixed charge coverage ratio and does not permit the consolidated fixed charge coverage ratio as of the end of any fiscal quarter to be less than (i) for an fiscal quarter ending during the period from December 31, 2011 to and including September 30, 2012, 1.75 to 1.00 and (ii) for an fiscal quarter ending thereafter, 2.00 to 1.00.

On August 27, 2012, we entered into a fourth amendment to our Senior Secured Revolving Credit Facility (the “Fourth Amendment”). The Fourth Amendment amended the Senior Secured Revolving Credit Facility to add the Australian dollar as an alternative currency and increased the alternative currency sublimit from USD $60.0 million to USD $100.0 million.

On June 27, 2013, we entered into a fifth amendment to our Senior Secured Revolving Credit Facility (the “Fifth Amendment”). Among other changes, the Fifth Amendment modifies the Credit Agreement to permit an implementation of an auto-borrow agreement between the swing line lender and us to facilitate cash management, incorporates new provisions related to swap regulations and updates various provisions related to the LIBOR rate, Foreign Account Tax Compliance Act and the International Financial Reporting Standards.

 On February 3, 2014, we entered into a sixth amendment to our Senior Secured Revolving Credit Facility (the “Sixth Amendment”). The Sixth Amendment (i) allowed us to consummate the acquisition of Gould & Lamb, and (ii) allows us to acquire a target (a) with negative trailing twelve month adjusted EBITDA (as defined in the Senior Secured Revolving Credit Facility) if the purchase price of such acquisition is less than $5.0 million, (b) with trailing twelve month adjusted EBITDA (as defined in the Senior Secured Revolving Credit Facility) of less than or equal to $3,000,000 without delivering to the lenders a quality of earnings report regarding such target and (c) without delivering pro forma projections to our lenders if the purchase price of such acquisition is less than $75.0 million, in each case, without prior lender consent. We financed the $75.0 million purchase price for the Gould & Lamb acquisition in February 2014 with proceeds from the Senior Secured Revolving Credit Facility.

On April 16, 2015, we amended and restated the terms of our Senior Secured Revolving Credit Facility in connection with the offering of the Notes (See “Senior Unsecured Notes” below) pursuant to an amended and restated credit agreement (the “Amended and Restated Credit Facility”). The Amended and Restated Credit Facility provides for up to $300.0 million of revolving extensions of credit outstanding at any time (including revolving loans, swingline loans and letters of credit). During the term of the Amended and Restated Credit Facility, we have the right, subject to compliance with the covenants specified in the Amended and Restated Credit Facility and the Notes, to increase the revolving extensions under the Amended and Restated Credit Facility to a maximum of $400.0 million. This amendment and restatement also extended the term of the Senior Secured Revolving Credit Facility for five years from the date of the amendment to April 2020. 

Our obligations under the Amended and Restated Credit Facility are guaranteed by each of our existing and future direct and indirect domestic subsidiaries, and such obligations are secured by substantially all of the assets of us and our domestic subsidiaries; however, in the case of our foreign subsidiaries, no more than 65% of the capital stock of first-tier subsidiaries shall be pledged, and no assets will be encumbered by liens in favor of our lenders.

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Borrowings under the Amended and Restated Credit Facility, bear interest, at either (i) LIBOR plus the applicable margin or (ii) a base rate (equal to the highest of (a) the federal funds rate plus 0.5%, (b) the Bank of America prime rate and (c) LIBOR (using a one-month period) plus 1.0%), plus the applicable margin, as we elect. The applicable margin means a percentage per annum determined in accordance with the following table:  

Pricing Tier	Consolidated Leverage Ratio	Commitment Fee/Unused Line Fee	Letter of Credit Fee	Eurocurrency Rate Loans	Base Rate Loans
1	≥ 4.00 to 1.0	0.45%	2.75%	2.75%	1.75%
2	≥ 3.50 to 1.0 but <4.00 to 1.0	0.40%	2.50%	2.50%	1.50%
3	≥ 3.00 to 1.0 but <3.50 to 1.0	0.35%	2.25%	2.25%	1.25%
4	≥ 2.50 to 1.0 but <3.00 to 1.0	0.30%	2.00%	2.00%	1.00%
5	< 2.50 to 1.0	0.30%	1.75%	1.75%	0.75%

In the event of default, the outstanding indebtedness under the Amended and Restated Credit Facility will bear interest at an additional 2%.

The Amended and Restated Credit Facility contains restrictive covenants, including among other things financial covenants requiring us to not exceed a maximum consolidated senior secured leverage coverage ratio, a maximum total consolidated leverage ratio and to maintain a minimum consolidated fixed charge coverage ratio. The Amended and Restated Credit Facility also restricts our ability (subject to certain exceptions) to incur indebtedness, prepay or amend other indebtedness, create liens, make certain fundamental changes including mergers or dissolutions, pay dividends and make other payments in respect of capital stock, make certain investments, sell assets, change its lines of business, enter into transactions with affiliates and other corporate actions. As of December 31, 2015, the Company was in compliance with the financial covenants in the Amended and Restated Credit Facility.

The Amended and Restated Credit Facility also includes events of default typical of these types of credit facilities and transactions, including, but not limited to, the nonpayment of principal, interest, fees or other amounts owing under the new Amended and Restated Credit Facility, the violation of covenants, the inaccuracy of representations and warranties, cross defaults, insolvency, certain ERISA events, material judgments and change of control. The occurrence of an event of default could result in the lenders not being required to lend any additional amounts and the acceleration of obligations under the new senior secured revolving credit facility, causing such obligations to be due and payable immediately, which could materially and adversely affect us.

As of December 31, 2015, we had no amount outstanding under the Amended and Restated Credit Facility, resulting in $300.0 million of undrawn commitments.

Working Capital Facilities

On September 29, 2010, our indirect 100% owned subsidiary UK Independent Medical Services Limited (“UKIM”) entered into a Sales Finance Agreement (the “UKIM SFA”) with Barclays Bank PLC (“Barclays”), pursuant to which Barclays provides UKIM a working capital facility of up to £5,000,000, subject to the terms and conditions of the UKIM SFA. The working capital facility bore a discount margin of 2.5% over Base Rate and served to finance UKIM’s unpaid account receivables.  The working capital facility had a minimum term of 36 months.

On June 28, 2013, UKIM entered into an amendment to extend the term of the existing UKIM SFA by 24 months from June 28, 2013, to amend the discount margin to 2.4% over Base Rate and to provide that payments by UKIM for certain non-working capital purposes are permitted under the UKIM SFA. Further, on April 16, 2015, UKIM entered into an amendment to extend the term of the existing UKIM SFA for an additional 36 months from the amendment date and to amend the discount margin to 2.05% over Base Rate (0.5% rate on December 31, 2015). The working capital facility operates on a co-terminus and cross-default basis with other facilities provided by Barclays and with the Senior Secured Revolving Credit Facility. As of December 31, 2015, UKIM had $6.6 million outstanding under the working capital facility, resulting in approximately $835,000 in availability.

On May 12, 2011, Premex entered into a Sales Finance Agreement (the “Premex SFA”) with Barclays, pursuant to which Barclays provides Premex a working capital facility of up to £26,500,000, subject to the terms and conditions of the Premex SFA. The working capital facility bore a discount margin of 2.4% over Base Rate and served to finance Premex’s unpaid account receivables.  The working capital facility had a minimum term of 36 months.

On June 28, 2013, Premex entered into an amendment to extend the term of the existing Premex SFA by 24 months from June 28, 2013, and to provide that payments by Premex for certain non-working capital purposes are permitted under the Premex SFA. Further, on April 16, 2015, Premex entered into an amendment to extend the term of the existing Premex SFA for an additional 36 months from the amendment date and to amend the discount margin to 2.05% over Base Rate (0.5% rate on December 31, 2015). The working capital facility operates on a co-terminus and cross-default basis with other facilities provided by Barclays and with the Senior Secured Revolving Credit Facility. As of December 31, 2015, Premex had $28.7 million outstanding under the working capital facility, resulting in approximately $10.6 million in availability. 

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Senior Unsecured Notes

On July 19, 2011, we closed a private offering of $250.0 million in aggregate principal amount of 9.0% senior notes due 2019 which were subsequently registered through a public exchange offer (the “Senior Unsecured Notes”). The Senior Unsecured Notes were issued at a price of 100% of their principal amount. A portion of the gross proceeds of $250.0 million were used to repay borrowings outstanding under our Senior Secured Revolving Credit Facility and pay related fees and expenses, and the remainder was used for general corporate purposes, including acquisitions.

On April 16, 2015, we closed a public offering of $500.0 million in aggregate principal amount of 5.625% senior notes due 2023 (the “Notes”). The Notes were issued at a price of 100% of their principal amount. The Notes are our senior obligations and are guaranteed by certain of our existing and future U.S. subsidiaries. The gross proceeds of $500.0 million were used to repay all of our outstanding borrowings under the Senior Secured Revolving Credit Facility, to redeem all of the Senior Unsecured Notes, to pay related fees and expenses, and for general corporate purposes, including acquisitions.

The Notes were issued under an indenture, dated as of April 16, 2015, as supplemented by a supplemental indenture dated April 16, 2015 (collectively, the “Indenture”), among the Guarantors, U.S. Bank, National Association, as trustee (the “Trustee”), and us. The Notes are our general senior unsecured obligations, and rank equally with our existing and future senior unsecured obligations and senior to all of our further subordinated indebtedness. The Notes accrue interest at a rate of 5.625% per year, payable semi-annually in cash in arrears on April 15 and October 15 of each year, commencing October 15, 2015. Interest accrues from the date of issuance of the Notes.

At any time on or after April 15, 2018, we may redeem some or all of the Notes at the redemption prices specified in the Indenture, plus accrued and unpaid interest to the date of redemption. Prior to April 15, 2018, we may redeem up to 40% of the aggregate principal amount of the Notes with the net cash proceeds from certain equity offerings at a redemption price equal to 105.625% of the aggregate principal amount of the Notes, plus accrued and unpaid interest, if any, provided that at least 60% of the original aggregate principal amount of the Notes remains outstanding after redemption. In addition, we may redeem some or all of the Notes at any time prior to April 15, 2018 at a redemption price equal to 100% of the principal amount of the Notes plus a make whole premium described in the Indenture, plus accrued and unpaid interest.

The Indenture includes covenants which, subject to certain exceptions, limit the ability of we and our restricted subsidiaries (as defined in the Indenture) to, among other things, incur additional indebtedness, make certain types of restricted payments, incur liens on assets of us or the restricted subsidiaries, engage in asset sales and enter into transactions with affiliates. Upon a change of control (as defined in the Indenture), we may be required to make an offer to repurchase the Notes at 101% of their principal amount, plus accrued and unpaid interest. The Indenture also contains customary events of default.

Cash Flow Summary

Cash and cash equivalents were $47.9 million at December 31, 2015 as compared with $9.8 million at December 31, 2014 and $12.8 million at December 31, 2013.

Our cash flows from operating, investing and financing activities, as reported in our Consolidated Financial Statements included elsewhere in this report, are summarized as follows (in thousands): 

	For the years ended December 31,
	2013			2014			2015
Net cash provided by operating activities	$	36,355		$	45,199		$	50,030
Net cash used in investing activities		(10,154	)		(198,163	)		(80,438	)
Net cash provided by (used in) financing activities		(21,072	)		150,478			69,815
Exchange rate impact on cash and cash equivalents		(927	)		(592	)		(1,293	)
Net increase (decrease) in cash and cash equivalents	$	4,202		$	(3,078	)	$	38,114

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Operating Activities. Net cash provided by operating activities was $50.0 million for the year ended December 31, 2015 as compared with net cash provided by operating activities of $45.2 million for the year ended December 31, 2014. Net cash provided by operating activities for 2015 consisted of our net income of $5.6 million and net non-cash charges of $95.8 million (principally including $55.7 million in depreciation and amortization, $22.3 million in share-based compensation and $18.6 million of the loss on early extinguishment of debt, partially offset by a net decrease in deferred income taxes of $7.0 million) offset by a net increase in working capital of approximately $52.0 million in 2015. The increase in working capital in 2015 primarily consisted of increases in accounts receivable in our U.K. business and decreases to accrued interest expense, offset by increased accounts payable and accrued expenses.

Net cash provided by operating activities was $45.2 million for the year ended December 31, 2014 as compared with net cash provided by operating activities of $36.4 million for the year ended December 31, 2013.  Net cash provided by operating activities for 2014 consisted of our net income of $10.5 million and net non-cash charges of $59.4 million (principally including $60.3 million in depreciation and amortization and $20.0 million in share-based compensation, offset by a net decrease in deferred income taxes of $19.5 million) offset by a net increase in working capital of approximately $24.7 million in 2014. The increase in working capital primarily consisted of increases in accounts receivable in our U.K. business and prepaid expenses and other current assets, offset by increased accounts payable and accrued expenses.

Net cash provided by operating activities was $36.4 million for the year ended December 31, 2013 as compared with net cash provided by operating activities of $24.8 million for the year ended December 31, 2012.  Net cash provided by operating activities for 2013 consisted of our net loss of $10.2 million and a net increase in working capital of approximately $15.2 million in 2013, which was offset by net non-cash charges of $61.8 million (principally including $62.7 million in depreciation and amortization and $17.2 million in share-based compensation, offset by a net decrease in deferred income taxes of $18.0 million). The increase in working capital primarily consisted of increases in accounts receivable offset by increased accounts payable and accrued expenses and deferred revenues and customer deposits.

Investing Activities. Net cash used in investing activities was $80.4 million for the year ended December 31, 2015 as compared to net cash used in investing activities of $198.2 million for the year ended December 31, 2014.  The decreased use was due primarily to less acquisition activity than in 2014, offset by increased proceeds from foreign currency hedges.

Net cash used in investing activities was $198.2 million for the year ended December 31, 2014 as compared to net cash used in investing activities of $10.2 million for the year ended December 31, 2013.  The increased use was due primarily to increased acquisition activity and purchases of building, equipment and leasehold improvements in 2014.

Net cash used in investing activities was $10.2 million for the year ended December 31, 2013 as compared to net cash used in investing activities of $114.4 million for the year ended December 31, 2012.  The decrease was due primarily to reduced acquisition activity in 2013 and, to a lesser extent, proceeds from our foreign currency net investment hedges, offset by a slight increase in capital expenditures.

Financing Activities. Net cash provided by financing activities was $69.8 million for the year ended December 31, 2015 as compared to net cash provided by financing activities of $150.5 million for the year ended December 31, 2014.  This 2015 cash provision was primarily attributable to the net redemption and borrowings of our senior notes of $235.4 million and proceeds from the exercise of options and warrants of $14.4 million, offset by net repayments under our Senior Secured Revolving Credit Facility of $143.9 million, repayments of contingent earnout obligations of $5.1 million, the payment of deferred financing costs of $9.0 million and purchases of stock for treasury of $21.3 million.

Net cash provided by financing activities was $150.5 million for the year ended December 31, 2014 as compared to net cash used in financing activities of $21.1 million for the year ended December 31, 2013.  This 2014 cash provision was primarily attributable to borrowings under our Senior Secured Revolving Credit Facility of $299.3 million, proceeds from the exercise of options and warrants of $42.4 million, the excess tax benefit related to share-based compensation of $9.3 million and net borrowings under our working capital facilities of $4.9 million, offset by repayments under our Senior Secured Revolving Credit Facility of $200.4 million and repayments of contingent earnout obligations of $4.4 million.

Net cash used in financing activities was $21.1 million for the year ended December 31, 2013 as compared to net cash provided by financing activities of $89.7 million for the year ended December 31, 2012.  This 2013 cash used was primarily attributable to borrowings under our Senior Secured Revolving Credit Facility of $142.5 million, proceeds from the exercise of options and warrants of $24.3 million, the excess tax benefit related to share-based compensation of $6.6 million and net borrowings under our working capital facilities of $2.8 million, offset by repayments under our Senior Secured Revolving Credit Facility of $196.7 million.

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Contingencies

We record contingent liabilities resulting from asserted and unasserted claims against us when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. We disclose contingent liabilities when there is a reasonable possibility that the ultimate loss will exceed the recorded liability. Estimating probable losses requires analysis of multiple factors, in some cases including judgments about the potential actions of third-party claimants and courts. Therefore, actual losses in any future period are inherently uncertain. We currently are not involved in any material legal proceedings. It is possible, however, that future results of operations for any particular quarterly or annual period could be materially affected by changes in our assumptions or the effectiveness of our strategies related to any future proceedings. Contingent liabilities are described in Note 9 to the consolidated financial statements included elsewhere in this report. 

Contractual Obligations and Commitments

Our contractual cash payment obligations as of December 31, 2015 are set forth below:

	Payments due by year ending December 31,
	Total		2016		2017		2018		2019		2020		Thereafter
	(In thousands)
Amounts outstanding under senior unsecured notes payable	$	500,000	$	—	$	—	$	—	$	—	$	—	$	500,000
Operating leases		53,696		14,137		12,732		10,575		7,557		4,875		3,820
Amounts outstanding under working capital facilities		35,243		—		—		35,243		—		—		—
Totals:	$	588,939	$	14,137	$	12,732	$	45,818	$	7,557	$	4,875	$	503,820

As of December 31, 2015, we leased our office spaces for our corporate locations in Atlanta, Georgia and New York, New York and also for our 67 service centers in various cities under non-cancelable lease agreements. We own an office facility in Sarasota, Florida and Buffalo, New York.

We have certain contractual obligations including various debt agreements with requirements to make interest payments. Amounts outstanding under the Notes are subject to a fixed interest rate of 5.625% and interest is expected to be $28.1 million annually with semi-annual payments that began in October 2015 and end in April 2023.  Additionally, certain amounts are subject to the level of borrowings in future periods and the interest rate for the applicable periods, and therefore the amounts of these payments are not determinable. Based upon amounts outstanding at December 31, 2015 and applicable interest rates currently of 2.55%, interest amounts are expected to be approximately $899,000 for the years ended December 31, 2016 and 2017, respectively, and approximately $262,000 for the year ended December 31, 2018.  

Off-Balance Sheet Arrangements

We engage in no activities, obligations or exposures associated with off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Overview and Definitions

We have identified the policies below as critical to our business operations and understanding of our results of operations. The impact and any associated risks related to these policies on our business operations are discussed throughout this management’s discussion and analysis of financial condition and results of operations where such policies affect our reported and expected financial results. Our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, cash flow and related disclosure of contingent assets and liabilities. Our estimates include those related to accounts receivable reserves, goodwill and other intangible assets, share-based compensation other equity instruments, income and other taxes, derivative instruments and contingent obligations. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates, and the impact of changes in key assumptions may not be linear. Our management has reviewed the application of these policies with the audit committee of our Board of Directors. For a detailed discussion on the application of these and other accounting policies, see Note 2 to the consolidated financial statements included elsewhere in this report. We believe that our most critical accounting policies and estimates relate to the following:

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Revenue Recognition

Revenue related to IMEs, peer reviews, bill reviews, administrative support services and Medicare compliance services is recognized at the time services have been performed and the report is shipped to the end user. We believe that recognizing revenue at the time the report is shipped is appropriate because we meet the following four criteria in accordance with ASC 605-10-S25,  Revenue Recognition: Overall , (i) persuasive evidence that arrangement exists, (ii) shipment has occurred, (iii) the price is fixed and determinable and (iv) collectability is reasonably assured. We report revenues net of any sales, use and value added taxes.

Revenue related to other IME services, including litigation support services, medical record retrieval services and case management, where no report is generated, is recognized at the time the service is performed. We believe that recognizing revenue at the time the service is performed is appropriate because we meet the following four criteria in accordance with ASC 605-10-S25, (i) persuasive evidence that arrangement exists, (ii) services have been rendered, (iii) the price is fixed and determinable and (iv) collectability is reasonably assured.

Certain agreements with customers in the U.K. include provisions whereby collection of the amounts billed are contingent on the favorable outcome of the claim.  We have deemed these provisions to preclude revenue recognition at the time of performance, as collectability is not reasonably assured and the cash payments are contingent, and are deferring these revenues, net of estimated costs, until the case has been settled, the contingency has been resolved and the cash has been collected.

Should changes in conditions cause management to determine these criteria are not met for certain future transactions, revenue recognized for any reporting period could be adversely affected.

Trade Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable balances consist of amounts owed to us for services provided in the normal course of business and are reported net of an allowance for doubtful accounts. Generally, no collateral is received from clients and the collectability of trade receivable balances is regularly evaluated based on a combination of factors such as client credit-worthiness, past transaction history with the customer, current economic industry trends and changes in customer payment patterns and additions to the allowance are made based on these trends. Accounts are reviewed regularly for collectability and those deemed uncollectible are written off.

We assume, that on average, all accounts receivable will be collected within one year and thus classify these as current assets; however, there are certain receivables, principally in the U.K., that have aged longer than one year as of December 31, 2014 and 2015, and we have recorded an estimate for those receivables that will not be collected within one year as long-term in the Consolidated Balance Sheets contained elsewhere in this report.

Goodwill and Other Intangible Assets

Goodwill is an asset representing the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognized. Based on the provisions of ASC 350, Intangibles—Goodwill and Other (“ASC 350”), goodwill and indefinite lived intangible assets are tested for impairment annually or more frequently if impairment indicators arise. We evaluate the carrying value of goodwill during the fourth quarter of each fiscal year and between annual valuations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting units below their carrying amount. Such circumstances include: (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. When evaluating whether goodwill is impaired, we compare the fair value of the reporting units to which the goodwill is assigned to the reporting unit’s carrying amount, including goodwill. The fair value of the reporting units is estimated using primarily the income, or discounted cash flows, approach. If the carrying amount of a reporting unit exceeds its fair value, then the amount of the impairment loss must be measured. The impairment loss is calculated by comparing the implied fair value of the reporting unit’s goodwill to its carrying amount. In calculating the implied fair value of the reporting unit’s goodwill, the fair value of the reporting unit is allocated in a hypothetical analysis to all of the other assets and liabilities, including any unrecognized intangible assets, of that unit based on their fair values. The excess of the fair value of a reporting unit over the amount assigned to its other assets and liabilities is the implied fair value of goodwill. An impairment loss would be recognized when the carrying amount of goodwill exceeds its implied fair value.

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Intangible assets, including client relationships, trade names, covenants not to compete and technology that have finite lives are amortized over their useful lives.

We performed our annual impairment review of goodwill in October 2015 and reviewed subsequent events through December 31, 2015 and determined that the fair value of our reporting units substantially exceed their carrying value, and goodwill was not impaired as of year end. Further, we believe that there have been no facts or circumstances through the date of this filing that indicate an impairment of goodwill or other intangible assets exists.

Income Taxes

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

We recognize interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations. Accrued interest and penalties are included on the related tax liability line in the consolidated balance sheet.

Share-Based Compensation and Other Equity Instruments

Our stock incentive plan provides for the granting of stock options and other share-based awards including warrants, restricted stock units (“RSUs”) and shares of restricted stock, in accordance with ASC Topic 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires measurement of compensation cost for all share-based awards at fair value on the grant date (or measurement date, if different) and recognition of compensation expense, net of forfeitures, over the requisite service period for awards expected to vest. We use the straight-line amortization method for recognizing share-based compensation expense.

The fair value of stock option grants is determined using the Black-Scholes valuation model. The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable, characteristics not present in these stock options. Additionally, option valuation models require the input of highly subjective assumptions, including the expected volatility of the stock price. Because our stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimates, in our opinion, the existing models may not provide a reliable single measure of the fair value of its share-based awards.

Our expected volatility assumptions are based upon the weighted average of our implied volatility, our mean reversion volatility and the median of our peer group’s most recent historical volatilities for 2013 and 2014 stock option grants. Our expected volatility assumptions are based on our weighted average implied volatility, our mean reversion volatility and the median of our peer group’s most recent historical volatilities for 2015 stock option grants. Expected life assumptions are based upon the “simplified” method for those options issued from 2013 to 2015, which were determined to be issued approximately at-the-money. The risk-free interest rate was selected based upon yields of U.S. Treasury issues with a term equal to the expected life of the option being valued.

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The following table summarizes the number of stock options granted and outstanding as of December 31, 2015 for the quarterly periods from January 1, 2013 through December 31, 2015, the per share exercise price of the stock options and estimated per share weighted average fair value of stock options:

Quarter ending	Number of shares subject to options granted and outstanding		Weighted average per share exercise price of options		Weighted average per share fair value of options (1)
March 31, 2013		95,801	$	14.24	$	6.63
June 30, 2013		23,169	$	18.00	$	8.39
September 30, 2013		40,833	$	24.28	$	11.52
December 31, 2013		37,798	$	26.23	$	12.61
March 31, 2014		346,104	$	31.70	$	15.60
June 30, 2014		5,000	$	34.43	$	16.58
September 30, 2014		123,050	$	35.75	$	17.21
December 31, 2014		32,500	$	35.66	$	17.17
March 31, 2015		30,000	$	40.22	$	19.37
June 30, 2015		5,000	$	40.09	$	19.30
September 30, 2015		—	$	—	$	—
December 31, 2015		—	$	—	$	—

(1) As described above, the per share estimated fair value of stock options was estimated for the date of grant using the Black-Scholes option-pricing model. This model estimates the fair value by applying a series of factors including the exercise price of the stock option, the fair market value of our common stock, a risk free interest rate, the expected term of the stock option, expected share price volatility of the underlying common stock and expected dividends on the underlying common stock.

The fair value of shares of restricted stock and RSUs is determined based upon the market price of the underlying common stock as of the date of grant. Additional information regarding our valuation of common stock and equity awards is set forth in Note 2 to our consolidated financial statements included elsewhere in this report.

Accounting for Acquisitions

Accounting for acquisitions requires us to recognize and measure identifiable assets acquired, liabilities assumed and any non-controlling interest in the acquired entity. Our accounting for acquisitions involves significant judgments and estimates, including the fair value of certain forms of consideration such as our common stock, the fair value of acquired intangible assets, which involve projections of future revenues, cash flows and terminal value, which are then discounted at an estimated discount rate, the fair value of other acquired assets and assumed liabilities, including potential contingencies, and the useful lives of the assets. The projections are developed using internal forecasts, available industry and market data and estimates of long-term rates of growth for our business. The impact of prior or future acquisitions on our financial position or results of operations may be materially impacted by the change in or initial selection of assumptions and estimates.

Financial Instruments

In September 2006, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance codified as ASC 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value in U.S generally accepted accounting principles and expands disclosure about fair value measurements.

ASC 820 defines fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair value into the following levels:

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In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider counterpart credit risk in the assessment of fair value.

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Inputs, other than quoted prices in active markets, that are observable either directly or indirectly.

Level 3 — Unobservable inputs based on the company’s own assumptions.

Our financial assets and (liabilities), which are measured at fair value on a recurring basis, are categorized using the fair value hierarchy as of December 31, 2014 and 2015 were as follows (in thousands):

	Level 1		Level 2			Level 3			Total
As of December 31, 2014
Financial instruments:
Contingent consideration	$	—	$	—		$	(6,587	)	$	(6,587	)
Foreign currency derivative asset		—		272			—			272
As of December 31, 2015
Financial instruments:
Foreign currency derivative asset	$	—	$	848		$	—		$	848
Foreign currency derivative liability		—		(1,215	)		—			(1,215	)

The contingent consideration relates to earnout provisions recorded in conjunction with certain acquisitions completed in 2013 and 2014 (see Note 3 of the accompanying Consolidated Financial Statements). Of the total decrease in fair value of the contingent consideration of $6.6 million in 2015, $5.1 million was settled as cash consideration to satisfy installments related to a 2013 and 2014 acquisition, and the Company recorded $1.5 million in adjustments to the fair value of the obligation related to milestones which were not achieved, recorded to SGA expenses, offset by $162,000 recorded in interest and other expenses, net in the Consolidated Statements of Comprehensive Income (Loss) due to changes in the fair value of the contingent consideration and the remaining change is due to currency fluctuations.

The fair value of the foreign currency derivative was determined using observable market inputs such as foreign currency exchange rates and considers our nonperformance risk and that of our counterparties.

 Recent Accounting Pronouncements

In addition to the recently adopted accounting pronouncements discussed above in conjunction with our critical accounting policies, we believe the following recently adopted accounting pronouncements are important to an understanding of our financial statements.

Recently Adopted Accounting Pronouncements

In February 2013 the FASB issued ASU No. 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” This update amends Accounting Standards Codification (ASC) Topic 220, “Comprehensive Income,” to require reporting entities to provide information about the amounts reclassified from accumulated other comprehensive income by component. In addition, reporting entities will be required to present, either on the face of the statement of operations or in the footnotes to the financial statements, significant amounts reclassified from accumulated other comprehensive income by statement of operations line item. ASU 2013-02 is effective prospectively for reporting periods beginning after December 15, 2012. We adopted these provisions effective January 1, 2013 and the adoption of these provisions did not have a material impact on our financial position, results of operations or cash flows.

In July 2013, the FASB issued ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”) which amends accounting guidance on the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or tax credit carryforward exists. This new guidance requires entities, if certain criteria are met, to present an unrecognized tax benefit, or portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward when such items exist in the same taxing jurisdiction. We adopted the provisions of this ASU in the first quarter of 2014 and adoption did not have a significant impact on our financial position, results of operations or cash flows.

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In April 2014, the FASB issued ASU No. 2014-08, (Topic 205 and 360), “Reporting Discontinued Operations and Disclosure of Disposals of Components of an Entity” (“ASU 2014-08”) which amends the definition for what types of asset disposals are to be considered discontinued operations, and amends the required disclosures for discontinued operations and assets held for sale. ASU 2014-08 also enhances the convergence of the FASB’s and the International Accounting Standard Board’s reporting requirements for discontinued operations. The amendments in this update are effective for fiscal periods beginning on or after December 15, 2014, and interim periods within annual periods beginning on or after December 15, 2015. We adopted the provisions of this standard effective January 1, 2015, and the adoption of these provisions did not have a material impact on our financial position, results of operations or cash flows.

In November 2014, the FASB issued ASU No. 2014-17, “Business Combinations: Pushdown Accounting” (“ASU 2014-17”) which provides an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. The acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change-in-control event occurs. If pushdown accounting is not applied in the reporting period in which the change-in-control event occurs, an acquired entity will have the option to elect to apply pushdown accounting in a subsequent reporting period as a change in accounting principle in accordance with ASC Topic 250, Accounting Changes and Error Corrections. If pushdown accounting is applied to an individual change-in-control event, that election is irrevocable. ASU 2014-17 also requires an acquired entity that elects the option to apply pushdown accounting in its separate financial statements to disclose information in the current reporting period that enables users of financial statements to evaluate the effect of pushdown accounting. We have adopted the amendments in ASU 2014-17, effective November 18, 2014, as the amendments in the update are effective upon issuance. The adoption of ASU 2014-12 did not have a material impact on our financial position, results of operations or cash flows.

In November 2015, the FASB issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”), which requires deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The guidance is effective for financial statements issued for interim and annual periods beginning after December 15, 2016. Earlier adoption is permitted for all entities as of the beginning of an interim or annual reporting period. This amendment may be applied either prospectively or retrospectively to all periods presented. We adopted the provisions of this ASU prospectively in the fourth quarter of 2015, and did not retrospectively adjust the prior periods. The adoption of this ASU will simplify the presentation of deferred income taxes and reduce complexity without decreasing the usefulness of information provided to users of our financial statements. The adoption of ASU 2015-17 did not have a significant impact on our financial position, results of operations or cash flows.

Accounting Pronouncements Not Yet Adopted

In May 2014, the FASB issued ASU No. 2014-09, (Topic 606): Revenue from Contracts with Customers (“ASU 2014-09”) which supersedes the revenue recognition requirements in “Topic 605, Revenue Recognition” and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective retrospectively for annual or interim reporting periods beginning after December 15, 2017, with early adoption permitted for annual reporting periods beginning after December 15, 2016. We are currently evaluating the impact of this standard on our financial position, results of operations and cash flows.

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-05”) which define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. Currently, financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. This going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities. This ASU provides guidance regarding management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern and the related footnote disclosures. The amendments are effective for the year ending December 31, 2016, and for interim periods beginning the first quarter of 2017, with early adoption permitted. We plan to adopt the provisions for the year ending December 31, 2016 and will provide such disclosures as required if there are conditions and events that raise substantial doubt about our ability to continue as a going concern. We currently do not expect the adoption to have a material impact on our financial position, results of operations or cash flows.

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In April 2015, the FASB issued ASU No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”) which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in ASU 2015-03. The amendments in this update are effective for fiscal periods beginning on or after December 15, 2015, and interim periods within those fiscal years. We are currently evaluating the impact of this standard on our financial position, results of operations or cash flows.

In September 2015, the FASB issued ASU No. 2015-16, “Business Combinations (Topic 805) Simplifying the Accounting for Measurement-Period Adjustments” which requires that an acquirer recognize adjustments to estimated amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments also require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the estimated amounts had been recognized as of the acquisition date. The amendments in this update are effective for fiscal periods beginning on or after December 15, 2015, and interim periods within those fiscal years. We plan to adopt the provisions for the year ending December 31, 2016, and we currently do not expect the adoption to have a material impact on our financial position, results of operations or cash flows. 

There were various other accounting standards and interpretations issued during 2013, 2014 and 2015 we have not yet been required to adopt, none of which are expected to have a material impact on our financial position, results of operations or cash flows.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure results primarily from fluctuations in interest rates, foreign exchange rates and inflation. In the normal course of business, we are exposed to market risks, including changes in interest rates and foreign exchange rates which affect our debt and cash flows. We may also face additional exchange rate risk in the future as we expand our business internationally.

Interest Rate Risk. As of December 31, 2015, we had cash and cash equivalents totaling approximately $47.9 million. These amounts were held for future acquisition and working capital purposes and were held in non-interest bearing accounts, of which $33.0 million was held in the U.S. The U.S. amounts were insured under standard FDIC insurance coverage for deposit accounts up to $250,000, per depositor and account ownership category, at each separately insured depository institution.

Our outstanding debts of $35.2 million at December 31, 2015 related to indebtedness under our working capital facilities contain floating interest rates. Thus, our interest rate is subject to market risk in the form of fluctuations in interest rates. The effect of a hypothetical one percentage point increase in our variable rate debt would result in a decrease of approximately $352,000 in our annual pre-tax income assuming no further changes in the amount of borrowings subject to variable rate interest from amounts outstanding at December 31, 2015.

Foreign Exchange Risk. As of December 31, 2015, we have foreign currency risks related to our revenues and operating expenses denominated in currencies other than the U.S. dollar, namely, the Canadian dollar, the Pound Sterling and the Australian dollar. Our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. We do not currently hedge our exposure to foreign currency exchange rate fluctuations related to the Canadian dollar given that the net difference between foreign currency denominated revenue and expenses is immaterial. In the future, however, we may hedge such exposure to foreign currency exchange rate fluctuations in this currency.

Beginning in the second quarter of 2013, in order to protect against foreign currency exposure in our Australian operations, we entered into forward foreign currency contracts as a hedge of AUD $60.0 million of our net investment in Australia. Beginning in the third quarter of 2013, we also entered into forward foreign currency contracts as a hedge of £40.0 million of our net investment in the U.K. During the fourth quarter of 2015, we entered into a foreign exchange agreement to hedge an additional £35.0 million related to our investment in the U.K. concurrent with funding of our acquisition of Argent.

53

We settled certain of our hedge positions during 2013, 2014 and 2015 and received $1.4 million, $4.0 million and $7.7 million, respectively, in net proceeds. This amount was classified in accumulated other comprehensive income (loss) in our Consolidated Balance Sheet (see Note 2), offsetting the currency translation adjustment of the related net investment that is also recorded in accumulated other comprehensive income (loss), and is reported net of the effect of income taxes. As of December 31, 2015, we had a net liability of $367,000, with $1.2 million recorded in other current liabilities offset by $848,000 recorded in other current assets with the offsetting net unrealized loss being recorded in accumulated other comprehensive income (loss) in our Consolidated Balance Sheets associated with open forward foreign currency contracts which matured in January of 2016.

Item 8. Financial Statements and Supplementary Data

The financial statements set forth herein commence on page F-1 of this Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures

 (a) Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to its management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of December 31, 2015 (the “Evaluation Date”), the Company carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at a reasonable assurance level as of the Evaluation Date.

(b) Management’s Annual Report on Internal Control Over Financial Reporting

The management of ExamWorks is responsible for establishing and maintaining adequate internal control over financial reporting, as such is defined in Rules 13a-15(f) promulgated under the Securities Exchange Act of 1934, as amended, and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, 2015. The Company’s internal control over financial reporting is a process that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation, and may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

ExamWorks’ management performed an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2015, using the criteria described in “Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (“COSO 2013”). The objective of this assessment is to determine whether the Company’s internal control over financial reporting was effective as of December 31, 2015. ExamWorks’ management has concluded that, as of December 31, 2015, its internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of its financial reporting and the preparation of its financial statements for external purposes in accordance with United States generally accepted accounting principles. 

During 2015, the Company acquired ReliableRS, First Choice and Argent. Refer to Note 3 of the Notes to consolidated financial statements for additional information regarding these acquisitions. As permitted by related SEC Staff interpretive guidance for newly acquired businesses, the Company excluded the ReliableRS, First Choice and Argent acquisitions from management’s annual assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2015. These acquisitions constituted 7.0% of total assets as of December 31, 2015 and 1.4% of revenues for the year then ended. These businesses will be included in future evaluations of the effectiveness of the Company’s internal controls and procedures when these systems have been implemented in 2016.

54

KPMG LLP, the Company’s Independent Registered Public Accounting Firm, has audited the consolidated financial statements included in this Report containing the disclosure required by this Item and has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting. The report is included in Item 15(a) under the heading Report of Independent Registered Public Accounting Firm.

(c) Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by Form 10-K that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

Item 9B. Other Information.

None. 

55

PART III

Pursuant to General Instruction G (3) of Form 10-K, the information called for by Part III Item 10 (Directors and Executive Officers of the Registrant), Item 11 (Executive Compensation), Item 12 (Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters), Item 13 (Certain Relationships and Related Transactions) and Item 14 (Principal Accountant Fees and Services), is incorporated herein by reference from the registrant’s definitive proxy statement to be filed with the Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K.

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PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a) The following documents are filed as part of this Report:

1. Financial Statements.

Description

ExamWorks Group, Inc. and Subsidiaries

Reports of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2014 and 2015	F-4
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2013, 2014 and 2015	F-5
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2013, 2014 and 2015	F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2014 and 2015	F-7
Notes to Consolidated Financial Statements	F-8

2. Financial Statement Schedules.

The following Financial Statement Schedule for the Registrant is filed as part of this Report and should be read in conjunction with the Registrant’s Financial Statements:

Description
Schedule II – Valuation and Qualifying Accounts	62

(b)           Exhibits.

Exhibit Number	Title
2.1	Agreement and Plan of Merger, dated June 23, 2010, by and among ExamWorks Group, Inc., ExamWorks, Inc. and ExamWorks Merger Sub, Inc. (filed as Exhibit 2.1 to ExamWorks’ Registration Statement on Form S-1 filed with the Securities and Exchange Commission on August 13, 2010 and incorporated by reference herein).
2.2*	Agreement for the sale and purchase of the entire issued share capital of Premex Group Limited dated May 10, 2011, among ExamWorks Group, Inc., ExamWorks UK Ltd. and the shareholders of Premex Group Limited set forth therein (filed as Exhibit 2.1 to Form 8-K filed with the Securities and Exchange Commission on May 13, 2011 and incorporated by reference herein).

2.3* Tax Deed dated May 10, 2011, relating to the sale and purchase of the entire issued share capital of Premex Group between ExamWorks UK Ltd. And Covenantors set forth therein (filed as Exhibit 2.2 to Form 8-K filed with the Securities and Exchange Commission on May 13, 2011 and incorporated by reference herein).

57

2.4* Stock Purchase Agreement dated as of June 6, 2014, by and among ExamWorks, Inc. and the shareholders of Ability Services Network, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K filed on June 9, 2014).

2.5*	Stock Purchase Agreement dated as of February 3, 2014, by and among Exam Works, Inc., G&L Intermediate Holdings, Inc., G&L Investment Holdings, Inc., ABRY Partners V, L.P. and ABRY Senior Equity II, L.P (incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K filed on February 4, 2014).
3.1.1	Amended and Restated Certificate of Incorporation of ExamWorks (incorporated by reference to Exhibit 3.1 to Form 10-K filed March 11, 2011).
3.1.2	Second Amended and Restated Bylaws of ExamWorks (incorporated by reference to Exhibit 3.1 to Form 8-K filed October 30, 2013).
4.1	Form of Common Stock Certificate of ExamWorks (filed as Exhibit 4.1 to Amendment No. 3 to ExamWorks’ Registration Statement on Form S-1 filed with the Securities and Exchange Commission on October 21, 2010 and incorporated by reference herein).
4.2	Indenture dated July 19, 2011, by and among ExamWorks Group, Inc., the Guarantors party thereto, and U.S. Bank, National Association, as Trustee (including Form of 9% Note Due 2019) (filed as Exhibit 4.1 to Form 8-K filed with the Securities and Exchange Commission on July 22, 2011 and incorporated by reference herein).
4.3	Form of 9% Senior Unsecured Exchange Note Due 2019 and Form of Exchange Guarantee (filed as Exhibit 4.4 to From S-4 filed with the Securities and Exchange Commission on April 4, 2012 and incorporated by reference herein).
4.4	Indenture dated April 16, 2015, by and among ExamWorks Group, Inc. the Guarantors party thereto, and U.S. Bank National Association, as Trustee (filed as Exhibit 4.1 to Form 8-K filed with the Securities and Exchange Commission on April 17, 2015 and incorporated by reference herein).
4.5	Supplemental Indenture dated April 16, 2015, by and among ExamWorks Group, Inc. the Guarantors party thereto, and U.S. Bank National Association, as Trustee (including Form of 5.625% Note due 2023) (filed as Exhibit 4.1 to Form 8-K filed with the Securities and Exchange Commission on April 17, 2015 and incorporated by reference herein).

58

10.1.1++	Amended and Restated 2008 Stock Incentive Plan of the Registrant, effective as of July 12, 2010 (filed as Exhibit 10.2.1 to ExamWorks’ Registration Statement on Form S-1 filed with the Securities and Exchange Commission on August 13, 2010 and incorporated by reference herein).
10.1.2++	Form of Stock Option Award Agreement (filed as Exhibit 10.2.2 to ExamWorks’ Registration Statement on Form S-1 filed with the Securities and Exchange Commission on August 13, 2010 and incorporated by reference herein).
10.1.3++	Form of Restricted Share Unit Award Agreement (filed as Exhibit 10.2.3 to ExamWorks’ Registration Statement on Form S-1 filed with the Securities and Exchange Commission on August 13, 2010 and incorporated by reference herein).
10.1.4++	Form of Restricted Share Award Agreement (filed as Exhibit 10.2.4 to ExamWorks’ Registration Statement on Form S-1 filed with the Securities and Exchange Commission on August 13, 2010 and incorporated by reference herein).
10.1.5++	First Amendment to ExamWorks Group, Inc. Amended and Restated 2008 Stock Incentive Plan (filed as Exhibit 10.1 to Form 8-K filed with the Securities and Exchange Commission on August 8, 2011 and incorporated by reference herein).
10.1.6++	Second Amendment to ExamWorks Group, Inc. Amended and Restated 2008 Stock Incentive Plan, as amended, effective as of May 12, 2015 (filed as Exhibit 10.1 to Form 8-K filed with the Securities and Exchange Commission on May 14, 2015 and incorporated by reference herein).

59

10.2.1	Stockholders’ Agreement, dated July 14, 2008, by and among ExamWorks Holdings, LLLP, the stockholders party thereto and ExamWorks, Inc. (filed as Exhibit 10.3.1 to ExamWorks’ Registration Statement on Form S-1 filed with the Securities and Exchange Commission on August 13, 2010 and incorporated by reference herein).
10.2.2	Amendment to Stockholders’ Agreement, effective as of July 14, 2008, by and between ExamWorks Holdings, LLLP and ExamWorks, Inc. (filed as Exhibit 10.3.2 to ExamWorks’ Registration Statement on Form S-1 filed with the Securities and Exchange Commission on August 13, 2010 and incorporated by reference herein).

10.2.3	Second Amendment to Stockholders’ Agreement, dated as of March 12, 2010, by and among ExamWorks Inc., ExamWorks Holdings, LLLP and the stockholders party thereto (filed as Exhibit 10.3.3 to ExamWorks’ Registration Statement on Form S-1 filed with the Securities and Exchange Commission on August 13, 2010 and incorporated by reference herein).
10.3	Form of Warrant to purchase Common Stock, dated May 7, 2010 (filed as Exhibit 10.4 to Amendment No. 1 to ExamWorks’ Registration Statement on Form S-1 filed with the Securities and Exchange Commission on September 17, 2010 and incorporated by reference herein).
10.4	Registration Rights Agreement, dated May 7, 2010, by and among ExamWorks, Inc., Broadband Capital Management LLC and the officers and employees of Broadband Capital Management LLC party thereto (filed as Exhibit 10.5 to ExamWorks’ Registration Statement on Form S-1 filed with the Securities and Exchange Commission on August 13, 2010 and incorporated by reference herein).
10.5	Form of Investor Rights Agreement between ExamWorks, Inc. and the investors party thereto (filed as Exhibit 10.6 to ExamWorks’ Registration Statement on Form S-1 filed with the Securities and Exchange Commission on August 13, 2010 and incorporated by reference herein).
10.6	Form of Indemnification Agreement between ExamWorks, Inc. and its officers and directors (filed as Exhibit 10.7 to Amendment No. 3 to ExamWorks’ Registration Statement on Form S-1 filed with the Securities and Exchange Commission on October 21, 2010 and incorporated by reference herein).

60

10.7.1	Credit Agreement, dated as of October 11, 2010, among ExamWorks Group, Inc., a Delaware corporation, the Guarantors party thereto, the Lenders party thereto and Bank of America, N.A., in its capacity as administrative agent (filed as Exhibit 10.19 to Amendment No. 2 to ExamWorks’ Registration Statement on Form S-1 filed with the Securities and Exchange Commission on October 13, 2010 and incorporated by reference herein).
10.7.2	First Amendment and Consent Agreement dated as of May 6, 2011, by and among ExamWorks Group, Inc., as Borrower, Bank of America, N.A., as Administrative Agent, and the Guarantors and Lenders party thereto, amending Credit Agreement dated as of October 10, 2010 (filed as Exhibit 10.1 to Form 8-K filed with the Securities and Exchange Commission on May 10, 2011 and incorporated by reference herein).
10.7.3	Second Amendment to Credit Agreement, dated as of July 7, 2011, by and among ExamWorks Group, Inc., as Borrower, Bank of America, N.A., as Administrative Agent, and the Guarantors and Lenders party thereto (filed as Exhibit 10.1 to Form 8-K filed with the Securities and Exchange Commission on July 11, 2011 and incorporated by reference herein).
10.7.4	Third Amendment to Credit Agreement, dated as of February 27, 2012, by and among ExamWorks Group, Inc., as Borrower, Bank of America, N.A., as Administrative Agent, and the Guarantors and Lenders party thereto (filed as Exhibit 10.19.4 to Form 10-K filed with the Securities and Exchange Commission on February 29, 2012 and incorporated by reference herein).
10.7.5	Fourth Amendment to Credit Agreement and Consent dated as of August 27, 2012, by and among ExamWorks Group, Inc., as Borrower, Bank of America, N.A., as Administrative Agent, and the Guarantors and Lenders party thereto, amending Credit Agreement dated as of October 10, 2010 (as amended) (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on August 31, 2012).
10.7.6	Fifth Amendment to Credit Agreement and Consent dated as of June 27, 2013, by and among ExamWorks Group, Inc., as Borrower, Bank of America, N.A., as Administrative Agent, and the Guarantors and Lenders party thereto, amending Credit Agreement dated as of October 10, 2010 (filed as Exhibit 10.1 to Form 8-K filed with the Securities and Exchange Commission on July 28, 2013 and incorporated by reference herein).
10.7.7	Sixth Amendment to Credit Agreement and Consent dated as of February 3, 2014, by and among ExamWorks Group, Inc., as Borrower, Bank of America, N.A., as Administrative Agent, and the Guarantors and Lenders party thereto (filed as Exhibit 10.1 to Form 8-K filed with the Securities and Exchange Commission on February 4, 2014 and incorporated by reference herein).
10.8	Amended and Restated Credit Agreement dated as of April 16, 2015, by and among ExamWorks Group, Inc., the Guarantors party thereto, the Lenders party thereto and Bank of America, N.A., as Administrative Agent (filed as Exhibit 10.1 to Form 8-K filed with the Securities and Exchange Commission on April 17, 2015 and incorporated by reference herein).
10.9	First Amendment to Amended and Restated Credit Agreement dated as of June 1, 2015, by and among ExamWorks Group, Inc., the Guarantors party thereto, the Lenders party thereto and Bank of America, N.A., as Administrative Agent (filed as Exhibit 10.1 to Form 8-K filed with the Securities and Exchange Commission on June 2, 2015 and incorporated by reference herein).

10.10 Sales Finance Agreement - Recourse Confidential Invoice Discounting Facility (UK Debts) dated May 12, 2011 by and between Barclays Bank PLC and Premex Services Limited (filed as Exhibit 10.1 to Form 8-K filed with the Securities and Exchange Commission on May 17, 2011 and incorporated by reference herein).

10.11	Amendment Letter, dated May 12, 2011, by and between Barclays Bank PLC and Premex Services Limited (filed as Exhibit 10.2 to Form 8-K filed with the Securities and Exchange Commission on May 17, 2011 and incorporated by reference herein).
10.12	Amendment Letter, dated June 28, 2013, by and among Premex Services Limited, Premex Services (Liverpool) Ltd and Barclays Bank PLC, amending Sales Finance Agreement dated May 12, 2011 (filed as Exhibit 10.2 to Form 8-K filed with the Securities and Exchange Commission on July 28, 2013 and incorporated by reference herein).

61

10.13	Sales Finance Agreement by and between UK Independent Medical Services Ltd and Barclays Bank PLC, dated September 29, 2010 (filed as Exhibit 10.23 to Form 10-K filed with the Securities and Exchange Commission on March 6, 2014 and incorporated by reference herein).
10.14	Amendment Letter, dated June 28, 2013, by and between UK Independent Medical Services Ltd and Barclays Bank PLC, amending Sales Finance Agreement dated September 30, 2010 (filed as Exhibit 10.3 to Form 8-K filed with the Securities and Exchange Commission on July 28, 2013 and incorporated by reference herein).
10.15	Amendment Letter, dated April 16, 2015, by and between UK Independent Medical Services Ltd and Barclays Bank PLC, amending Sales and Finance Agreement dated September 30, 2010 (filed as Exhibit 10.2 to Form 8-K filed with the Securities and Exchange Commission on April 17, 2015 and incorporated by reference herein).
10.16	Amendment Letter, dated April 16, 2015, by and between Barclays Bank PLC and Premex Services Limited, amending Sales Finance Agreement dated May 12, 2011 (filed as Exhibit 10.3 to Form 8-K filed with the Securities and Exchange Commission on April 17, 2015 and incorporated by reference herein).
21.1	List of subsidiaries of the Registrant
23.1	Consent of KPMG LLP, Independent Registered Public Accounting Firm
31.1	Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a)
31.2	Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a)
32.1	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

*	Schedules to this exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K.  The Company agrees to furnish supplementary copies of any omitted schedules to the Securities and Exchange Commission upon request.
+	Confidential treatment was granted for certain portions which are omitted in the copy of the exhibit electronically filed with the SEC. The omitted information was filed separately with the SEC pursuant to our application for confidential treatment.
++	Denotes management contract or compensatory plan or arrangement.

62

SCHEDULE II

EXAMWORKS GROUP, INC.

VALUATION AND QUALIFYING ACCOUNTS

 (In thousands)

	Beginning Balance		Charged to Costs and Expenses		Deductions			Acquisitions			Ending Balance
Year ended December 31, 2013 Allowance for doubtful accounts	$	4,359		4,751		(1,656	)		(246	)		7,208
Year ended December 31, 2014 Allowance for doubtful accounts		7,208	$	5,727	$	(3,004	)	$	—		$	9,931
Year ended December 31, 2015 Allowance for doubtful accounts	$	9,931	$	7,059	$	(4,803	)	$	—		$	12,187

All financial statement schedules not listed are omitted because they are inapplicable or the requested information is shown in the financial statements of the Registrant or in the related notes to the consolidated financial statements.

63

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K for the year ended December 31, 2015 to be signed on its behalf by the undersigned, thereunto duly authorized on this 26th day of February 2016.

EXAMWORKS GROUP, INC.
By:	/s/ J. Miguel Fernandez de Castro
	J. Miguel Fernandez de Castro
	Senior Executive Vice President and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Richard E. Perlman	Chairman of the Board and Director	February 26, 2016
Richard E. Perlman
/s/ James K. Price	Chief Executive Officer and	February 26, 2016
James K. Price	Director (Principal Executive Officer)
/s/ J. Miguel Fernandez de Castro	Chief Financial Officer and Senior Executive	February 26, 2016
J. Miguel Fernandez de Castro	Vice President (Principal Financial and
	Accounting Officer)
/s/ Peter B. Bach	Director	February 26, 2016
Peter B. Bach
/s/ Peter M. Graham	Director	February 26, 2016
Peter M. Graham
/s/ J. Thomas Presby	Director	February 26, 2016
J. Thomas Presby
/s/ William A. Shutzer	Director	February 26, 2016
William A. Shutzer
/s/ David B. Zenoff	Director	February 26, 2016
David B. Zenoff

64

Index

	Page
ExamWorks Group, Inc. and Subsidiaries
Reports of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2014 and 2015	F-4
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2013, 2014 and 2015	F-5
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2013, 2014 and 2015	F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2014 and 2015	F-7
Notes to Consolidated Financial Statements	F-8

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

ExamWorks Group, Inc.:

We have audited the accompanying consolidated balance sheets of ExamWorks Group, Inc. and subsidiaries (the Company) as of December 31, 2014 and 2015, and the related consolidated statements of comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2015. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule included in Item 15(a)2. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ExamWorks Group, Inc. and subsidiaries as of December 31, 2014 and 2015, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), ExamWorks Group, Inc.’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 26, 2016 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ KPMG LLP

Atlanta, Georgia
February 26, 2016

F-2

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

ExamWorks Group, Inc.:

We have audited ExamWorks Group, Inc.’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). ExamWorks Group, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting (Item 9A.(b)). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, ExamWorks Group, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

ExamWorks Group, Inc. acquired ReliableRS, First Choice and Argent during 2015, and management excluded from its assessment of the effectiveness of ExamWorks Group, Inc.’s internal control over financial reporting as of December 31, 2015, ReliableRS’, First Choice’s and Argent’s internal control over financial reporting associated with 7.0% of total assets and 1.4% of total revenues included in the consolidated financial statements of ExamWorks Group, Inc. and subsidiaries as of and for the year ended December 31, 2015. Our audit of internal control over financial reporting of ExamWorks Group, Inc. also excluded an evaluation of the internal control over financial reporting of ReliableRS, First Choice and Argent.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of ExamWorks Group, Inc. and subsidiaries as of December 31, 2014 and 2015, and the related consolidated statements of comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2015, and our report dated February 26, 2016 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

Atlanta, Georgia
February 26, 2016

F-3

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except per share amounts)

	December 31,
	2014			2015
Assets
Current assets:
Cash and cash equivalents	$	9,751		$	47,865
Accounts receivable, net		203,189			245,449
Prepaid expenses		13,805			16,809
Deferred tax assets		3,776			—
Other current assets		1,437			1,958
Total current assets		231,958			312,081
Property, equipment and leasehold improvements, net		15,726			20,145
Goodwill		495,679			508,297
Intangible assets, net		102,583			84,673
Long-term accounts receivable, less current portion		46,401			62,717
Deferred tax assets, noncurrent		29,682			50,405
Deferred financing costs, net		6,169			9,394
Other assets		1,946			3,969
Total assets	$	930,144		$	1,051,681
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	57,033		$	60,599
Accrued expenses		53,978			60,748
Accrued interest expense		10,667			6,245
Deferred revenue		6,402			3,684
Current portion of contingent earnout obligation		4,473			—
Current portion of working capital facilities		40,396			—
Other current liabilities		6,950			9,056
Total current liabilities		179,899			140,332
Senior unsecured notes payable		250,000			500,000
Senior secured revolving credit facility and working capital facilities, less current portion		143,853			35,243
Long-term contingent earnout obligation, less current portion		2,114			—
Deferred tax liability, noncurrent		—			3,333
Other long-term liabilities		9,403			12,738
Total liabilities		585,269			691,646
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.0001 par value; Authorized 50,000 shares; no shares issued and outstanding at December 31, 2014 and December 31, 2015		—			—
Common stock, $0.0001 par value; Authorized 250,000 shares; issued 41,276 and 42,983 shares at December 31, 2014 and December 31, 2015, respectively		4			4
Additional paid-in capital		403,945			446,409
Accumulated other comprehensive loss		(14,376	)		(26,003	)
Accumulated deficit		(36,210	)		(30,619	)
Treasury stock, at cost; Outstanding 905 and 1,705 shares at December 31, 2014 and December 31, 2015, respectively		(8,488	)		(29,756	)
Total stockholders’ equity		344,875			360,035
Total liabilities and stockholders' equity	$	930,144		$	1,051,681

The accompanying notes are an integral part of these consolidated financial statements.

F-4

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

(In thousands, except per share amounts)

	For the years ended December 31,
	2013			2014			2015
Revenues	$	616,016		$	775,615		$	819,567
Costs and expenses:
Costs of revenues		405,329			497,038			536,494
Selling, general and administrative expenses		133,870			171,197			166,650
Depreciation and amortization		62,748			60,280			55,691
Total costs and expenses		601,947			728,515			758,835
Income from operations		14,069			47,100			60,732
Interest and other expenses, net:
Interest expense, net		29,531			31,977			33,918
Loss on early extinguishment of debt		—			—			18,619
Other expense, net		211			194			—
Gain on interest rate swap		(101	)		—			—
Total interest and other expenses, net		29,641			32,171			52,537
Income (loss) before income taxes		(15,572	)		14,929			8,195
Provision (benefit) for income taxes		(5,356	)		4,435			2,604
Net income (loss)	$	(10,216	)	$	10,494		$	5,591
Comprehensive Income (Loss):
Net income (loss)	$	(10,216	)	$	10,494		$	5,591
Foreign currency translation adjustments, net of tax		(9,120	)		(8,439	)		(11,627	)
Total comprehensive income (loss)	$	(19,336	)	$	2,055		$	(6,036	)
Per share data:
Net income (loss) per share:
Basic	$	(0.29	)	$	0.27		$	0.14
Diluted	$	(0.29	)	$	0.25		$	0.13
Weighted average number of common shares outstanding:
Basic		35,315			38,656			41,111
Diluted		35,315			41,232			43,044

The accompanying notes are an integral part of these consolidated financial statements.

F-5

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

(In thousands)

	Series A convertible preferred stock				Common stock					Treasury stock			Additional paid-in		Accumulated other comprehensive			Accumulated			Total stockholders’
	Shares		Amount		Shares			Amount		Amount			capital		income (loss)			deficit			equity
Balances at December 31, 2012		—	$	—		34,341		$	3	$	(8,488	)	$	285,938	$	3,183		$	(36,488	)	$	244,148
Issuance of common stock for the exercise of options and warrants		—		—		2,297			1		—			24,261		—			—			24,262
Issuance of common stock for services		—		—		290			—		—			—		—			—			—
Share-based compensation		—		—		—			—		—			17,187		—			—			17,187
Excess tax benefit on share-based compensation		—		—		—			—		—			6,610		—			—			6,610
Net loss		—		—		—			—		—			—		—			(10,216	)		(10,216	)
Other comprehensive income:		—		—					—		—					—
Foreign currency translation adjustments		—		—		—			—		—			—		(9,120	)		—			(9,120	)
Balances at December 31, 2013		—	$	—		36,928		$	4	$	(8,488	)	$	333,996	$	(5,937	)	$	(46,704	)	$	272,871
Issuance of common stock for the exercise of options and warrants		—		—		3,008			—		—			42,437		—			—			42,437
Issuance of common stock for services		—		—		435			—		—			—		—			—			—
Share-based compensation		—		—		—			—		—			18,225		—			—			18,225
Excess tax benefit on share-based compensation		—		—		—			—		—			9,287		—			—			9,287
Net loss		—		—		—			—		—			—		—			10,494			10,494
Other comprehensive loss:
Foreign currency translation adjustments		—		—		—			—		—			—		(8,439	)		—			(8,439	)
Balances at December 31, 2014		—	$	—		40,371		$	4	$	(8,488	)	$	403,945	$	(14,376	)	$	(36,210	)	$	344,875
Issuance of common stock for the exercise of options and warrants		—		—		1,182			—		—			14,423		—			—			14,423
Issuance of common stock for services		—		—		525			—		—			—		—			—			—
Share-based compensation		—		—		—			—		—			25,450		—			—			25,450
Excess tax benefit on share-based compensation		—		—		—			—		—			2,591		—			—			2,591
Net income		—		—		—			—		—			—		—			5,591			5,591
Other comprehensive loss:
Foreign currency translation adjustments		—		—		—			—		—			—		(11,627	)		—			(11,627	)
Stock repurchases under stock repurchase program		—		—		(800	)		—		(21,268	)		—		—			—			(21,268	)
Balances at December 31, 2015		—	$	—		41,278		$	4	$	(29,756	)	$	446,409	$	(26,003	)	$	(30,619	)	$	360,035

The accompanying notes are an integral part of these consolidated financial statements.

F-6

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

	For the years ended December 31,
	2013			2014			2015
Operating activities:
Net income (loss)	$	(10,216	)	$	10,494		$	5,591
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Gain on interest rate swap		(101	)		—			—
Depreciation and amortization		62,748			60,280			55,691
Amortization of deferred rent		(370	)		(112	)		577
Share-based compensation		17,157			20,024			22,289
Excess tax benefit related to share-based compensation		(6,610	)		(9,287	)		(2,591	)
Provision for doubtful accounts		4,751			5,727			7,059
Amortization of deferred financing costs		2,191			2,317			1,793
Deferred income taxes		(18,021	)		(19,546	)		(7,027	)
Loss on early extinguishment of debt		—			—			18,619
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable		(31,112	)		(49,437	)		(51,481	)
Prepaid expenses and other current assets		(552	)		(7,505	)		(2,145	)
Accounts payable and accrued expenses		15,625			31,642			10,623
Accrued interest expense		(487	)		236			(4,422	)
Deferred revenue and customer deposits		1,676			226			(2,069	)
Other liabilities		(324	)		140			(2,477	)
Net cash provided by operating activities		36,355			45,199			50,030
Investing activities:
Cash paid for acquisitions, net		(3,318	)		(187,402	)		(75,235	)
Purchases of building, equipment and leasehold improvements, net		(6,544	)		(10,894	)		(11,190	)
Working capital and other settlements for acquisitions		(569	)		(2,331	)		(212	)
Proceeds from foreign currency net investment hedges		1,421			4,006			7,698
Other		(1,144	)		(1,542	)		(1,499	)
Net cash used in investing activities		(10,154	)		(198,163	)		(80,438	)
Financing activities:
Borrowings under senior unsecured notes		—			—			500,000
Borrowings under senior secured revolving credit facility		142,473			299,255			25,478
Proceeds from the exercise of options and warrants		24,261			42,437			14,423
Excess tax benefit related to share-based compensation		6,610			9,287			2,591
Repayment of subordinated unsecured notes payable		(270	)		(333	)		—
Net borrowings (repayments) under working capital facilities		2,772			4,939			(3,362	)
Payment of contingent earnout obligation		—			(4,362	)		(5,064	)
Payment of deferred financing costs		(172	)		(263	)		(9,035	)
Payment for early redemption of senior unsecured notes		—			—			(14,618	)
Purchases of stock for treasury		—			—			(21,268	)
Repayments under senior secured revolving credit facility		(196,746	)		(200,429	)		(169,330	)
Repayment of senior unsecured notes		—			—			(250,000	)
Other		—			(53	)		—
Net cash provided by (used in) financing activities		(21,072	)		150,478			69,815
Exchange rate impact on cash and cash equivalents		(927	)		(592	)		(1,293	)
Net increase (decrease) in cash and cash equivalents		4,202			(3,078	)		38,114
Cash and cash equivalents, beginning of year		8,627			12,829			9,751
Cash and cash equivalents, end of year	$	12,829		$	9,751		$	47,865
Supplemental disclosures of cash flow information:
Cash paid for interest	$	27,495		$	28,876		$	36,364
Cash paid for income taxes		8,967			3,510			9,164

The accompanying notes are an integral part of these consolidated financial statements.

F-7

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013, 2014 and 2015

(1) Nature of Operations and Basis of Presentation

ExamWorks Group, Inc. (“ExamWorks” or the “Company”) is a leading provider of independent medical examinations (“IMEs”), peer and bill reviews, Medicare compliance, case management and other related services (“IME services” or the “IME industry”). ExamWorks, Inc. was incorporated as a Delaware corporation on April 27, 2007. Since 2008 through the date of this filing, ExamWorks completed 56 acquisitions. As of December 31, 2015, ExamWorks, Inc. operated out of 67 service centers serving all 50 United States, Canada, the United Kingdom and Australia. 

The consolidated financial statements include the accounts of ExamWorks and its 100% owned subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.

(2) Summary of Significant Accounting Policies

(a) Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on certain assumptions which they believe are reasonable in the circumstances and actual results could differ from those estimates. The more significant estimates reflected in these consolidated financial statements include purchase price allocations, useful lives of intangible assets, potential impairment of goodwill and intangible assets, the allowance for doubtful accounts, the portion of accounts receivable deemed to be long term in nature, the valuation of deferred tax assets, the valuation of equity and share-based compensation and derivative instruments.

(b) Foreign Currencies

Assets and liabilities recorded in foreign currencies are translated into U.S. dollars at the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates of exchange prevailing during the year. Translation adjustments resulting from this process are recorded to other comprehensive income (loss) and are reported net of the effect of income taxes on the consolidated financial statements (See Note 2 (p) to the Consolidated Financial Statements).

(c) Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. The Company had no cash equivalents as of December 31, 2014 and 2015.

(d) Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable consist of amounts owed to the Company for services provided in the normal course of business and are reported net of allowance for doubtful accounts, which amounted to $9.9 million and $12.2 million as of December 31, 2014 and 2015, respectively. Generally, no collateral is received from customers and additions to the allowance are based on ongoing credit evaluations of customers with general credit experience being within the range of management’s expectations. Accounts are reviewed regularly for collectability and those deemed uncollectible are written off.  The Company assumes, that on average, all accounts receivable will be collected within one year and thus classifies these as current assets; however there are certain receivables, principally in the U.K., that have aged longer than one year as of December 31, 2014 and 2015, and the Company has recorded an estimate for those receivables that will not be collected within one year as long-term in the Consolidated Balance Sheets.

(e) Concentrations of Credit Risk

The Company routinely assesses the financial strength of its customers and establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. For the years ended December 31, 2013, 2014 and 2015, no individual customer accounted for more than 10% of revenues. At December 31, 2014 and December 31, 2015, there was an individual customer that accounted for approximately 14% of the accounts receivable balance.

F-8

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013, 2014 and 2015

As of December 31, 2015, the Company had cash and cash equivalents totaling approximately $47.9 million. These amounts were held for future acquisition and working capital purposes and were held in non-interest bearing accounts, of which $33.0 million was held in the U.S. The U.S. amounts were insured under standard FDIC insurance coverage for deposit accounts up to $250,000, per depositor and account ownership category, at each separately insured depository institution.

(f) Property, Equipment and Leasehold Improvements

Property, equipment and leasehold improvements are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets and accelerated methods for income tax purposes. Leasehold improvements are amortized over the lesser of their expected useful life or the remaining lease term. Maintenance and repair costs are expensed as incurred.

(g) Long-Lived Assets

In accordance with Impairment or Disposal of Long-Lived Assets, Subsections of Financial Accounting Standards Board (“FASB”) ASC Subtopic 360-10 (“ASC 360”),  Property, Plant, and Equipment — Overall , long-lived assets, such as equipment and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models (using market participant assumptions), quoted market values and third-party independent appraisals, as considered necessary. At December 31, 2014 and 2015, no impairment was noted.

(h) Goodwill and Other Intangible Assets

Goodwill is an asset representing the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is reviewed for impairment at least annually in accordance with the provisions of FASB ASC Topic 350, Intangibles — Goodwill and Other (“ASC 350”). The goodwill impairment test is a two-step test. Under the first step, the fair value of the reporting units are compared with their carrying values (including goodwill). If the fair value of a reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the enterprise must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting units' goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting unit is determined using a discounted cash flow analysis (using market participant assumptions). If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed.

The Company performed its annual impairment review of goodwill in October of 2014 and 2015 and it was determined that the carrying amount of goodwill was not impaired as the fair value of the reporting units substantially exceeded their carrying values and there have been no subsequent developments that would indicate impairment exists as of December 31, 2015. The goodwill impairment review will continue to be performed annually or more frequently if facts and circumstances warrant a review.

ASC 350 also requires that intangible assets with definite lives be amortized over their estimated useful lives. Currently, customer relationships, trade names, covenants not-to-compete and technology are amortized using the straight-line method over estimated useful lives.

F-9

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013, 2014 and 2015

(i) Deferred Financing Costs

In November 2010, the Company entered into a senior secured revolving credit facility with Bank of America N.A. (“Senior Secured Revolving Credit Facility”) (see Note 10). The Company has incurred deferred financing costs of $8.5 million associated with the Senior Secured Revolving Credit Facility, related amendments and restatements, of which $56,000, $263,000 and $1.4 million were incurred in the years ended December 31, 2013, 2014 and 2015, respectively.  In the second quarter of 2015, the Company amended and restated the Senior Secured Revolving Credit Facility in connection with the offering of the Notes as defined below, pursuant to an amended and restated credit agreement (the “Amended and Restated Credit Facility”), which resulted in a loss on extinguishment of debt of approximately $274,000 for the write-off of unamortized deferred financing costs in accordance with ASC topic 470,  Debt  (“ASC 470”).  

Additionally, in July 2011, the Company closed a private offering of $250.0 million in aggregate principal amount of 9.0% senior notes due 2019, which were subsequently registered through a public exchange offer in 2012 (the “Senior Unsecured Notes”). The Company had incurred deferred financing costs of $7.1 million associated therewith, substantially all of which were incurred prior to the year ended December 31, 2013. In connection with the redemption of the Senior Unsecured Notes, as discussed below, the Company recorded debt extinguishment costs of $18.3 million of which $3.7 million related to unamortized deferred financing costs and $14.6 million related to a premium paid for the early redemption of the Senior Unsecured Notes.

In April 2015, the Company completed a public offering of $500.0 million in aggregate principal amount of 5.625% senior unsecured notes due 2023 (the “Notes”). The Notes were issued at a price of 100% of their principal amount. The Notes are senior obligations of ExamWorks and are guaranteed by certain of ExamWorks’ existing and future U.S. subsidiaries. A portion of the gross proceeds of $500.0 million were used to repay all outstanding borrowings under the Senior Secured Revolving Credit Facility, to redeem all of the Senior Unsecured Notes, to pay related fees and expenses, and for general corporate purposes, including acquisitions. The Company has incurred deferred financing costs of $7.5 million relating to this offering, all of which were incurred in the year ended December 31, 2015. 

The deferred financing costs associated with the Senior Secured Revolving Credit Facility and the Notes are being amortized to interest expense over the five-year term of the facility, as amended, and the eight-year term of the notes, respectively, using the straight-line method, which approximates the effective interest method.

The Company amortized $2.2 million, $2.3 million and $1.8 million for the years ended December 31, 2013, 2014 and 2015, respectively, to interest expense.

(j) Deferred Rents

The Company entered into various leases for offices that have certain escalation clauses or other features which require rental expense to be recognized on a straight-line basis over the life of the lease. As of December 31, 2014, and 2015, the deferred rent balance was $2.6 million and $3.2 million, respectively, and is included in other current and long-term liabilities in the accompanying Consolidated Balance Sheets.

(k) Revenue Recognition

Revenue related to IMEs, peer reviews, bill reviews, administrative support services and Medicare compliance services is recognized at the time services have been performed and the report is shipped to the end user. The Company believes that recognizing revenue at the time the report is shipped is appropriate because the Company’s revenue policies meet the following four criteria in accordance with ASC 605-10-S25,  Revenue Recognition: Overall,  (i) persuasive evidence that arrangement exists, (ii) shipment has occurred, (iii) the price is fixed and determinable and (iv) collectability is reasonably assured. The Company reports revenues net of any sales, use and value added taxes.

Revenue related to other IME services, including litigation support services, medical record retrieval services and case management services, where no report is generated, is recognized at the time the service is performed. The Company believes that recognizing revenue at the time the service is performed is appropriate because the Company’s revenue policies meet the following four criteria in accordance with ASC 605-10-S25, (i) persuasive evidence that arrangement exists, (ii) services have been rendered, (iii) the price is fixed and determinable and (iv) collectability is reasonably assured.

F-10

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013, 2014 and 2015

Certain agreements with customers in the U.K. include provisions whereby collection of the amounts billed are contingent on the favorable outcome of the claim.  The Company has deemed these provisions to preclude revenue recognition at the time of performance, as collectability is not reasonably assured and the cash payments are contingent, and is deferring these revenues, net of estimated costs, until the case has been settled, the contingency has been resolved and the cash has been collected.   As of December 31, 2014 and 2015, the Company had $4.4 million and $2.7 million, respectively, in U.K. net deferred revenues associated with such agreements.

Should changes in conditions cause management to determine these criteria are not met for certain future transactions, revenue recognized for any subsequent reporting period could be adversely affected.

(l) Costs of Revenues

Costs of revenues are comprised of fees paid to members of the Company’s medical panel; other direct costs including transcription, film and medical record obtainment and transportation; and other indirect costs including labor and overhead related to the generation of revenues.

(m) Shipping and Handling Costs

Shipping and handling charges billed to customers are recorded as revenue; the corresponding costs are included in costs of revenues.

(n) Marketing and Advertising Costs

Marketing and advertising costs are expensed as incurred and amounted to $2.9 million, $3.4 million and $3.4 million for the years ended December 31, 2013, 2014 and 2015, respectively, and are included in selling, general and administrative ("SGA") expenses in the accompanying Consolidated Statements of Comprehensive Income (Loss).

(o) Accounting for Leases

The Company leases office space under operating lease agreements with original lease periods of up to 10 years. Certain of the lease agreements contain renewal and rent escalation provisions. Rent escalation provisions are considered in determining straight-line rent expense to be recorded over the lease term. The lease term begins on the date of initial possession of the lease property for purposes of recognizing lease expense on a straight-line basis over the term of the lease. Lease renewal periods are considered on a lease-by-lease basis and are generally not included in the initial lease term. Landlord allowances for improvements to leaseholds are included in property and equipment and offset by a corresponding deferred rent credit. The Company amortizes the leasehold improvements over the shorter of the life of the improvements or the lease term. The deferred rent credit is included in other liabilities (current and long term) in the accompanying Consolidated Balance Sheets and will be amortized as a reduction of rent expense over the lease term.

(p) Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company applies the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, (included in FASB ASC Subtopic 740-10, Income Taxes — Overall ), and recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

The Company records interest and penalties related to unrecognized tax benefits in income tax expense.

F-11

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013, 2014 and 2015

(q) Income (Loss) Per Common Share

Basic income (loss) per share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during each period. Diluted income (loss) per common share is calculated by dividing net income (loss), adjusted on an “as if converted” basis, by the weighted-average number of actual shares outstanding and, when dilutive, the share equivalents that would arise from the assumed conversion of convertible instruments. The effect of potentially dilutive stock options, warrants, shares of restricted stock with service restrictions that have not yet been satisfied and unvested restricted stock units (“RSUs”) is calculated using the treasury stock method.

For the year ended December 31, 2013, the potentially dilutive securities include options, warrants, shares of restricted stock with a service restriction not yet satisfied and RSUs exercisable into 8.4 million shares of common stock, respectively. For the year ended December 31, 2013, all of the potentially dilutive securities were excluded from the calculation of shares applicable to loss per share, because their inclusion would have been anti-dilutive.

The following table sets forth basic and diluted net income per share computational data for the years ended December 31, 2014 and 2015 (amounts in thousands):

	Year ended December 31,
	2014		2015
Net income	$	10,494	$	5,591
Weighted average basic shares outstanding:
Common stock		38,656		41,111
Weighted average diluted shares outstanding:
Common stock		38,656		41,111
Dilutive securities (1)		2,576		1,933
Totals		41,232		43,044

(1) For the years ended December 31, 2014 and 2015, the Company’s dilutive securities exclude options potentially exercisable in the future into 69,000 shares and 57,000 shares, respectively, because their inclusion would have been anti-dilutive.

(r) Share-Based Compensation

The Company has an Amended and Restated 2008 Stock Incentive Plan, as amended, (the “Plan”) that provides for granting of stock options, restricted stock, RSUs and other equity awards. The Company accounts for share-based awards in accordance with ASC Topic 718, Compensation — Stock Compensation (“ASC 718”). ASC 718 requires measurement of compensation cost for all share-based awards at fair value on the grant date (or measurement date if different) and recognition of compensation expense, net of forfeitures, over the requisite service period for awards expected to vest.

Stock Options

The fair value of stock option grants is determined using the Black-Scholes valuation model. The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable, characteristics not present in the Company’s stock options. Additionally, option valuation models require the input of highly subjective assumptions, including the expected volatility of the stock price. Because the Company’s stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimates, in management’s opinion, the existing models may not provide a reliable single measure of the fair value of its share-based awards.

F-12

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013, 2014 and 2015

The Company’s expected volatility assumptions are based upon the weighted average of the Company’s peer group median implied volatility, the Company’s mean reversion volatility and the median of the Company’s peer group’s most recent historical volatilities for 2013 and 2014 stock option grants. The Company’s expected volatility assumptions are based upon the weighted average of the Company’s implied volatility, the Company’s mean reversion volatility and the median of the Company’s peer group’s most recent historical volatilities for 2015 stock option grants. Expected life assumptions are based upon the “simplified” method as for those options issued from 2013 to 2015, which were determined to be issued approximately at-the-money. The risk-free interest rate was selected based upon yields of U.S. Treasury issues with a term equal to the expected life of the option being valued.  

The assumptions utilized for stock option grants during 2013, 2014 and 2015 were as follows:

	2013					2014					2015
Volatility		48.37	–	49.10	%		48.59	–	49.27	%			48.59	%
Expected life (years)			6.00					6.00					6.00
Risk-free interest rate		0.97	–	1.73	%		1.81	–	2.08	%			2.01	%
Dividend yield			—					—					—
Fair value	$	6.63	–	12.61		$	14.71	–	17.26		$	19.30	–	19.37

In 2013, the Company issued approximately 621,000 stock option awards to employees.  The weighted average fair value of each stock option was $8.55 per option and the aggregate fair value was $5.3 million.  All of these awards vest over a three-year period.  Additionally, all these options could vest earlier in the event of a change in control or merger or other acquisition.  Share-based compensation expense related to stock option awards was $12.1 million for the year ended December 31, 2013, of which $2.9 million was included in costs of revenues and $9.2 million was recorded in SGA expenses.

In 2014, the Company issued approximately 630,000 stock option awards to employees.  The weighted average fair value of each stock option was $15.98 per option and the aggregate fair value was $10.1 million.  All of these awards vest over a three-year period, with the exception of approximately 43,000 awards which vest over a four-year period.  Additionally, all these options could vest earlier in the event of a change in control or merger or other acquisition.  Share-based compensation expense related to stock option awards was $8.2 million for the year ended December 31, 2014, of which $2.0 million was included in costs of revenues and $6.2 million was recorded in SGA expenses.

In 2015, the Company issued approximately 35,000 stock option awards to employees.  The weighted average fair value of each stock option was $19.36 per option and the aggregate fair value was $678,000.  All of these awards vest over a three-year period.  Additionally, all these options could vest earlier in the event of a change in control or merger or other acquisition.  Share-based compensation expense related to stock option awards was $5.1 million for the year ended December 31, 2015, of which $1.2 million was included in costs of revenues and $3.9 million was recorded in SGA expenses.

At December 31, 2014 and 2015, the unrecognized compensation expense related to stock option awards was $8.9 million and $4.8 million, respectively, with a remaining weighted average life of 1.7 years and 1.3 years, respectively.

A summary of option activity for the years ended December 31, 2013, 2014 and 2015 follows:

	Number of options			Weighted average exercise price		Weighted average remaining contractual life (years)		Aggregate intrinsic value (in thousands)
Outstanding at December 31, 2012		9,463,657		$	11.76
Options granted		621,100			18.16
Options forfeited		(520,139	)		15.38
Options exercised		(2,229,873	)		10.85
Outstanding at December 31, 2013		7,334,745		$	12.33
Options granted		629,775			32.72
Options forfeited		(204,348	)		20.42
Options exercised		(2,794,225	)		15.20
Outstanding at December 31, 2014		4,965,947		$	12.96
Options granted		35,000			40.20
Options forfeited		(63,749	)		22.75
Options exercised		(1,170,330	)		12.19
Outstanding at December 31, 2015		3,766,868		$	13.28		5.6	$	53,865
Exercisable at December 31, 2015		3,328,227		$	10.89		5.2	$	53,368
Expected to vest after December 31, 2015		368,458		$	31.45		7.4	$	418

F-13

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013, 2014 and 2015

Aggregate intrinsic value represents the value of the Company’s closing stock price on the last trading day of the fiscal period in excess of the weighted average exercise price multiplied by the number of options outstanding or exercisable. Options expected to vest are unvested shares net of expected forfeitures. The total intrinsic value of stock options exercised was approximately $26.7 million, $54.3 million and $31.1 million during the years ended December 31, 2013, 2014 and 2015, respectively.

There were approximately 4.7 million options exercisable as of December 31, 2013 with a per share weighted average exercise price of $11.29 per option and approximately 3.7 million options exercisable as of December 31, 2014 with a per share weighted average exercise price of $9.95 per option.

Restricted Stock and Restricted Stock Units

The Company has granted members of the Board of Directors, certain employees and outside consultants, time lapse restricted stock and RSUs which vest after a stipulated number of years from the grant date depending on the terms of the issue. The fair value of shares of restricted stock and RSUs is determined based upon the market price of the underlying common stock as of the date of grant. Time lapse restricted shares issued and RSUs vest over one to five-year periods. The agreements under which the restricted stock and RSUs are issued provide that shares awarded may not be sold or otherwise transferred until restrictions established under the stock plans have been satisfied. The restriction on a majority of these awards could expire earlier than the stipulated time frame in the event of a change in control or merger or other acquisition. Share-based compensation expense related to shares of restricted stock and RSUs was $4.0 million, $8.5 million and $17.2 million for the years ended December 31, 2013, 2014 and 2015, respectively, all of which is included in SGA expenses.

The following is a summary of restricted share and RSU activity for the years ended December 31, 2013, 2014 and 2015:

	Number of awards			Weighted average grant date fair value
Non-vested awards at December 31, 2012		189,412		$	13.68
Awards granted		668,885			15.78
Awards vested		(77,513	)		13.30
Awards forfeited		(26,570	)		14.06
Non-vested awards at December 31, 2013		754,214		$	15.57
Awards granted		573,818			34.08
Awards vested		(376,753	)		17.39
Awards forfeited		(70,846	)		33.00
Non-vested awards at December 31, 2014		880,433		$	25.46
Awards granted		994,410			37.66
Awards vested		(524,569	)		25.77
Awards forfeited		(34,752	)		35.11
Non-vested awards at December 31, 2015		1,315,522		$	34.30

The total fair value of vested RSUs and shares of restricted stock during the years ended December 31, 2013, 2014 and 2015 was $1.0 million, $6.6 million and $13.5 million, respectively. At December 31, 2014 and 2015, total unrecognized compensation costs related to non-vested restricted shares and RSUs was $15.6 million and $30.9 million, respectively, which is expected to be recognized over a weighted average period of 1.6 years and 1.9 years, respectively.

F-14

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013, 2014 and 2015

During the years ended December 31, 2013 and 2014, the Company recorded share-based compensation expense of $1.1 million and $3.3 million, respectively, related to annual incentive compensation plans established by the Compensation Committee of the Board of Directors, all of which was recorded in SGA expenses. The 2013 obligation was settled in February 2014 via the issuance of approximately 83,000 shares of restricted stock, and the 2014 obligation was settled in March 2015 via the issuance of approximately 122,000 shares of restricted stock. As performance metrics were not achieved for the year ended December 31, 2015, no share-based compensation expense was recorded, and no 2015 plan year obligation was recorded on the Consolidated Balance Sheets.

(s) Fair Value Measurements

In September 2006, the FASB issued authoritative guidance codified as ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value in U.S. generally accepted accounting principles and expands disclosure about fair value measurements.

ASC 820 defines fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair value into the following levels:

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider counterpart credit risk in its assessment of fair value.

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs, other than quoted prices in active markets, that are observable either directly or indirectly.

Level 3 – Unobservable inputs based on the company’s own assumptions.

The Company’s financial assets and (liabilities), which are measured at fair value on a recurring basis, are categorized using the fair value hierarchy at December 31, 2014 and 2015, and are as follows (in thousands):

	Level 1		Level 2			Level 3			Total
As of December 31, 2014
Financial instruments:
Contingent consideration	$	—	$	—		$	(6,587	)	$	(6,587	)
Foreign currency derivative asset		—		272			—			272
As of December 31, 2015
Financial instruments:
Foreign currency derivative asset	$	—	$	848		$	—		$	848
Foreign currency derivative liability		—		(1,215	)		—			(1,215	)

The contingent consideration relates to earnout provisions recorded in conjunction with certain acquisitions completed in 2013 and 2014 (see Note 3). Of the total decrease in fair value of the contingent consideration of $6.6 million in 2015, $5.1 million was settled as cash consideration to satisfy installments related to a 2013 and 2014 acquisition and the Company recorded $1.5 million in adjustments to the fair value of the obligation related to milestones which were not achieved, recorded to SGA expenses, offset by $162,000 recorded in interest and other expenses, net in the Consolidated Statements of Comprehensive Income (Loss) due to changes in the fair value of the contingent consideration and the remaining change is due to currency fluctuations.

The fair value of the foreign currency derivative was determined using observable market inputs such as foreign currency exchange rates and considers nonperformance risk of the Company and that of its counterparties.

F-15

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013, 2014 and 2015

(t) Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) refers to revenues, expenses, gains and losses that under U.S. GAAP are recorded as a component of stockholders’ equity but are excluded from net income (loss). The Company’s accumulated other comprehensive income (loss) consists of foreign currency translation adjustments, reported net of tax as appropriate, from those subsidiaries not using the U.S. dollar as their functional currency and unrealized gains and losses, reported net of tax as appropriate, resulting from its net investment hedge of its Australian and U.K. subsidiaries.

Accumulated other comprehensive income (loss) consists of the following (in thousands):

	Foreign Currency Translation			Net investment hedge - foreign exchange contract			Total
Balance at December 31, 2013	$	(6,420	)	$	483		$	(5,937	)
Change during 2014:
Before-tax amount		(16,923	)		4,900			(12,023	)
Tax (expense) benefit		5,522			(1,938	)		3,584
Total activity in 2014		(11,401	)		2,962			(8,439	)
Balance at December 31, 2014	$	(17,821	)	$	3,445		$	(14,376	)
Change during 2015:
Before-tax amount		(22,127	)		7,060			(15,067	)
Tax (expense) benefit		6,232			(2,792	)		3,440
Total activity in 2015		(15,895	)		4,268			(11,627	)
Balance at December 31, 2015	$	(33,716	)	$	7,713		$	(26,003	)

(u) Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In February 2013 the FASB issued ASU No. 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” This update amends Accounting Standards Codification (ASC) Topic 220, “Comprehensive Income,” to require reporting entities to provide information about the amounts reclassified from accumulated other comprehensive income by component. In addition, reporting entities will be required to present, either on the face of the statement of operations or in the footnotes to the financial statements, significant amounts reclassified from accumulated other comprehensive income by statement of operations line item. ASU 2013-02 is effective prospectively for reporting periods beginning after December 15, 2012. The Company adopted these provisions effective January 1, 2013 and the adoption of these provisions did not have a material impact on its financial position, results of operations or cash flows.

In July 2013, the FASB issued ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”) which amends accounting guidance on the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or tax credit carryforward exists. This new guidance requires entities, if certain criteria are met, to present an unrecognized tax benefit, or portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward when such items exist in the same taxing jurisdiction. The Company adopted the provisions of this ASU in the first quarter of 2014 and adoption did not have a significant impact on its financial position, results of operations or cash flows.

F-16

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013, 2014 and 2015

In April 2014, the FASB issued ASU No. 2014-08, (Topic 205 and 360), “Reporting Discontinued Operations and Disclosure of Disposals of Components of an Entity” (“ASU 2014-08”) which amends the definition for what types of asset disposals are to be considered discontinued operations, and amends the required disclosures for discontinued operations and assets held for sale. ASU 2014-08 also enhances the convergence of the FASB’s and the International Accounting Standard Board’s reporting requirements for discontinued operations. The amendments in this update are effective for fiscal periods beginning on or after December 15, 2014, and interim periods within annual periods beginning on or after December 15, 2015. The Company adopted the provisions of this standard effective January 1, 2015, and the adoption of these provisions did not have a material impact on its financial position, results of operations or cash flows.

In November 2014, the FASB issued ASU No. 2014-17, “Business Combinations: Pushdown Accounting” (“ASU 2014-17”) which provides an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. The acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change-in-control event occurs. If pushdown accounting is not applied in the reporting period in which the change-in-control event occurs, an acquired entity will have the option to elect to apply pushdown accounting in a subsequent reporting period as a change in accounting principle in accordance with ASC Topic 250, “Accounting Changes and Error Corrections”. If pushdown accounting is applied to an individual change-in-control event, that election is irrevocable. ASU 2014-17 also requires an acquired entity that elects the option to apply pushdown accounting in its separate financial statements to disclose information in the current reporting period that enables users of financial statements to evaluate the effect of pushdown accounting. The Company has adopted the amendments in ASU 2014-17, effective November 18, 2014, as the amendments in the update are effective upon issuance. The adoption of ASU 2014-17 did not have a material impact on the Company’s financial position, results of operations or cash flows.

In November 2015, the FASB issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”), which requires deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The guidance is effective for financial statements issued for interim and annual periods beginning after December 15, 2016. Earlier adoption is permitted for all entities as of the beginning of an interim or annual reporting period. This amendment may be applied either prospectively or retrospectively to all periods presented. The Company adopted the provisions of this ASU prospectively in the fourth quarter of 2015, and did not retrospectively adjust the prior periods. The adoption of this ASU will simplify the presentation of deferred income taxes and reduce complexity without decreasing the usefulness of information provided to users of the Company’s financial statements. The adoption of ASU 2015-17 did not have a significant impact on the Company’s financial position, results of operations or cash flows.

Accounting Pronouncements Not Yet Adopted

In May 2014, the FASB issued ASU No. 2014-09, (Topic 606): Revenue from Contracts with Customers (“ASU 2014-09”) which supersedes the revenue recognition requirements in “Topic 605, Revenue Recognition” and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective retrospectively for annual or interim reporting periods beginning after December 15, 2017, with early adoption permitted for annual reporting periods beginning after December 15, 2016. The Company is currently evaluating the impact of this standard on its financial position, results of operations and cash flows.

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-05”) which define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. Currently, financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. This going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities. This ASU provides guidance regarding management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern and the related footnote disclosures. The amendments are effective for the year ending December 31, 2016, and for interim periods beginning the first quarter of 2017, with early adoption permitted. The Company plans to adopt the provisions for the year ending December 31, 2016 and will provide such disclosures as required if there are conditions and events that raise substantial doubt about its ability to continue as a going concern. The Company currently does not expect the adoption to have a material impact on its financial position, results of operations or cash flows.

F-17

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013, 2014 and 2015

In April 2015, the FASB issued ASU No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”) which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in ASU 2015-03. The amendments in this update are effective for fiscal periods beginning on or after December 15, 2015, and interim periods within those fiscal years. The Company is currently evaluating the impact of this standard on its financial position, results of operations and cash flows.

In September 2015, the FASB issued ASU No. 2015-16, “Business Combinations (Topic 805) Simplifying the Accounting for Measurement-Period Adjustments” which requires that an acquirer recognize adjustments to estimated amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments also require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the estimated amounts had been recognized as of the acquisition date. The amendments in this update are effective for fiscal periods beginning on or after December 15, 2015, and interim periods within those fiscal years. The Company plans to adopt the provisions for the year ending December 31, 2016 and currently does not expect the adoption to have a material impact on its financial position, results of operations or cash flows.

There were various other accounting standards and interpretations issued during 2013, 2014 and 2015 the Company has not yet been required to adopt, none of which are expected to have a material impact on its financial position, results of operations or cash flows.

(3) Acquisitions

ExamWorks operates in a highly fragmented industry and has completed 56 acquisitions since July 14, 2008 through the date of this filing. A key component of ExamWorks’ acquisition strategy is growth through acquisitions that expand its geographic coverage, that provide new or complementary lines of business, expand its portfolio of services and that increase its market share.

The Company has accounted for all business combinations using the purchase method to record a new cost basis for the assets acquired and liabilities assumed. The Company recorded, based on a preliminary purchase price allocation, intangible assets representing client relationships, tradenames, covenants not to compete, technology and the excess of purchase price over the estimated fair value of the tangible assets acquired and liabilities assumed as goodwill in the accompanying consolidated financial statements. The goodwill is attributable to synergies achieved through the streamlining of operations combined with improved margins attainable through increased market presence. The results of operations are reflected in the consolidated financial statements of the Company from the date of acquisition.

(a) 2013 Acquisitions

In 2013, the Company completed the following individually insignificant acquisitions, as defined in SEC Regulation S-X Rule 3-05, with an aggregate purchase price of $7.3 million, comprised of $3.3 million cash consideration less cash acquired of $8,000, and $4.0 million of contingent consideration. In conjunction with these 2013 acquisitions, the Company incurred transaction costs of $83,000, all of which were incurred in the year ended December 31, 2013. These amounts are reported in SGA expenses in the Company’s accompanying Consolidated Statements of Comprehensive Income (Loss). These acquisitions enhanced the service offering of the Company.

Company name	Form of acquisition	Date of acquisition
AGS Risk Limited (United Kingdom)	Substantially all of the assets and assumed certain liabilities	December 10, 2013
Evaluation Resource Group (United States)	Substantially all of the assets and assumed certain liabilities	December 20, 2013

F-18

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013, 2014 and 2015

The final allocation of consideration for these acquisitions is summarized as follows (in thousands):

	Preliminary purchase price allocation December 31, 2013		Adjustments/ reclassifications			Final purchase price allocation December 31, 2014
Equipment and leasehold improvements		130		—			130
Customer relationships		3,141		—			3,141
Tradename		710		—			710
Goodwill		3,024		(309	)		2,715
Assets acquired and liabilities assumed, net		688		(64	)		624
Totals		7,693		(373	)		7,320

In 2014, the Company finalized the purchase price allocation and recorded adjustments to contingent consideration resulting in a decrease in total consideration paid of $373,000. Goodwill of $2.7 million and other intangible assets of $3.9 million are expected to be deductible for U.S. federal income tax purposes.

(b) 2014 Acquisitions

In 2014, the Company completed the following individually insignificant acquisitions, as defined in SEC Regulation S-X Rule 3-05, with an aggregate purchase price of $194.8 million, comprised of $189.0 million cash consideration less cash acquired of $1.1 million, and $6.9 million of contingent consideration. In conjunction with these 2014 acquisitions, the Company incurred transaction costs of $1.6 million, of which $569,000 and $1.0 million was incurred in the years ended December 31, 2013 and 2014, respectively, and none of which were recorded in the year ended December 31, 2015. These amounts are reported in SGA expenses in the Company’s accompanying Consolidated Statements of Comprehensive Income (Loss). These acquisitions enhanced and expanded the presence of the service offerings of the Company.

Company name	Form of acquisition	Date of acquisition
Newton Medical Group (United States)	Substantially all of the assets and assumed certain liabilities	January 13, 2014
Cheselden (United Kingdom)	100% of the outstanding share capital	January 16, 2014
G&L Intermediate Holdings (“Gould & Lamb”) (United States)	100% of the outstanding common stock	February 3, 2014
Assess Medical Group Pty Ltd (Australia)	100% of the outstanding common stock	February 14, 2014
Solomon Associates (United States)	Substantially all of the assets and assumed certain liabilities	May 30, 2014
Ability Services Network (United States)	100% of the outstanding common stock	June 6, 2014
Expert Medical Opinions (United States)	Substantially all of the assets and assumed certain liabilities	August 22, 2014

F-19

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013, 2014 and 2015

The final allocation of consideration for these acquisitions is summarized as follows (in thousands):

	Preliminary purchase price allocation December 31, 2014			Adjustments/ reclassifications			Final purchase price allocation December 31, 2015
Equipment and leasehold improvements		886			—			886
Customer relationships		50,216			—			50,216
Tradename		10,342			—			10,342
Covenants not to compete		590			—			590
Technology		1,870			—			1,870
Goodwill		136,034			470			136,504
Net deferred tax liability associated with step-up in book basis		(9,041	)		—			(9,041	)
Assets acquired and liabilities assumed, net		3,785			(379	)		3,406
Totals		194,682			91			194,773

In 2015, the Company finalized the purchase price allocation and recorded adjustments to working capital resulting in an increase in total consideration paid of $91,000. Goodwill of $116.5 million and other intangible assets of $36.7 million are expected to be deductible for U.S. federal income tax purposes, a portion of which are subject to the provisions of IRC Section 901(m) which contain foreign tax credit limitations.

(c) 2015 Acquisitions

In 2015, the Company completed the following individually insignificant acquisitions, as defined in SEC Regulation S-X Rule 3-05, with an aggregate purchase price of $75.4 million, comprised of $76.5 million cash consideration less cash acquired of $1.1 million. In conjunction with the 2015 acquisitions, the Company incurred aggregate transaction costs of $882,000, of which $135,000 and $747,000 was incurred in the years ended December 31, 2014 and 2015, respectively. These amounts are reported in SGA expenses in the Company’s accompanying Consolidated Statements of Comprehensive Income (Loss). These acquisitions enhanced and expanded the presence and service offerings of the Company.

Company name	Form of acquisition	Date of acquisition
ReliableRS (United States)	Substantially all of the assets and assumed certain liabilities	January 2, 2015
Landmark Exams & Maven Exams (United States)	Substantially all of the assets and assumed certain liabilities	April 14, 2015
Karen Rucas & Associates (Canada)	Substantially all of the assets and assumed certain liabilities	July 13, 2015
First Choice (United States)	Substantially all of the assets and assumed certain liabilities	October 30, 2015
Argent (United Kingdom)	Substantially all of the assets and assumed certain liabilities	November 23, 2015

F-20

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013, 2014 and 2015

The preliminary allocation of consideration for these acquisitions is summarized as follows (in thousands):

	Preliminary purchase price allocation December 31, 2015
Equipment and leasehold improvements	$	1,513
Customer relationships		28,530
Tradename		1,965
Covenants not to compete		182
Goodwill		24,296
Net deferred tax liability associated with step-up in book basis		(18	)
Assets acquired and liabilities assumed, net		18,931
Total	$	75,399

Goodwill of $24.1 million and other intangible assets of $30.4 million are expected to be deductible for U.S. federal income tax purposes. The Company believes that information gathered to date provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed but the Company is waiting for additional information necessary to finalize those fair values. Thus, the provisional measurements of fair value set forth above are subject to change. Such changes are not expected to be significant. The Company expects to complete the purchase price allocation as soon as practicable but no later than one year from the acquisition date. The 2015 acquisitions contributed $16.6 million in revenues and $1.6 million in operating income for the year ended December 31, 2015.

(d) Pro forma Financial Information

The following unaudited pro forma results of operations for the years ended December 31, 2014 and 2015 assume that the 2014 acquisitions were completed on January 1, 2013 and the 2015 acquisitions were completed on January 1, 2014.

For each of the years ended December 31, 2014 and 2015, the pro forma results include adjustments to reflect interest and other expenses of $3.3 million associated with the funding of the acquisitions assuming that acquisition related debt was incurred as referenced above.  In addition, incremental depreciation and amortization expense was recorded as if the acquisitions had occurred on the dates referenced above and amounted to $12.6 million and $7.2 million for the years ended December 31, 2014 and 2015, respectively.  Finally, adjustments of $7.7 million and $3.6 million were made to reduce SGA expenses for the years ended December 31, 2014 and 2015, respectively, principally related to certain salary and other personal  expenses attributable to the previous owners and employees of the acquired businesses.  These adjustments represent contractual reductions and are considered to be non-recurring and are not expected to have a continuing impact on the operations of the Company.

	Years ended December 31,
	2014		2015
	(In thousands, except per share data)
Pro forma revenues	$	870,427	$	864,826
Pro forma net income		11,405		5,103
Pro forma net income per share – basic	$	0.30	$	0.12
Pro forma net income per share – diluted	$	0.28	$	0.12

The pro forma financial information presented above is not necessarily indicative of either the results of operations that would have occurred had the acquisitions been effective as of January 1 of the respective years or of future operations of the Company.

F-21

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013, 2014 and 2015

(4) Property, Equipment and Leasehold Improvements

Property, equipment and leasehold improvements at December 31, 2014 and 2015, consist of the following (in thousands):

	Estimated useful lives				December 31,
	(years)				2014		2015
Building			15		$	2,554	$	3,669
Computer and office equipment			3			19,160		23,162
Furniture and fixtures		3	to	5		4,274		5,051
Leasehold improvements		Lease term				4,836		6,272
						30,824		38,154
Less accumulated depreciation and amortization						15,098		18,009
Totals					$	15,726	$	20,145

Depreciation expense was $5.7 million, $6.5 million and $6.9 million for the years ended December 31, 2013, 2014 and 2015, respectively.

(5) Goodwill and Intangible Assets

Goodwill by segment at December 31, 2014 and 2015 consists of the following (in thousands) (1):

	United States		Canada			United Kingdom			Australia			Total
Balance at December 31, 2013	$	273,070		19,279			39,593			37,370			369,312
Goodwill acquired during the year		128,426		—			1,640			5,968			136,034
Adjustments to prior year acquisitions		64		—			(324	)		—			(260	)
Effect of foreign currency translation		—		(2,101	)		(2,555	)		(4,751	)		(9,407	)
Balance at December 31, 2014		401,560	$	17,178		$	38,354		$	38,587		$	495,679
Goodwill acquired during the year		10,742		222			13,332			—			24,296
Adjustments to prior year acquisitions		200		—			—			—			200
Effect of foreign currency translation		—		(2,036	)		(2,258	)		(7,584	)		(11,878	)
Balance at December 31, 2015	$	412,502	$	15,364		$	49,428		$	31,003		$	508,297

(1) Goodwill recorded in connection with certain tax benefits to be realized in the Company’s U.S. income tax returns has been reflected in the United States segment.

Intangible assets at December 31, 2014 and 2015, consist of the following (in thousands):

				December 31, 2014
	Estimated useful lives (months)			Gross carrying amount		Accumulated amortization			Net carrying value
Amortizable intangible assets:
Customer relationships	40	to	60	$	244,211	$	(167,943	)	$	76,268
Tradenames	45	to	84		68,264		(45,901	)		22,363
Covenants not to compete		36			6,761		(4,116	)		2,645
Technology	24	to	40		9,188		(7,881	)		1,307
Totals				$	328,424	$	(225,841	)	$	102,583

F-22

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013, 2014 and 2015

				December 31, 2015
	Estimated useful lives (months)			Gross carrying amount		Accumulated amortization			Net carrying value
Amortizable intangible assets:
Customer relationships	40	to	60	$	263,293	$	(199,266	)	$	64,027
Tradenames	45	to	84		68,172		(52,354	)		15,818
Covenants not to compete		36			10,254		(6,047	)		4,207
Technology	24	to	40		9,014		(8,393	)		621
Totals				$	350,733	$	(266,060	)	$	84,673

The aggregate intangible amortization expense was $57.0 million, $53.8 million and $48.7 million for the years ended December 31, 2013, 2014 and 2015, respectively. The estimated future amortization expense of intangible assets is as follows (in thousands):

	Amount
Years ended December 31:
2016	$	41,461
2017		29,222
2018		10,147
2019		3,796
2020		47
Total	$	84,673

(6) Accrued Expenses

Accrued expenses at December 31, 2014 and 2015 consist of the following (in thousands):

	December 31,
	2014		2015
Accrued compensation and benefits	$	15,041	$	13,266
Accrued selling and professional fees		4,202		5,457
Accrued income, value added and other taxes		26,576		30,774
Accrued medical panel fees		4,391		7,598
Other accrued expenses		3,768		3,653
Totals	$	53,978	$	60,748

(7) Stockholders’ Equity

(a) 2013 Transactions

During the year ended December 31, 2013, the Company issued approximately 2.2 million shares of common stock to settle stock options exercised during the year.

During the year ended December 31, 2013, the Company issued approximately 60,000 shares of common stock to settle warrants exercised during the period.

During the year ended December 31, 2013, the Company issued approximately 231,000 shares of restricted stock with a fair value of $3.2 million to certain officers and employees for services to be provided during the next three years. The Company is recording the expense related to these awards in SGA expenses over the requisite service period.

During the year ended December 31, 2013, the Company issued approximately 37,000 shares of common stock to settle vested restricted stock units granted in early 2013 as compensation to certain employees for services provided in the year ended December 31, 2012. The Company recorded the expense related to these awards in SGA expenses over the requisite service period.

F-23

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013, 2014 and 2015

During the year ended December 31, 2013, the Company issued approximately 2,000 shares of common stock to settle vested restricted stock units granted in a prior year to an outside consultant as compensation for services to be provided during the year.  The Company recorded the expense related to these awards in SGA expenses over the requisite service period.

During the year ended December 31, 2013, the Company issued approximately 20,000 shares of restricted stock with an estimated fair value of $485,000 to the members of the Board of Directors as compensation for services to be provided in the upcoming year.  The Company recorded the expense related to these awards in SGA expenses over the one-year service period.

(b) 2014 Transactions

During the year ended December 31, 2014, the Company issued approximately 2.8 million shares of common stock to settle stock options exercised during the year.

During the year ended December 31, 2014, the Company issued approximately 204,000 shares of common stock to settle warrants exercised during the period.

During the year ended December 31, 2014, the Company issued approximately 98,000 shares of restricted stock with a fair value of $3.0 million to certain officers and employees for services to be provided during the next three years. The Company is recording the expense related to these awards in SGA expenses over the requisite service period.

During the year ended December 31, 2014, the Company issued approximately 16,000 shares of restricted stock with a fair value of $555,000 to members of the Board of Directors as compensation for services to be provided during the next year. The Company recorded the expenses related to these awards in SGA expenses over the requisite service period.

During the year ended December 31, 2014, the Company issued approximately 238,000 shares of common stock to settle vested restricted stock units whose restrictions were lifted during the year. The Company recorded the expense related to these awards in SGA expenses over the requisite service period.

During the year ended December 31, 2014, the Company issued approximately 83,000 shares of restricted stock to certain officers and employees in settlement of its 2013 incentive compensation plan liability. The restriction on 50% of these shares was lifted on June 1, 2014 and the remaining restriction was lifted on June 1, 2015. The Company recorded the expenses related to these awards in SGA expenses over the requisiteservice period. 

(c) 2015 Transactions

During the year ended December 31, 2015, the Company issued approximately 1.2 million shares of common stock to settle stock options exercised during the year.

During the year ended December 31, 2015, the Company issued approximately 20,000 shares of common stock to settle warrants exercised during the period.

During the year ended December 31, 2015, the Company issued approximately 91,000 shares of restricted stock with a fair value of $3.7 million to certain officers and employees for services to be provided during the next three years. The Company is recording the expense related to these awards in SGA expenses over the requisite service period.

During the year ended December 31, 2015, the Company issued approximately 16,000 shares of restricted stock with a fair value of $555,000 to members of the Board of Directors as compensation for services to be provided during the next year. The Company records the expenses related to these awards in SGA expenses over the requisite service period.

F-24

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013, 2014 and 2015

During the year ended December 31, 2015, the Company issued approximately 297,000 shares of common stock to settle vested restricted stock units whose restrictions were lifted during the year.

During the year ended December 31, 2015, the Company issued approximately 122,000 shares of restricted stock to certain officers and employees in settlement of its 2014 incentive compensation plan liability. The first 50% restriction on these shares was lifted on June 1, 2015 and the remaining 50% restriction will be lifted on June 1, 2016. The Company records the remaining expense related to these awards in SGA expenses over the remaining service period.

Repurchased shares of the Company’s common stock are held as treasury shares until they are reissued or retired. When the Company reissues treasury stock, if the value of the transaction is greater than the average price paid to acquire the shares, an increase in additional paid-in capital is recorded. Conversely, if the value of the transaction is less than the average price paid to acquire the shares, a decrease is recorded to additional paid-in capital to the extent of increases previously recorded for similar transactions, and a decrease is recorded in retained earnings for any remaining amount. During the year ended December 31, 2015, the Company repurchased approximately 800,000 shares of common stock under the share repurchase program. These shares were repurchased at an average cost of $26.58 per share for a total cost of $21.3 million. As of December 31, 2015, the Company has approximately 1.7 million shares of common stock held as treasury shares with an average value of $17.45 per share, and the ability to repurchase an additional $43.9 million in shares of its common stock.

(8)              Related Party Transactions

The previous and existing revolving credit facilities contain a provision requiring the Company to use a third party to perform financial due diligence for acquisitions exceeding a certain size. With the approval of the senior lender, the Company engaged RedRidge Finance Group (“RedRidge”) to assist it with financial due diligence and incurred $298,000, $426,000 and $450,000 in fees, respectively, pertaining to acquisition-related work performed during the years ended December 31, 2013, 2014 and 2015, respectively. P&P Investment, LLC (“P&P”), a company owned by Richard Perlman and James Price, the Chairman and Chief Executive Officer, respectively, of the Company, are minority owners of RedRidge. P&P, Mr. Perlman and Mr. Price had historically waived any right P&P had to any portion of the diligence fees paid by the Company to RedRidge. This waiver terminated as of August 1, 2013.

In June 2010, the Company entered into a lease agreement with Compass Partners, L.L.C. ("Compass") for corporate office space located at 655 Madison Avenue, 23rd Floor, New York, NY. Compass is an entity owned and controlled by Richard Perlman, the Company's Executive Chairman. Pursuant to the lease, which ran from April 1, 2010 through June 30, 2014 and continuing on a month to month basis thereafter, the Company paid Compass a rental fee of $10,080 per month in 2010, which fee was subject to increase commencing January 1, 2011 based on a proportionate pass through of base rent increases and increases for property taxes and building operating expenses. For the year ended December 31, 2013 and 2014, the Company made rental and related payments to Compass of $151,000 and $97,000, respectively. As of November 15, 2014, the Company no longer leased space from Compass.

(9)               Commitments and Contingencies

(a)               Lease Commitments

The Company and its subsidiaries lease office space and office related equipment under noncancelable operating leases with various expiration dates from 2016 through 2023.

Future minimum lease payments under the operating leases in each of the years subsequent to December 31, 2015 are as follows (in thousands):

	Amount
Years ended December 31:
2016	$	14,137
2017		12,732
2018		10,575
2019		7,557
2020		4,875
Thereafter		3,820
Total	$	53,696

Related rent expense was $12.5 million, $17.0 million and $17.8 million for the years ended December 31, 2013, 2014 and 2015, respectively.

F-25

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013, 2014 and 2015

(b)               Employee Benefit Plans

The Company and certain of its subsidiaries each sponsor separate voluntary defined contribution pension plans. The plans cover employees that meet specific age and length of service requirements. The Company and certain of its subsidiaries have various matching and vesting arrangements within their individual plans. For the years ended December 31, 2013, 2014 and 2015, the Company recorded $571,000, $970,000 and $1.2 million, respectively, in compensation expense related to these plans.

(10)             Long-Term Debt

Long-term debt at December 31, 2014 and 2015 consists of the following (in thousands):

	December 31,
	2014		2015
	(in thousands)
Senior Unsecured Notes Payable (a)	$	250,000	$	500,000
Senior Secured Revolving Credit Facility, Bank of America, N.A. (b)		143,853		—
Working capital facilities, Barclays (c)		40,396		35,243
		434,249		535,243
Less current portion		40,396		—
	$	393,853	$	535,243

(a)           In July 2011, and through June 2012, the Company closed the offering of the Senior Unsecured Notes. The Senior Unsecured Notes were issued at a price of 100% of their principal amount. A portion of the gross proceeds of $250.0 million were used to repay borrowings outstanding under the Company’s Senior Secured Revolving Credit Facility and pay related fees and expenses, and the remainder was used for general corporate purposes, including acquisitions. In June 2012, in accordance with the registration rights granted to the original purchasers of the Initial Notes, the Company completed an exchange offer of the privately placed Initial Notes for new 9.0% senior notes due 2019 (the “Exchange Notes,” and together with the Initial Notes, the “Senior Unsecured Notes”) registered with the SEC with substantially identical terms to the Initial Notes. The Senior Unsecured Notes are senior obligations of ExamWorks and are guaranteed by ExamWorks’ existing and future U.S. subsidiaries (the “Guarantors”).

F-26

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013, 2014 and 2015

On April 16, 2015, the Company closed a public offering of the Notes. The Notes were issued at a price of 100% of their principal amount. The Notes are senior obligations of ExamWorks and are guaranteed by certain of ExamWorks’ existing and future U.S. subsidiaries. The gross proceeds of $500.0 million were used to repay all of the Company’s outstanding borrowings under the Senior Secured Revolving Credit Facility, to redeem all of the Senior Unsecured Notes, to pay related fees and expenses, and for general corporate purposes, including acquisitions.

The Notes were issued under an indenture, dated as of April 16, 2015, as supplemented by a supplemental indenture, dated April 16, 2015 (collectively, the “Indenture”), among the Company, the Guarantors and U.S. Bank, National Association, as trustee (the “Trustee”).  The Notes are the Company’s general senior unsecured obligations, and rank equally with the Company’s existing and future senior unsecured obligations and senior to all of the Company’s further subordinated indebtedness. The Notes accrue interest at a rate of 5.625% per year, payable semi-annually in cash in arrears on April 15 and October 15 of each year, commencing October 15, 2015. Interest accrues from the date of issuance of the Notes.

At any time on or after April 15, 2018, the Company may redeem some or all of the Notes at the redemption prices specified in the Indenture, plus accrued and unpaid interest to the date of redemption. Prior to April 15, 2018, the Company may redeem up to 40% of the aggregate principal amount of the Notes with the net cash proceeds from certain equity offerings at a redemption price equal to 105.625% of the aggregate principal amount of the Notes, plus accrued and unpaid interest, if any, provided that at least 60% of the original aggregate principal amount of the Notes remains outstanding after redemption. In addition, the Company may redeem some or all of the Notes at any time prior to April 15, 2018 at a redemption price equal to 100% of the principal amount of the Notes plus a make whole premium described in the Indenture, plus accrued and unpaid interest.

The Indenture includes covenants which, subject to certain exceptions, limit the ability of the Company and its restricted subsidiaries (as defined in the Indenture) to, among other things, incur additional indebtedness, make certain types of restricted payments, incur liens on assets of the Company or the restricted subsidiaries, engage in asset sales and enter into transactions with affiliates. Upon a change of control (as defined in the Indenture), the Company may be required to make an offer to repurchase the Notes at 101% of their principal amount, plus accrued and unpaid interest. The Indenture also contains customary events of default.

(b)              On November 2, 2010, the Company entered into the Senior Secured Revolving Credit Facility with Bank of America, N.A. The facility initially consisted of a $180.0 million revolving credit facility.

On May 6, 2011, the Company increased and fully exercised the accordion features of the Senior Secured Revolving Credit Facility.  The increase and exercise of the accordion feature increased the committed capacity of the credit facility by $55.0 million, from a total of $245.0 million to a total of $300.0 million.

F-27

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013, 2014 and 2015

On July 7, 2011, the Company entered into a second amendment to its Senior Secured Revolving Credit Facility (the “Second Amendment”) which became effective simultaneously with the consummation of the Company’s private offering of the Senior Unsecured Notes.  The Second Amendment amended the Senior Secured Revolving Credit Facility to, among other things, (i) extend the maturity date of the Senior Secured Revolving Credit Facility from November 2013 to July 2016; (ii) permit the issuance and sale of the Senior Unsecured Notes; (iii) replace the consolidated senior leverage ratio with a consolidated senior secured leverage ratio while permitting the maximum consolidated senior secured leverage ratio to be 3.00 to 1; (iv) permit the Company’s maximum consolidated leverage ratio to increase from 3.5 to 1 to 4.75 to 1; (v) reduce the borrowing cost; and (vi) allow the Company to complete acquisitions with a purchase price of up to $75.0 million (previously $50.0 million) without prior lender consent. The Second Amendment also reduced the aggregate revolving commitments under the Senior Secured Revolving Credit Facility by $37.5 million for a maximum commitment of $262.5 million, subject to the Company’s right to increase the aggregate revolving commitments by $37.5 million for a maximum commitment of $300.0 million, so long as the Company is not in default and the Company satisfies certain other customary conditions.

On February 27, 2012, the Company entered into a third amendment to its Senior Secured Revolving Credit Facility (the “Third Amendment”). The Third Amendment amended the Senior Secured Revolving Credit Facility as to the definitions of consolidated fixed charges and consolidated fixed charge coverage ratio and does not permit the consolidated fixed charge coverage ratio as of the end of any fiscal quarter to be less than (i) for any fiscal quarter ending during the period from December 31, 2011 to and including September 30, 2012, 1.75 to 1.00 and (ii) for any fiscal quarter ending thereafter, 2.00 to 1.00.

On August 27, 2012, the Company entered into a fourth amendment to its Senior Secured Revolving Credit Facility (the “Fourth Amendment”). The Fourth Amendment amended the Senior Secured Revolving Credit Facility to add the Australian dollar as an alternative currency and increased the alternative currency sublimit from USD $60.0 million to USD $100.0 million.

On June 27, 2013, the Company entered into a fifth amendment to its Senior Secured Revolving Credit Facility (the “Fifth Amendment”). Among other changes, the Fifth Amendment modifies the Credit Agreement to permit an implementation of an auto-borrow agreement between the swing line lender and the Company to facilitate cash management, incorporates new provisions related to swap regulations and updates various provisions related to the LIBOR rate, Foreign Account Tax Compliance Act and the International Financial Reporting Standards.

On February 3, 2014, the Company entered into a sixth amendment to its Senior Secured Revolving Credit Facility (the “Sixth Amendment”). The Sixth Amendment (i) allowed the Company to consummate the acquisition of Gould & Lamb, and (ii) allows the Company to acquire a target (a) with negative trailing twelve month adjusted EBITDA (as defined in the senior secured revolving credit facility) if the purchase price of such acquisition is less than $5.0 million, (b) with trailing twelve month adjusted EBITDA (as defined in the senior secured revolving credit facility) of less than or equal to $3,000,000 without delivering to the lenders a quality of earnings report regarding such target and (c) without delivering pro forma projections of the Company to the lenders if the purchase price of such acquisition is less than $75.0 million, in each case, without prior lender consent.

On April 16, 2015, the Company entered into the Amended and Restated Credit Facility. The Amended and Restated Credit Facility provides for up to $300.0 million of revolving extensions of credit outstanding at any time (including revolving loans, swingline loans and letters of credit). During the term of the Amended and Restated Credit Facility, the Company has the right, subject to compliance with the covenants specified in the Amended and Restated Credit Facility and the Notes, to increase the revolving extensions under the Amended and Restated Credit Facility to a maximum of $400.0 million. The term of the Amended and Restated Credit Facility was extended for five years from the date of the amendment to April 2020. 

F-28

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013, 2014 and 2015

Borrowings under the Amended and Restated Credit Facility, as amended, bear interest, at either (i) LIBOR plus the applicable margin or (ii) a base rate (equal to the highest of (a) the federal funds rate plus 0.5%, (b) the Bank of America prime rate and (c) LIBOR (using a one-month period) plus 1.0%), plus the applicable margin, as the Company elects. The applicable margin means a percentage per annum determined in accordance with the following table: 

Pricing Tier	Consolidated Leverage Ratio					Commitment Fee/Unused Line Fee	Letter of Credit Fee	Eurocurrency Rate Loans	Base Rate Loans
1	≥	4.00	to 1.0			0.45%	2.75%	2.75%	1.75%
2	≥	3.50	to 1.0 but <	4.00	to 1.0	0.40%	2.50%	2.50%	1.50%
3	≥	3.00	to 1.0 but <	3.50	to 1.0	0.35%	2.25%	2.25%	1.25%
4	≥	2.50	to 1.0 but <	3.00	to 1.0	0.30%	2.00%	2.00%	1.00%
5			<	2.50	to 1.0	0.30%	1.75%	1.75%	0.75%

In the event of default, the outstanding indebtedness under the facility will bear interest at an additional 2%.

The Amended and Restated Credit Facility contains restrictive covenants, including among other things financial covenants requiring the Company to not exceed a maximum consolidated senior secured leverage coverage ratio, a maximum total consolidated leverage ratio and to maintain a minimum consolidated fixed charge coverage ratio. The Amended and Restated Credit Facility also restricts the Company’s ability (subject to certain exceptions) to incur indebtedness, prepay or amend other indebtedness, create liens, make certain fundamental changes including mergers or dissolutions, pay dividends and make other payments in respect of capital stock, make certain investments, sell assets, change its lines of business, enter into transactions with affiliates and other corporate actions.

On June 1, 2015 the Company entered into a first amendment to the Amended and Restated Credit Facility (“First Amendment”). The First Amendment amended the definition of “Change of Control” in the Amended and Restated Credit Facility.

As of December 31, 2015, the Company had no amount outstanding under the Amended and Restated Credit Facility, resulting in $300.0 million of undrawn commitments.

(c)              On September 29, 2010, the Company’s indirect 100% owned subsidiary UK Independent Medical Services Limited (“UKIM”) entered into a Sales Finance Agreement (the “UKIM SFA”) with Barclays Bank PLC (“Barclays”), pursuant to which Barclays provides UKIM a working capital facility of up to £5,000,000, subject to the terms and conditions of the UKIM SFA. The working capital facility bore a discount margin of 2.5% over Base Rate and served to finance UKIM’s unpaid account receivables.  The working capital facility had a minimum term of 36 months.

On June 28, 2013, UKIM entered into an amendment to extend the term of the existing UKIM SFA by 24 months from June 28, 2013, to amend the discount margin to 2.4% over Base Rate and to provide that payments by UKIM for certain non-working capital purposes are permitted under the UKIM SFA. Further, on April 16, 2015, UKIM entered into an amendment to extend the term of the existing UKIM SFA for an additional 36 months from the amendment date and to amend the discount margin to 2.05% over Base Rate (0.5% rate on December 31, 2015). The working capital facility operates on a co-terminus and cross-default basis with other facilities provided by Barclays and with the Amended and Restated Credit Facility. As of December 31, 2015, UKIM had $6.6 million outstanding under the working capital facility, resulting in approximately $835,000 in availability.

On May 12, 2011, the Company’s indirect 100% owned subsidiary Premex Group Limited (“Premex”) entered into a Sales Finance Agreement (the “Premex SFA”) with Barclays, pursuant to which Barclays provides Premex a working capital facility of up to £26,500,000, subject to the terms and conditions of the Premex SFA. The working capital facility bore a discount margin of 2.4% over Base Rate and served to finance Premex’s unpaid account receivables.  The working capital facility had a minimum term of 36 months.

On June 28, 2013, Premex entered into an amendment to extend the term of the existing Premex SFA by 24 months from June 28, 2013, and to provide that payments by Premex for certain non-working capital purposes are permitted under the Premex SFA. Further, on April 16, 2015, Premex entered into an amendment to extend the term of the existing Premex SFA for an additional 36 months from the amendment date and to amend the discount margin to 2.05% over Base Rate (0.5% at December 31, 2015). The working capital facility operates on a co-terminus and cross-default basis with other facilities provided by Barclays and with the Amended and Restated Credit Facility. As of December 31, 2015, Premex had $28.7 million outstanding under the working capital facility, resulting in approximately $10.6 million in availability.  

F-29

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013, 2014 and 2015

As of December 31, 2015, future maturities of long-term debt were as follows (in thousands):

	Amount
Years ended December 31:
2016	$	—
2017		—
2018		35,243
2019		—
2020		—
Thereafter		500,000
Total	$	535,243

(11)             Financial Instruments

The FASB issued ASC Topic 815, Derivatives and Hedging (“ASC 815”) which establishes accounting and reporting standards for derivative instruments. ASC 815 requires an entity to recognize all derivatives as either assets or liabilities and measure those instruments at fair value. Derivatives that do not qualify as a hedge must be adjusted to fair value in earnings. If the derivative does qualify as a hedge under ASC 815, changes in the fair value will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments or recognized in accumulated other comprehensive income (loss) until the hedged item is recognized in earnings. The ineffective portion of a hedge’s change in fair value will be immediately recognized in earnings.

In August 2008, in order to protect against interest rate exposure on its variable-rate debt, the Company entered into an interest rate swap to fix the interest rate applicable to certain of its variable-rate debt. The agreement swapped one-month LIBOR for a fixed interest rate of 4.36% with a notional amount of $4.8 million as of December 31, 2012. The interest rate swap agreement matured on July 15, 2013. The Company did not meet the criteria for hedge accounting under ASC 815, thus the difference between its amortized cost and its fair value resulted in an unrealized gain at December 31, 2013 of $101,000, and such amount was reported in interest and other expenses, net on the accompanying Consolidated Statements of Comprehensive Income (Loss). 

Beginning in the second quarter of 2013, in order to protect against foreign currency exposure in its Australian operations, the Company entered into forward foreign currency contracts as a hedge of AUD $60.0 million of its net investment in Australia. Beginning in the third quarter of 2013, the Company also entered into forward foreign currency contracts as a hedge of £40.0 million of its net investment in the U.K. During the fourth quarter of 2015, the Company entered into a foreign exchange agreement to hedge an additional £35.0 million related to its investment in the U.K. concurrent with funding of the acquisition of Argent.

The Company settled certain of its hedge positions during 2013, 2014 and 2015 and received $1.4 million, $4.0 million and $7.7 million, respectively, in net proceeds. This amount was classified in accumulated other comprehensive income (loss) in the Company’s Consolidated Balance Sheet (see Note 2), offsetting the currency translation adjustment of the related net investment that is also recorded in accumulated other comprehensive income (loss), and is reported net of the effect of income taxes. As of December 31, 2015, the Company had a net liability of $367,000, with $1.2 million recorded in other current liabilities and $848,000 recorded in other current assets with the offsetting net unrealized loss being recorded in accumulated other comprehensive income (loss) in its Consolidated Balance Sheets associated with open forward foreign currency contracts which matured in January of 2016.

The Company does not enter into derivative transactions for speculative purposes.

F-30

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013, 2014 and 2015

(12)             Income Taxes

For financial reporting purposes, income before income taxes includes the following components:

	December 31,
	2013			2014		2015
United States	$	(14,757	)	$	8,033	$	(9,174	)
Foreign		(815	)		6,896		17,369
Total		(15,572	)		14,929		8,195

The components of income tax expense (benefit) for the years ended December 31, 2013, 2014 and 2015 were as follows (in thousands):

	December 31,
	2013			2014			2015
Current:
Federal	$	5,145		$	16,081		$	1,284
State		1,340			2,131			348
Foreign		6,180			5,769			7,999
		12,665			23,981			9,631
Deferred:
Federal		(10,026	)		(13,175	)		(1,998	)
State		(2,156	)		(1,291	)		318
Foreign		(5,839	)		(5,080	)		(5,347	)
		(18,021	)		(19,546	)		(7,027	)
Income tax expense (benefit)	$	(5,356	)	$	4,435		$	2,604

The reconciliation of income tax computed at the U.S. federal statutory rate to income tax expense (benefit) for the years ended December 31, 2013, 2014 and 2015 were as follows (in thousands):

	December 31,
	2013			2014			2015
Expected tax expense (benefit)	$	(5,450	)	$	5,225		$	2,869
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal benefit		(694	)		712			464
Non-deductible items		240			896			981
Impact of foreign jurisdictions		433			(2,587	)		(1,751	)
Other		115			189			41
Income tax expense (benefit)	$	(5,356	)	$	4,435		$	2,604

The deferred tax assets (liabilities) as of December 31, 2014 and 2015 are as follows (in thousands):

	December 31,
	2014			2015
Deferred tax assets:
Allowance for doubtful accounts	$	3,607		$	3,937
Basis difference on intangible assets		7,623			22,555
Net operating loss carryforwards		2,334			386
Share-based compensation		10,462			11,326
Foreign currency translation		7,805			4,037
Tax credits		683			2,699
Other deferred tax assets		1,903			3,270
Total deferred tax assets		34,417			48,210
Deferred tax liabilities:
Basis difference of property and equipment		(227	)		(485	)
Cash to accrual and other method adjustments		(166	)		(597	)
Other deferred tax liabilities		(566	)		(56	)
Total deferred tax liabilities		(959	)		(1,138	)
Net deferred tax asset		33,458			47,072

F-31

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013, 2014 and 2015

As of December 31, 2015, the Company had $13.9 million in U.S. Federal net operating losses, which begin to expire in 2034, $11.4 million in U.S. Foreign Tax Credits, which begin to expire in 2024, $22.0 million in state net operating losses, which begin to expire in 2028, $102,000 in U.S. AMT credits which begin to expire in 2030, and approximately $800,000 in foreign net operating losses in the Canada which begin to expire in 2030. As a result of certain realization requirements of ASC 718, the table of deferred tax assets and liabilities does not include certain deferred tax assets as of December 31, 2014, and December 31, 2015 that arose directly from (or the use of which was postponed by) tax deductions related to equity compensation that are greater than the compensation recognized for financial reporting. Equity will be increased by $6.3 million and $17.2 million, respectively, if and when such deferred tax assets are ultimately realized. The Company uses ASC 740 ordering when determining when excess tax benefits have been realized.

Companies are required to assess whether a valuation allowance should be recorded against their deferred tax assets based on the consideration of all available evidence, using a “more likely than not” realization standard. In assessing whether a valuation allowance is required, significant weight is to be given to evidence that can be objectively verified. The Company has evaluated its deferred tax assets each reporting period, including an assessment of its cumulative income or loss over the prior three-year period and future periods, to determine if a valuation allowance was required. On the basis of this evaluation as of December 31, 2015, the Company has determined that a valuation allowance is not necessary. 

In general, it is the practice and intention of the Company to reinvest the earnings of its non-U.S. subsidiaries in those operations. As of December 31, 2015, the Company has not made a provision for U.S. income tax or additional foreign withholding taxes with respect to accumulated earnings of foreign subsidiaries where the foreign investment of such earnings is essentially permanent in duration. Generally, such amounts would become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances. It is not practicable to estimate the tax cost of repatriating the cumulative undistributed taxable earnings of these foreign subsidiaries to the United States.  

The Company applies the provisions of ASC 740 as it relates to uncertain tax positions. This interpretation prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. ASC 740 states that a tax benefit from an uncertain tax position may be recognized only if it is “more likely than not” that the position is sustainable, based on its technical merits. The tax benefit of a qualifying position is the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement with a taxing authority having full knowledge of all relevant information.

The following table summarizes the activity related to the unrecognized tax benefits for the years ended December 31, 2013, 2014 and 2015 (in thousands): 

Balance at January 1, 2013	$	327
Increase to prior year tax positions		28
Increase to current year tax positions		—
Expiration of the statute of limitations for the assessment of taxes		—
Decrease related to settlements		—
Balance at December 31, 2013	$	355
Increase to prior year tax positions		1,238
Increase to current year tax positions		—
Expiration of the statute of limitations for the assessment of taxes		—
Decrease related to settlements		—
Balance at December 31, 2014		1,593
Increase to prior year tax positions		612
Increase to current year tax positions		—
Expiration of the statute of limitations for the assessment of taxes		(281	)
Decrease related to settlements		—
Balance at December 31, 2015	$	1,924

F-32

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013, 2014 and 2015

The Company recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense. Included in the unrecognized tax benefits noted above, the Company recorded penalties of $82,000 and $260,000 during the years ended December 31, 2013 and 2014, respectively and did not record any penalties during the year ended December 31, 2015. The Company recorded interest expense of $47,000, $94,000 and $21,000 during the years ended December 31, 2013, 2014 and 2015, respectively. As of December 31, 2014 and 2015, the Company had accrued penalties of $342,000 for each of the years ended, and accrued interest of $141,000 and $162,000, respectively.

The Company is subject to taxation in the United States and various states and foreign jurisdictions. With few exceptions, as of December 31, 2015, the Company is no longer subject to U.S. federal, state, local, or foreign examinations by tax authorities for years before 2010. The Company does not anticipate that the amount of the unrecognized benefit will significantly increase or decrease within the next 12 months.

(13)            Segment and Geographical Information

The Company applies the provisions of ASC Topic 280, Segment Reporting, (“ASC 280”). ASC 280, which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products, major customers and the geographies in which the entity holds material assets and reports revenue. An operating segment is defined as a component that engages in business activities whose operating results are reviewed by the chief operating decision maker (“CODM”) and for which discrete financial information is available. Based on the provisions of ASC 280, the Company has determined that it operates in four geographic segments: the United States, Canada, the United Kingdom and Australia. The CODM evaluates segment performance based on revenues and segment profit, as defined below. The Company’s corporate costs and assets are all incurred in the United States and are included in the United States segment, as this is consistent with how they are presented and reviewed by the CODM. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies.

Information relating to the Company’s product groups (IMEs, peer review, bill review, Medicare compliance, case management and other related services) is as follows (in thousands):

Revenues:	For the years ended December 31,
	2013		2014		2015
IME and other related services (1)	$	567,070	$	674,229	$	695,382
Peer and bill reviews, Medicare compliance and case management services (1)		48,946		101,386		124,185
Total revenues	$	616,016	$	775,615	$	819,567

(1) Includes the results of certain of the Company’s service centers acquired whose revenues are generated substantially through the indicated product group. Outside of this presentation, other product groups are not tracked within the Company’s financial systems. Additionally, other related services, which include any Medicare compliance services and case management services completed at the Company’s historic service centers in the periods presented, are not separately captured within the Company’s financial systems and have been included with IME services in the above presentation as separate presentation is not practicable. With the Company’s acquisition of Gould & Lamb in February 2014 and Ability Services Network and MedAllocators in June 2014, Medicare compliance services and case management services have been added to the presentation above. None of the individual services within the peer and bill reviews, Medicare compliance services and case management services category above represent more than 10% of consolidated revenues. 

F-33

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013, 2014 and 2015

Information relating to the Company’s geographic segments is as follows (in thousands): 

	United States			Canada			United Kingdom			Australia			Total
2013
Revenues	$	374,817		$	31,131		$	143,418		$	66,650		$	616,016
Segment profit(1)		46,934			5,137			29,439			15,951			97,461
Depreciation and amortization expense		31,787			9,518			11,566			9,877			62,748
Capital expenditures		(3,197	)		(19	)		(1,781	)		(1,547	)		(6,544	)
Total assets (3)		396,635			30,061			221,681			84,136			732,513
Long-lived assets (2)(3)		315,748			23,056			100,796			72,979			512,579
2014
Revenues	$	468,419		$	32,889		$	189,755		$	84,552		$	775,615
Segment profit(1)		76,065			4,673			32,921			18,481			132,140
Depreciation and amortization expense		34,302			2,824			12,048			11,106			60,280
Capital expenditures		(7,687	)		(37	)		(1,254	)		(1,916	)		(10,894	)
Total assets (3)		577,974			25,807			239,260			87,103			930,144
Long-lived assets(2)(3)		473,800			18,178			96,635			73,721			662,334
2015
Revenues	$	511,324		$	37,473		$	190,204		$	80,566		$	819,567
Segment profit(1)		82,751			5,413			34,786			17,795			140,745
Depreciation and amortization expense		36,101			853			9,270			9,467			55,691
Capital expenditures		(7,171	)		(248	)		(1,380	)		(2,390	)		(11,190	)
Total assets (3)		637,469			26,970			304,917			82,325			1,051,681
Long-lived assets(2)(3)		467,664			16,063			134,464			60,130			678,321

(1) For segment purposes, the Company defines “segment profit” as earnings before interest expenses, income taxes, depreciation and amortization, share-based compensation expenses, acquisition-related transaction costs and other expenses. A consolidated reconciliation from segment profit to income from operations is included below.

(2) Long-lived assets are noncurrent assets excluding deferred tax assets and deferred financing costs.

(3) Total assets and long-lived assets include goodwill. Goodwill recorded in connection with certain tax benefits to be realized in the Company’s U.S. income tax returns has been reflected in the United States segment.

A reconciliation of segment profit to consolidated income from operations is as follows (in thousands):

	2013			2014			2015
Segment Profit	$	97,461		$	132,140		$	140,745
Depreciation and amortization		(62,748	)		(60,280	)		(55,691	)
Share-based compensation expense		(17,157	)		(20,024	)		(22,289	)
Acquisition-related transaction costs		(2,134	)		(3,535	)		(2,421	)
Other expenses		(1,353	)		(1,201	)		388
Income from operations	$	14,069		$	47,100		$	60,732

F-34

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013, 2014 and 2015

(14)             Condensed Consolidating Financial Information of Guarantor Subsidiaries

The Company has outstanding certain indebtedness that is guaranteed by all of its U.S. subsidiaries. However, the indebtedness is not guaranteed by the Company’s foreign subsidiaries. The guarantor subsidiaries are 100% owned and the guarantees are made on a joint and several basis, and are full and unconditional. Separate consolidated financial statements of the guarantor subsidiaries have not been presented because management believes that such information would not be material to investors. However, condensed consolidating financial information as of December 31, 2014 and 2015, and for the three years ended December 31, 2015 is presented below. The Company (issuer of the Senior Unsecured Notes, and subsequently the Notes in April of 2015) was formed in June 2010 to implement a holding company organizational structure. As a result, all operating activities are conducted through the Company’s 100% owned subsidiaries.

Condensed Consolidating Statement of Operations

for the year ended December 31, 2013

(In thousands)

	Guarantor Subsidiaries			Non- Guarantor Subsidiaries			ExamWorks Group, Inc. (Parent Corporation)			Consolidation and Elimination Entries		Consolidated Totals
Revenues	$	374,817		$	241,199		$	—		$	—	$	616,016
Costs and expenses:
Costs of revenues		264,999			140,330			—			—		405,329
Selling, general and administrative expenses		70,681			63,189			—			—		133,870
Depreciation and amortization		31,787			30,961			—			—		62,748
Total costs and expenses		367,467			234,480			—			—		601,947
Income from operations		7,350			6,719			—			—		14,069
Interest and other expenses, net		22,107			7,534			—			—		29,641
Loss before income taxes		(14,757	)		(815	)		—			—		(15,572	)
Provision (benefit) for income taxes		(11,540	)		6,184			—			—		(5,356	)
Net loss before earnings of consolidated subsidiaries	$	(3,217	)	$	(6,999	)	$	—		$	—	$	(10,216	)
Net income (loss) of consolidated subsidiaries		(6,999	)		—			(6,999	)		13,998		—
Net income (loss)	$	(10,216	)	$	(6,999	)	$	(6,999	)	$	13,998	$	(10,216	)

F-35

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013, 2014 and 2015

Condensed Consolidating Statement of Operations

for the year ended December 31, 2014

(In thousands)

	Guarantor Subsidiaries			Non- Guarantor Subsidiaries		ExamWorks Group, Inc. (Parent Corporation)		Consolidation and Elimination Entries			Consolidated Totals
Revenues	$	468,419		$	307,196	$	—	$	—		$	775,615
Costs and expenses:
Costs of revenues		308,962			188,076		—		—			497,038
Selling, general and administrative expenses		92,213			78,984		—		—			171,197
Depreciation and amortization		34,302			25,978		—		—			60,280
Total costs and expenses		435,477			293,038		—		—			728,515
Income from operations		32,942			14,158		—		—			47,100
Interest and other expenses, net		24,909			7,262		—		—			32,171
Income before income taxes		8,033			6,896		—		—			14,929
Provision (benefit) for income taxes		(2,151	)		6,586		—		—			4,435
Net income before earnings of consolidated subsidiaries	$	10,184		$	310	$	—	$	—		$	10,494
Net income (loss) of consolidated subsidiaries		310			—		310		(620	)		—
Net income (loss)	$	10,494		$	310	$	310	$	(620	)	$	10,494

Condensed Consolidating Statement of Operations

for the year ended December 31, 2015

(In thousands)

	Guarantor Subsidiaries			Non- Guarantor Subsidiaries		ExamWorks Group, Inc. (Parent Corporation)		Consolidation and Elimination Entries			Consolidated Totals
Revenues	$	511,324		$	308,243	$	—	$	—		$	819,567
Costs and expenses:
Costs of revenues		346,733			189,761		—		—			536,494
Selling, general and administrative expenses		91,064			75,586		—		—			166,650
Depreciation and amortization		36,101			19,590		—		—			55,691
Total costs and expenses		473,898			284,937		—		—			758,835
Income from operations		37,426			23,306		—		—			60,732
Interest and other expenses, net		46,600			5,937		—		—			52,537
Income (loss) before income taxes		(9,174	)		17,369		—		—			8,195
Provision (benefit) for income taxes		(49	)		2,653		—		—			2,604
Net income (loss) before earnings of consolidated subsidiaries	$	(9,125	)	$	14,716	$	—	$	—		$	5,591
Net income (loss) of consolidated subsidiaries		14,716			—		14,716		(29,432	)		—
Net income (loss)	$	5,591		$	14,716	$	14,716	$	(29,432	)	$	5,591

F-36

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013, 2014 and 2015

Condensed Consolidating Balance Sheet as of December 31, 2014

(In thousands)

	Guarantor Subsidiaries		Non- Guarantor Subsidiaries		ExamWorks Group, Inc. (Parent Corporation)		Consolidation and Elimination Entries			Consolidated Totals
Assets
Current assets:
Cash and cash equivalents	$	388	$	9,363	$	—	$	—		$	9,751
Accounts receivable, net		55,684		147,505		—		—			203,189
Intercompany receivable		42,002		—		10,667		(52,669	)		—
Prepaid expenses		8,248		5,557		—		—			13,805
Deferred tax assets		3,780		—		—		(4	)		3,776
Other current assets		272		1,165		—		—			1,437
Total current assets		110,374		163,590		10,667		(52,673	)		231,958
Property, equipment and leasehold improvements, net		10,394		5,332		—		—			15,726
Investment in subsidiaries		217,344		—		591,435		(808,779	)		—
Intercompany notes receivable		174,464		—		174,464		(348,928	)		—
Goodwill		387,104		108,575		—		—			495,679
Intangible assets, net		64,530		38,053		—		—			102,583
Long-term accounts receivable, less current portion		—		46,401		—		—			46,401
Deferred tax assets, noncurrent		22,505		7,177		—		—			29,682
Deferred financing costs, net		6,140		29		—		—			6,169
Other assets		663		1,283		—		—			1,946
Total assets	$	993,518	$	370,440	$	776,566	$	(1,210,380	)	$	930,144
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities:
Accounts payable	$	20,163	$	36,870	$	—	$	—		$	57,033
Intercompany payable		10,667		42,002		—		(52,669	)		—
Accrued expenses		23,904		30,074		—		—			53,978
Accrued interest expense		—		—		10,667		—			10,667
Deferred revenue		244		6,158		—		—			6,402
Deferred tax liability		—		4		—		(4	)		—
Current portion of contingent earnout obligation		—		4,473		—		—			4,473
Current portion of working capital facilities		—		40,396		—		—			40,396
Other current liabilities		2,363		4,587		—		—			6,950
Total current liabilities		57,341		164,564		10,667		(52,673	)		179,899
Senior unsecured notes payable		—		—		250,000		—			250,000
Senior secured revolving credit facility and working capital facilities, less current portion		—		—		143,853		—			143,853
Intercompany notes payable		174,464		174,464		—		(348,928	)		—
Long-term contingent earnout obligation, less current portion		—		2,114		—		—			2,114
Other long-term liabilities		1,795		7,608		—		—			9,403
Total liabilities		233,600		348,750		404,520		(401,601	)		585,269
Commitments and contingencies
Stockholders’ equity (deficit)		759,918		21,690		372,046		(808,779	)		344,875
Total liabilities and stockholders' equity (deficit)	$	993,518	$	370,440	$	776,566	$	(1,210,380	)	$	930,144

F-37

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013, 2014 and 2015

Condensed Consolidating Balance Sheet as of December 31, 2015

(In thousands)

	Guarantor Subsidiaries		Non- Guarantor Subsidiaries		ExamWorks Group, Inc. (Parent Corporation)		Consolidation and Elimination Entries			Consolidated Totals
Assets
Current assets:
Cash and cash equivalents	$	33,011	$	14,854	$	—	$	—		$	47,865
Accounts receivable, net		68,896		176,553		—		—			245,449
Intercompany receivable		57,394		—		6,245		(63,639	)		—
Prepaid expenses		10,398		6,411		—		—			16,809
Other current assets		848		1,110		—		—			1,958
Total current assets		170,547		198,928		6,245		(63,639	)		312,081
Property, equipment and leasehold improvements, net		12,695		7,450		—		—			20,145
Investment in subsidiaries		280,114		—		800,743		(1,080,857	)		—
Intercompany notes receivable		174,421		—		174,421		(348,842	)		—
Goodwill		398,045		110,252		—		—			508,297
Intangible assets, net		46,423		38,250		—		—			84,673
Long-term accounts receivable, less current portion		—		62,717		—		—			62,717
Deferred tax assets, noncurrent		47,363		3,042		—		—			50,405
Deferred financing costs, net		9,290		104		—		—			9,394
Other assets		725		3,244		—		—			3,969
Total assets	$	1,139,623	$	423,987	$	981,409	$	(1,493,338	)	$	1,051,681
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities:
Accounts payable	$	24,072	$	36,527	$	—	$	—		$	60,599
Intercompany payable		6,245		57,394		—		(63,639	)		—
Accrued expenses		13,150		47,598		—		—			60,748
Accrued interest expense		—		—		6,245		—			6,245
Deferred revenue		138		3,546		—		—			3,684
Other current liabilities		3,383		5,673		—		—			9,056
Total current liabilities		46,988		150,738		6,245		(63,639	)		140,332
Senior unsecured notes payable		—		—		500,000		—			500,000
Senior secured revolving credit facility and working capital facilities, less current portion		—		35,243		—		—			35,243
Intercompany notes payable		174,421		174,421		—		(348,842	)		—
Deferred tax liability, noncurrent		—		3,333		—		—			3,333
Other long-term liabilities		2,950		9,788		—		—			12,738
Total liabilities		224,359		373,523		506,245		(412,481	)		691,646
Commitments and contingencies
Stockholders’ equity (deficit)		915,264		50,464		475,164		(1,080,857	)		360,035
Total liabilities and stockholders' equity (deficit)	$	1,139,623	$	423,987	$	981,409	$	(1,493,338	)	$	1,051,681

F-38

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013, 2014 and 2015

Condensed Consolidating Statement of Cash Flows for the year ended December 31, 2013

(In thousands)

	Guarantor Subsidiaries			Non- Guarantor Subsidiaries			ExamWorks Group, Inc. (Parent Corporation)			Consolidation and Elimination Entries		Consolidated Totals
Net cash provided by operating activities	$	23,963		$	12,392		$	—		$	—	$	36,355
Investing activities:
Cash paid for acquisitions, net		(592	)		(2,726	)		—			—		(3,318	)
Purchases of equipment and leasehold improvements, net		(3,197	)		(3,347	)		—			—		(6,544	)
Working capital and other settlements for acquisitions		(444	)		(125	)		—			—		(569	)
Proceeds from foreign currency net investment hedge		1,421			—			—			—		1,421
Other		(1,144	)		—			—			—		(1,144	)
Net cash used in investing activities		(3,956	)		(6,198	)		—			—		(10,154	)
Financing activities:
Borrowings under senior secured revolving credit facility		—			—			142,473			—		142,473
Proceeds from the exercise of options and warrants					—			24,261			—		24,261
Excess tax benefit related to share-based compensation					—			6,610			—		6,610
Net borrowings under working capital facilities					2,772			—			—		2,772
Payment of deferred financing costs					(116	)		(56	)		—		(172	)
Repayment of subordinated unsecured notes payable		(270	)		—			—			—		(270	)
Repayment under senior secured revolving credit facility		—			—			(196,746	)		—		(196,746	)
Intercompany notes and investments and other		(23,102	)		(356	)		23,458			—		—
Net cash provided by (used in) financing activities		(23,372	)		2,300			—			—		(21,072	)
Exchange rate impact on cash and cash equivalents		—			(927	)		—			—		(927	)
Net increase (decrease) in cash and cash equivalents		(3,365	)		7,567			—			—		4,202
Cash and cash equivalents, beginning of year		4,125			4,502			—			—		8,627
Cash and cash equivalents, end of year	$	760		$	12,069		$	—		$	—	$	12,829

F-39

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013, 2014 and 2015

Condensed Consolidating Statement of Cash Flows for the year ended December 31, 2014

(In thousands)

	Guarantor Subsidiaries			Non- Guarantor Subsidiaries			ExamWorks Group, Inc. (Parent Corporation)			Consolidation and Elimination Entries		Consolidated Totals
Net cash provided by operating activities	$	33,096		$	12,103		$	—		$	—	$	45,199
Investing activities:
Cash paid for acquisitions, net		(177,864	)		(9,538	)		—			—		(187,402	)
Purchases of equipment and leasehold improvements, net		(7,687	)		(3,207	)		—			—		(10,894	)
Working capital and other settlements for acquisitions		(477	)		(1,854	)		—			—		(2,331	)
Proceeds from foreign currency net investment hedge		4,006			—			—			—		4,006
Other		(1,347	)		(195	)		—			—		(1,542	)
Net cash used in investing activities		(183,369	)		(14,794	)		—			—		(198,163	)
Financing activities:
Borrowings under senior secured revolving credit facility		—			—			299,255			—		299,255
Proceeds from the exercise of options and warrants		—			—			42,437			—		42,437
Excess tax benefit related to share-based compensation		—			—			9,287			—		9,287
Net borrowings under working capital facilities		—			4,939			—			—		4,939
Payment of deferred financing costs					—			(263	)		—		(263	)
Repayment of subordinated unsecured notes payable		(333	)		—			—			—		(333	)
Payment of contingent earnout obligation		—			(4,362	)		—			—		(4,362	)
Repayment under senior secured revolving credit facility		—			—			(200,429	)		—		(200,429	)
Intercompany notes and investments and other		150,234			—			(150,287	)		—		(53	)
Net cash provided by (used in) financing activities		149,901			577			—			—		150,478
Exchange rate impact on cash and cash equivalents		—			(592	)		—			—		(592	)
Net increase (decrease) in cash and cash equivalents		(372	)		(2,706	)		—			—		(3,078	)
Cash and cash equivalents, beginning of year		760			12,069			—			—		12,829
Cash and cash equivalents, end of year	$	388		$	9,363		$	—		$	—	$	9,751

F-40

EXAMWORKS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013, 2014 and 2015

Condensed Consolidating Statement of Cash Flows for the year ended December 31, 2015

(In thousands)

	Guarantor Subsidiaries			Non- Guarantor Subsidiaries			ExamWorks Group, Inc. (Parent Corporation)			Consolidation and Elimination Entries		Consolidated Totals
Net cash provided by operating activities	$	30,000		$	20,030		$	—		$	—	$	50,030
Investing activities:
Cash paid for acquisitions, net		(22,697	)		(52,538	)		—			—		(75,235	)
Purchases of building, equipment and leasehold improvements, net		(7,171	)		(4,019	)		—			—		(11,190	)
Working capital and other settlements for acquisitions		(181	)		(31	)		—			—		(212	)
Proceeds from foreign currency net investment hedges		7,698			—			—			—		7,698
Other		(1,499	)		—			—			—		(1,499	)
Net cash used in investing activities		(23,850	)		(56,588	)		—			—		(80,438	)
Financing activities:
Borrowings under senior unsecured notes		—			—			500,000			—		500,000
Borrowings under senior secured revolving credit facility		—			—			25,478			—		25,478
Proceeds from the exercise of options and warrants		—			—			14,423			—		14,423
Excess tax benefit related to share-based compensation		—			—			2,591			—		2,591
Net borrowings under working capital facilities		—			(3,362	)		—			—		(3,362	)
Payment of contingent earnout obligation		—			(5,064	)		—			—		(5,064	)
Payment of deferred financing costs		—			(144	)		(8,891	)		—		(9,035	)
Payment for early redemption of senior unsecured notes		—			—			(14,618	)		—		(14,618	)
Purchases of stock for treasury		—			—			(21,268	)		—		(21,268	)
Repayment under senior secured revolving credit facility		—			—			(169,330	)		—		(169,330	)
Repayments under senior unsecured notes		—			—			(250,000	)		—		(250,000	)
Intercompany notes and investments and other		26,472			51,913			(78,385	)		—		—
Net cash provided by financing activities		26,472			(43,343	)		—			—		69,815
Exchange rate impact on cash and cash equivalents		—			(1,293	)		—					(1,293	)
Net increase in cash and cash equivalents		32,622			5,492			—			—		38,114
Cash and cash equivalents, beginning of year		389			9,362			—			—		9,751
Cash and cash equivalents, end of year	$	33,011		$	14,854		$	—		$	—	$	47,865

(15)               Subsequent Events

On January 8, 2016, the Company acquired ABI Document Support Services Inc., (“ABI”), pursuant to an Agreement and Plan of Merger for $62.0 million in cash. The Company financed the transaction through available cash on hand as well as proceeds from its Amended and Restated Credit Facility.

On January 19, 2016, the Company acquired 100% of the issued and outstanding shares of capital stock of Advanced Medical Reviews, Inc., a California corporation (“AMR”) for $30.0 million in cash and, additionally, up to an aggregate of $9.8 million in earnout payments to be made by ExamWorks based on a percentage of the revenues recognized from a new AMR client contract during the period from March 1, 2016 through February 28, 2017 and from March 1, 2017 through February 28, 2018. ExamWorks financed the transaction through available cash on hand as well as proceeds from its Amended and Restated Credit Facility.

F-41