UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8‑K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report: October 31, 2017
(Date of earliest event reported)
Cotiviti Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
001-37787 |
46-0595918 |
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(Commission File Number) |
(IRS Employer Identification No.) |
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115 Perimeter Center Place |
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Suite 700 |
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Atlanta, GA 30346 |
30346 |
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(Address of principal executive offices) |
(Zip Code) |
(770) 379-2800
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
[ ]Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ]Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ]Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ]Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Item 2.02 Results of Operations and Financial Condition.
On October 31, 2017, Cotiviti Holdings, Inc. (the “Company”) issued a press release, attached as Exhibit 99.1 and incorporated herein by reference, announcing the Company’s financial and operating results for the fiscal quarter ended September 30, 2017.
The information contained in this Item 2.02, including Exhibits 99.1 and 99.2 attached hereto, is being furnished and shall not be deemed filed for purposes of Section 18 of the Securities Act of 1934, as amended, or otherwise subject to the liabilities of Section 18. Furthermore, the information contained in this Item 2.02 and Exhibits 99.1 and 99.2 shall not be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended.
Item 9.01 Financial Statements and Exhibits.
See Exhibit Index.
2
Exhibit Index
Exhibit Number |
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Description |
99.1 99.2
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Cotiviti Holdings, Inc. Press Release dated October 31, 2017 Supplemental Financial Information
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3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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COTIVITI Holdings, Inc. |
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By: |
/S/ JONATHAN OLEFSON |
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Name: Jonathan Olefson |
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Title: Senior Vice President, General Counsel and Secretary |
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Date: October 31, 2017 |
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4
Exhibit 99.1
Cotiviti Announces Third Quarter 2017 Results
Board Authorizes $100 Million Share Repurchase Program
Revenue of $174.2 million, up 11% over prior year period
Net Income of $19.5 million
Net Income per diluted share of $0.20
Non-GAAP Adjusted Net Income per diluted share of $0.39
Non-GAAP Adjusted EBITDA of $68.4 million
ATLANTA, GA, October 31, 2017. (BUSINESS WIRE) - Cotiviti Holdings Inc. (NYSE:COTV) (“Cotiviti”), a leading provider of payment accuracy and analytics-driven solutions primarily focused on the healthcare industry, today announced financial results for the three and nine months ended September 30, 2017, and authorization for a share repurchase of up to $100 million. Cotiviti will host a conference call on November 1, 2017 at 8:30 a.m. Eastern Time to discuss its results.
“Our third quarter performance reflects our track record of delivering significant value to both healthcare and retail clients,” said Doug Williams, Chief Executive Officer. “This value translated into solid revenue growth and profitability in the quarter. We continue to expand existing client adoption and, during the quarter, we generated revenue from two new cross-sell opportunities within existing clients.”
“We continue to make strategic, ongoing investments to ensure our business is optimally positioned for long-term financial success as the market continues to evolve,” said Doug Williams. “We believe the RowdMap acquisition and the addition of our new Chief Digital Officer reflect our focus on generating sustainable, long-term client value creation.”
“Third quarter results were very much in line with our expectations and Cotiviti’s business fundamentals are strong,” said Adrienne Calderone, Interim Chief Financial Officer. “As we look to the balance of the year, we are adjusting our full year guidance to reflect timing-related factors in both our prospective (PCA) and retrospective (RCA) claims accuracy solutions which are delaying revenue. As we communicated last quarter, we have experienced ongoing PCA implementation delays and RCA revenue conversion slowdowns due to system changes at specific clients. These delays are now expected to extend into the fourth quarter. As a result, we are adjusting our full year 2017 revenue guidance range to $678 to $683 million and are projecting Adjusted EBITDA to be in the range of $265 to $268 million.”
“We are pleased to announce that our Board approved a share repurchase program of up to $100 million to allow us the financial flexibility to opportunistically repurchase shares in the open market over the next 12 months using existing cash balances,” continued Calderone. “Our strong cash flow generation enabled us to reduce the net debt leverage ratio to 2.6 times at September 30, 2017. We believe that we can enhance shareholder value by continuing to invest in our organic growth opportunities, make strategic acquisitions and opportunistically buy back stock. Initiating a share repurchase plan demonstrates the Board’s confidence in the Company’s long-term strategy.”
Shares of common stock may be purchased under the program from time to time in the open market and in privately negotiated transactions subject to debt covenants, and other customary legal, contractual, regulatory and market considerations and may be discontinued at any time.
1
Third Quarter 2017 Financial Results
•Total revenue for the quarter increased 11% to $174.2 million, compared to $156.2 million in the third quarter a year ago. Revenue growth was driven by a 13% increase in the Healthcare segment to $156.2 million, with the Global Retail and Other segment contributing $18.0 million, up 1% compared to the same period a year ago. Healthcare revenue benefitted from an increase in expanded adoption of solutions within Cotiviti’s existing healthcare clients and the addition of new clients and cross-sell wins with existing clients.
•Net income increased 325% to $19.5 million, or $0.20 per diluted share for the quarter, compared to $4.6 million in the 2016 third quarter, or $0.05 per diluted share. Third quarter 2017 net income was favorably impacted by the 11% increase in total revenue, a 66% reduction in stock-based compensation expense year-over-year and a $9.3 million decline in loss on extinguishment of debt from a year ago.
•Non-GAAP Adjusted EBITDA for the quarter was $68.4 million, a 11% increase compared to $61.6 million for the prior year.
•Non-GAAP Adjusted Net Income for the quarter was $36.9 million, or $0.39 per diluted share, compared to $33.7 million, or $0.36 per diluted share for the prior year.
Nine Months 2017 Financial Results
•Total revenue for the nine months ended September 30, 2017, increased 10% to $501.9 million compared to $457.3 million for the same period a year ago. Revenue growth was driven by a 11% increase in the Healthcare segment to $447.6 million, and reflects a Global Retail and Other segment increase of 1% to $54.4 million. The increasing scope of solutions within existing clients, the addition of new clients and the success of our cross-sell efforts were the primary contributors to Healthcare revenue growth for the period.
•Net income increased 187% to $67.5 million, or $0.71 per diluted share for the nine months ended September 30, 2017, compared to $23.6 million, or $0.27 per diluted share in the comparable period a year ago. The increase in net income for the first nine months of 2017 was primarily driven by a 10% increase in revenue, a 52% decrease in stock-based compensation, a 35% decrease in interest expense and a $13.2 million decline in loss on extinguishment of debt partially offset by an 8% increase in SG&A expense related to investments in analytics, technology and go-to-market and $1.3 million increase in transaction related expense due to the acquisition of RowdMap.
•Non-GAAP Adjusted EBITDA for the nine months ended September 30, 2017 was $190.3 million, compared to $175.3 million in the comparable period a year ago.
•Non-GAAP Adjusted Net Income for the nine months ended September 30, 2017 was $104.8 million, or $1.10 per diluted share, compared to $87.1 million, or $1.00 per diluted share in the comparable period a year ago.
Guidance
Cotiviti estimates full year 2017 results as follows:
•Total revenue in a range of $678 million to $683 million;
•Net income in a range of $91 million to $95 million;
•Adjusted EBITDA in a range of $265 million to $268 million; and
•Fully diluted weighted average shares of approximately 96 million, excluding any impact from share repurchases.
2
Adjusted EBITDA, Adjusted Net Income, and Adjusted Net Income per Diluted Share are non-GAAP financial measures. For an explanation of these as measures of the Company’s operating performance, refer to the reconciliation in “Non-GAAP Financial Measures.”
Conference Call Information
To participate in the conference call on November 1, domestic callers can dial (877) 883-0383 and international callers can dial (412) 902-6506 and provide the following conference passcode: 5419645. A webcast of the call will be accessible on the Investor page of Cotiviti’s website at http://investors.cotiviti.com.
Supplemental Financial Information
Supplemental financial information that is not part of this press release is available on the Investor page of Cotiviti’s website at http://investors.cotiviti.com.
About Cotiviti
Cotiviti is a leading provider of payment accuracy and analytics-driven solutions that helps payers, other risk-bearing healthcare organizations and retailers achieve their business objectives. Through a combination of analytics, technology and deep industry expertise, our solutions create insights that unlock value from the complex interactions between clients and their stakeholders. Cotiviti serves more than 20 of the top 25 U.S. healthcare payers and eight of the top 10 U.S. retailers. Cotiviti’s passion for creating unique client value drives our focus – Analytics. Insight. Value.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties. All statements other than statements of historical fact or relating to present facts or current conditions included in this press release are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “seek,” “plan,” “intend,” “believe,” “will,” “may,” “could,” “continue,” “likely,” “should,” and other words.
The forward-looking statements contained in this press release are based on assumptions that we have made in light of our industry experience and our perceptions of historical trends, current conditions, expected future developments and other factors that we believe are appropriate under the circumstances. These statements are not guarantees of performance or results. These assumptions and our future performance or results involve risks and uncertainties (many of which are beyond our control). Important factors that could cause actual results to differ materially from those in the forward-looking statements include regional, national or global political, economic, business, competitive, market and regulatory conditions and the following: our inability to successfully leverage our existing client base by expanding the volume of claims reviewed and cross-selling additional solutions; improvements to healthcare claims and retail billing processes reducing the demand for our solutions or rendering our solutions unnecessary; healthcare spending fluctuations; our clients declining to renew their agreements with us or renewing at lower performance fee levels; inability to develop new clients; delays in implementing our solutions; variations in our revenue between reporting periods due to timing issues; system interruptions or failures, including cyber-security breaches, identity theft or other disruptions that could compromise our information; our failure to innovate and develop new solutions for our clients; our failure to comply with applicable privacy, security and data laws, regulations and standards; changes in regulations governing healthcare administration and policies, including governmental restrictions on the outsourcing of functions such as those that we provide; loss of a large client; consolidation among healthcare payers or retailers; slow development of the healthcare payment accuracy market; negative publicity concerning the healthcare payment industry or patient confidentiality and privacy; significant competition for our solutions; our inability to protect our intellectual
3
property rights, proprietary technology, information, processes and know-how; compliance with current and future regulatory requirements; declines in contracts awarded through competitive bidding or our inability to re-procure contracts through the competitive bidding process; our failure to accurately estimate the factors upon which we base our contract pricing; our inability to manage our growth; our inability to successfully integrate and realize synergies from any future acquisitions or strategic partnerships; the timing and magnitude of shares purchased under our share repurchase program; our failure to maintain or upgrade our operational platforms; our failure to reprocure our Medicare Recovery Audit Contractor program contract; litigation, regulatory or dispute resolution proceedings, including claims or proceedings related to intellectual property infringements; our inability to expand our retail business; our inability to manage our relationships with information suppliers, software vendors or utility providers; fluctuation in our results of operations; changes in tax rules; risks associated with international operations; our inability to realize the book value of intangible assets; our success in attracting and retaining qualified employees and key personnel; and general economic, political and market forces and dislocations beyond our control; risks related to our substantial indebtedness and holding company structure; volatility in bank and capital markets; our status as an emerging growth company; and provisions in our amended and restated certificate of incorporation. Additional factors or events that could cause our actual performance to differ from these forward-looking statements may emerge from time to time, and it is not possible for us to predict all of them. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, our actual financial condition, results of operations, future performance and business may vary in material respects from the performance projected in these forward-looking statements.
Any forward-looking statement made by us in this press release speaks only as of the date on which it is made. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.
Non-GAAP Financial Measures
The Company defines Adjusted EBITDA as net income before depreciation and amortization, interest expense, other non-operating (income) expense such as foreign currency translation, income tax expense, transaction-related expenses and other and stock-based compensation. The Company defines Adjusted Net Income and Adjusted Net Income per Diluted Share as net income adjusted for non-cash and other non-recurring items.
Management believes Adjusted EBITDA is useful because it provides meaningful supplemental information about our operating performance and facilitates period-to-period comparisons without regard to our financing methods, capital structure or other items that we believe are not indicative of our ongoing operating performance. Management believes Adjusted Net Income is useful because it provides meaningful supplemental information about our operating performance and facilitates period-to-period comparisons without regard to non-cash expenses and other items that are one-time in nature. In order to assure that all investors have access to similar data the Company has determined that it is appropriate to provide these non-GAAP financial measures. Management believes we are enhancing investors’ understanding of our business and our results of operations, as well as assisting them in evaluating how well we are executing our strategic initiatives. Adjusted EBITDA and Adjusted Net Income are intended as supplemental measures of our performance that is not required by, or presented in accordance with U.S. generally accepted accounting principles, or GAAP. Adjusted EBITDA and Adjusted Net Income are not determined in accordance with GAAP, and should not be considered in isolation or as an alternative to net income, income from operations, net cash provided by operating, investing or financing activities or other financial statement data presented as indicators of financial performance or liquidity, each as presented in accordance with GAAP.
4
Cotiviti Holdings, Inc.
Consolidated Balance Sheets
(In thousands)
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September 30, |
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December 31, |
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2017 |
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2016 |
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(Unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
123,008 |
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$ |
110,635 |
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Restricted cash |
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|
8,438 |
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|
9,103 |
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Accounts receivable, net of allowance for doubtful accounts of $113 and $851 at September 30, 2017 and December 31, 2016, respectively; and net of estimated allowance for refunds and appeals of $30,996 and $41,020 at September 30, 2017 and December 31, 2016, respectively |
|
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83,462 |
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67,735 |
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Prepaid expenses and other current assets |
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16,985 |
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14,957 |
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Total current assets |
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231,893 |
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202,430 |
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Property and equipment, net |
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78,414 |
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67,640 |
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Goodwill |
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1,251,325 |
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1,196,024 |
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Intangible assets, net |
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507,823 |
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533,305 |
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Other long-term assets |
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2,770 |
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2,864 |
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TOTAL ASSETS |
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$ |
2,072,225 |
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$ |
2,002,263 |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities: |
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Current maturities of long-term debt |
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$ |
18,000 |
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$ |
18,000 |
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Customer deposits |
|
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8,438 |
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|
9,103 |
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Accounts payable and accrued other expenses |
|
|
36,410 |
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|
23,162 |
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Accrued compensation costs |
|
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40,123 |
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58,589 |
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Estimated liability for refunds and appeals |
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57,971 |
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62,539 |
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Total current liabilities |
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160,942 |
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171,393 |
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Long-term liabilities: |
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Long-term debt |
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753,592 |
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|
762,202 |
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Other long-term liabilities |
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5,656 |
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8,799 |
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Deferred tax liabilities |
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121,169 |
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|
120,533 |
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Total long-term liabilities |
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880,417 |
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891,534 |
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Total liabilities |
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1,041,359 |
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1,062,927 |
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Commitments and contingencies (Note 7) |
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Stockholders' equity: |
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Common stock ($0.001 par value; 600,000,000 shares authorized, 92,368,654 and 90,748,740 issued, and 92,368,654 and 90,741,340 outstanding at September 30, 2017 and December 31, 2016, respectively) |
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92 |
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91 |
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Additional paid-in capital |
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934,104 |
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911,582 |
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Retained earnings |
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101,452 |
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33,917 |
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Accumulated other comprehensive loss |
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(4,782) |
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(6,156) |
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Treasury stock, at cost (7,400 shares at December 31, 2016) |
|
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— |
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(98) |
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Total stockholders' equity |
|
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1,030,866 |
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|
939,336 |
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
|
$ |
2,072,225 |
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$ |
2,002,263 |
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5
Cotiviti Holdings, Inc.
Consolidated Statements of Comprehensive Income
(Unaudited, in thousands except per share data)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2017 |
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2016 |
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2017 |
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2016 |
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Net revenue |
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$ |
174,188 |
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$ |
156,241 |
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$ |
501,932 |
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$ |
457,250 |
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Cost of revenue (exclusive of depreciation and amortization, stated separately below): |
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Compensation |
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58,405 |
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58,517 |
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|
173,563 |
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|
167,263 |
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Other costs of revenue |
|
|
6,676 |
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|
6,658 |
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|
19,485 |
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|
17,331 |
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Total cost of revenue |
|
|
65,081 |
|
|
65,175 |
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|
193,048 |
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|
184,594 |
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Selling, general and administrative expenses (exclusive of depreciation and amortization, stated separately below): |
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|
|
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|
|
|
|
|
|
|
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Compensation |
|
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29,162 |
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|
32,496 |
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|
79,419 |
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|
74,782 |
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Other selling, general and administrative expenses |
|
|
17,313 |
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|
13,978 |
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|
49,492 |
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|
44,152 |
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Total selling, general and administrative expenses |
|
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46,475 |
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|
46,474 |
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|
128,911 |
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|
118,934 |
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Depreciation and amortization of property and equipment |
|
|
6,070 |
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|
5,218 |
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|
17,541 |
|
|
14,864 |
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Amortization of intangible assets |
|
|
14,747 |
|
|
15,203 |
|
|
45,147 |
|
|
45,618 |
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Transaction-related expenses |
|
|
773 |
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|
16 |
|
|
2,165 |
|
|
909 |
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Total operating expenses |
|
|
133,146 |
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|
132,086 |
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|
386,812 |
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|
364,919 |
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Operating income |
|
|
41,042 |
|
|
24,155 |
|
|
115,120 |
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|
92,331 |
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Other expense (income): |
|
|
|
|
|
|
|
|
|
|
|
|
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Interest expense |
|
|
9,101 |
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|
9,625 |
|
|
26,060 |
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|
40,345 |
|
Loss on extinguishment of debt |
|
|
— |
|
|
9,349 |
|
|
3,183 |
|
|
16,417 |
|
Other non-operating (income) expense |
|
|
(449) |
|
|
(113) |
|
|
(1,458) |
|
|
(771) |
|
Total other expense (income) |
|
|
8,652 |
|
|
18,861 |
|
|
27,785 |
|
|
55,991 |
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Income before income taxes |
|
|
32,390 |
|
|
5,294 |
|
|
87,335 |
|
|
36,340 |
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Income tax expense |
|
|
12,918 |
|
|
711 |
|
|
19,800 |
|
|
12,780 |
|
Net income |
|
$ |
19,472 |
|
$ |
4,583 |
|
$ |
67,535 |
|
$ |
23,560 |
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Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
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Foreign currency translation adjustments |
|
|
433 |
|
|
14 |
|
|
942 |
|
|
(657) |
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Change in fair value of derivative instruments |
|
|
301 |
|
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(49) |
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|
432 |
|
|
(615) |
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Total other comprehensive income (loss) |
|
|
734 |
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|
(35) |
|
|
1,374 |
|
|
(1,272) |
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Comprehensive income |
|
$ |
20,206 |
|
$ |
4,548 |
|
$ |
68,909 |
|
$ |
22,288 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Earnings per share: |
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Basic |
|
$ |
0.21 |
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$ |
0.05 |
|
$ |
0.74 |
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$ |
0.28 |
|
Diluted |
|
|
0.20 |
|
|
0.05 |
|
|
0.71 |
|
|
0.27 |
|
6
Cotiviti Holdings, Inc.
Consolidated Statements of Cash Flows
(Unaudited, in thousands)
|
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Nine Months Ended |
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September 30, |
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|
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2017 |
|
2016 |
|
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Cash flows from operating activities: |
|
|
|
|
|
|
|
Net income |
|
$ |
67,535 |
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$ |
23,560 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
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Deferred income taxes |
|
|
(3,277) |
|
|
(8,682) |
|
Depreciation and amortization |
|
|
62,688 |
|
|
60,482 |
|
Stock-based compensation expense |
|
|
10,290 |
|
|
21,544 |
|
Amortization of debt issuance costs |
|
|
2,367 |
|
|
3,618 |
|
Accretion of asset retirement obligations |
|
|
146 |
|
|
138 |
|
Loss on extinguishment of debt |
|
|
3,183 |
|
|
16,417 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
Restricted cash |
|
|
665 |
|
|
539 |
|
Accounts receivable |
|
|
(13,201) |
|
|
(4,489) |
|
Other assets |
|
|
(730) |
|
|
(1,141) |
|
Customer deposits |
|
|
(665) |
|
|
(539) |
|
Accrued compensation |
|
|
(18,673) |
|
|
(1,382) |
|
Accounts payable and accrued other expenses |
|
|
1,144 |
|
|
(4,352) |
|
Estimated liability for refunds and appeals |
|
|
(4,568) |
|
|
2,821 |
|
Other long-term liabilities |
|
|
337 |
|
|
146 |
|
Other |
|
|
(78) |
|
|
(335) |
|
Net cash provided by operating activities |
|
|
107,163 |
|
|
108,345 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
Expenditures for property and equipment |
|
|
(23,610) |
|
|
(22,578) |
|
Business combinations, net of cash acquired |
|
|
(69,731) |
|
|
— |
|
Other investing activities |
|
|
— |
|
|
1,181 |
|
Net cash used in investing activities |
|
|
(93,341) |
|
|
(21,397) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
Net proceeds from issuance of common stock |
|
|
— |
|
|
226,963 |
|
Proceeds from exercise of stock options |
|
|
12,349 |
|
|
56 |
|
Proceeds from issuance of debt |
|
|
— |
|
|
800,000 |
|
Dividends paid |
|
|
— |
|
|
(150,000) |
|
Payment of debt issuance costs |
|
|
(661) |
|
|
(6,327) |
|
Repayment of debt |
|
|
(13,500) |
|
|
(1,062,850) |
|
Net cash used in financing activities |
|
|
(1,812) |
|
|
(192,158) |
|
Effect of foreign exchanges on cash and cash equivalents |
|
|
363 |
|
|
(385) |
|
Net increase (decrease) in cash and cash equivalents |
|
|
12,373 |
|
|
(105,595) |
|
Cash and cash equivalents at beginning of period |
|
|
110,635 |
|
|
149,365 |
|
Cash and cash equivalents at end of the period |
|
$ |
123,008 |
|
$ |
43,770 |
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
Cash paid for income taxes |
|
$ |
22,357 |
|
$ |
24,377 |
|
Cash paid for interest |
|
|
22,161 |
|
|
35,927 |
|
Noncash investing activities (accrued property and equipment purchases) |
|
|
12,611 |
|
|
12,000 |
|
Noncash investing activities (business combinations) |
|
|
286 |
|
|
— |
|
Noncash financing activities (accrued debt issuance costs) |
|
|
— |
|
|
979 |
|
7
Reconciliation of Net Income to Adjusted EBITDA
|
|
Three Months Ended |
|
|
|
Nine Months Ended |
|
|
|
||||||||
|
|
September 30, |
|
Percent |
|
September 30, |
|
Percent |
|
||||||||
(unaudited, in thousands) |
|
2017 |
|
2016 |
|
Change |
|
2017 |
|
2016 |
|
Change |
|
||||
Net income |
|
$ |
19,472 |
|
$ |
4,583 |
|
325 |
% |
$ |
67,535 |
|
$ |
23,560 |
|
187 |
% |
Adjustments to net income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
20,817 |
|
|
20,421 |
|
2 |
% |
|
62,688 |
|
|
60,482 |
|
4 |
% |
Interest expense |
|
|
9,101 |
|
|
9,625 |
|
(5) |
% |
|
26,060 |
|
|
40,345 |
|
(35) |
% |
Other non-operating (income) expense(a) |
|
|
(449) |
|
|
(113) |
|
299 |
% |
|
(1,458) |
|
|
(771) |
|
89 |
% |
Income tax expense |
|
|
12,918 |
|
|
711 |
|
NM |
|
|
19,800 |
|
|
12,780 |
|
55 |
% |
Transaction-related expenses and other(b) |
|
|
773 |
|
|
16 |
|
NM |
|
|
2,165 |
|
|
909 |
|
138 |
% |
Stock-based compensation(c) |
|
|
5,752 |
|
|
17,042 |
|
(66) |
% |
|
10,290 |
|
|
21,544 |
|
(52) |
% |
Loss on extinguishment of debt(d) |
|
|
— |
|
|
9,349 |
|
(100) |
% |
|
3,183 |
|
|
16,417 |
|
(81) |
% |
Adjusted EBITDA |
|
$ |
68,384 |
|
$ |
61,634 |
|
11 |
% |
$ |
190,263 |
|
$ |
175,266 |
|
9 |
% |
% of revenue |
|
|
39.3 |
% |
|
39.4 |
% |
|
|
|
37.9 |
% |
|
38.3 |
% |
|
|
(a) |
Represents other non-operating (income) expense that consists primarily of interest income and gains and losses on transactions settled in foreign currencies. Income received for certain sub-leases is included herein. |
(b) |
Represents transaction-related expenses that consist primarily of certain expenses associated with our secondary offerings and our Initial Public Offering and other offering costs in 2016 as well as certain corporate development activity, including the RowdMap Acquisition. |
(c) |
Represents expense related to equity incentive awards granted to certain employees, officers and non-employee directors as long-term incentive compensation and restricted stock issued in connection with the RowdMap Acquisition. We recognize the related expense for these awards ratably over the vesting period or as achievement of performance criteria become probable. |
(d) |
Represents loss on extinguishment of debt that consists primarily of fees paid and write-offs of unamortized debt issuance costs and original issue discount in connection with the 2017 repricing of our First Lien Term B Loan, the 2016 early repayment of a portion of our long-term debt and the 2016 refinancing of long-term debt. |
Reconciliation of Net Income to Adjusted Net Income
|
|
Three Months Ended |
|
|
|
Nine Months Ended |
|
|
|
||||||||
|
|
September 30, |
|
Percent |
|
September 30, |
|
Percent |
|
||||||||
(unaudited, in thousands) |
|
2017 |
|
2016 |
|
Change |
|
2017 |
|
2016 |
|
Change |
|
||||
Net income |
|
$ |
19,472 |
|
$ |
4,583 |
|
325 |
% |
$ |
67,535 |
|
$ |
23,560 |
|
187 |
% |
Adjustments to net income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of acquired intangible assets - non tax deductible |
|
|
11,191 |
|
|
10,402 |
|
8 |
% |
|
31,995 |
|
|
31,206 |
|
3 |
% |
Amortization of acquired intangible assets - tax deductible |
|
|
3,556 |
|
|
4,801 |
|
(26) |
% |
|
13,152 |
|
|
14,412 |
|
(9) |
% |
Loss on extinguishment of debt(a) |
|
|
— |
|
|
9,349 |
|
(100) |
% |
|
3,183 |
|
|
16,417 |
|
(81) |
% |
Transaction-related expenses and other(b) |
|
|
773 |
|
|
16 |
|
NM |
|
|
2,165 |
|
|
909 |
|
138 |
% |
Stock-based compensation - tax deductible(c) |
|
|
1,786 |
|
|
17,042 |
|
(90) |
% |
|
6,324 |
|
|
21,544 |
|
(71) |
% |
Stock-based compensation - non tax deductible(d) |
|
|
3,966 |
|
|
— |
|
NM |
|
|
3,966 |
|
|
— |
|
NM |
|
Tax effect of above adjustments(e) |
|
|
(2,030) |
|
|
(12,476) |
|
(84) |
% |
|
(8,611) |
|
|
(20,949) |
|
(59) |
% |
Tax benefit related to stock option exercises |
|
|
(1,833) |
|
|
— |
|
NM |
|
|
(14,874) |
|
|
— |
|
NM |
|
Adjusted Net Income |
|
$ |
36,881 |
|
$ |
33,717 |
|
9 |
% |
$ |
104,835 |
|
$ |
87,099 |
|
20 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock - Diluted (000s) |
|
|
95,266 |
|
|
93,954 |
|
1 |
% |
|
95,151 |
|
|
86,858 |
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Net Income per diluted share |
|
$ |
0.39 |
|
$ |
0.36 |
|
8 |
% |
$ |
1.10 |
|
$ |
1.00 |
|
10 |
% |
(a) |
Represents loss on extinguishment of debt that consists primarily of fees paid and write-offs of unamortized debt issuance costs and original issue discount in connection with the 2017 repricing of our First Lien Term B Loan, the 2016 early repayment of a portion of our long-term debt and the 2016 refinancing of long-term debt. |
(b) |
Represents transaction-related expenses that consist primarily of certain expenses associated with our secondary offerings and our Initial Public Offering and other offering costs in 2016 as well as certain corporate development activity, including the RowdMap Acquisition. |
(c) |
Represents expense related to equity incentive awards granted to certain employees, officers and non‑employee directors as long‑term incentive compensation. We recognize the related expense for these awards ratably over the vesting period. |
(d) |
Represents expense related to restricted stock issued in connection with the RowdMap Acquisition. We recognize the related expense for these awards ratably over the vesting period or as achievement of performance criteria become probable. |
(e) |
This line represents the tax impact of the amortization of acquired intangible assets - tax deductible, loss on extinguishment of debt and stock-based compensation – tax deductible. The tax rate assumed is 38% and 40% for the three months and nine months ended September 30, 2017 and 2016, respectively. |
8
Adjusted EBITDA 2017 Guidance Reconciliation
(unaudited, in millions)
|
|
2017 Guidance Range |
|
||||
|
|
Low |
|
High |
|
||
Net income |
|
$ |
91 |
|
$ |
95 |
|
Adjustments to net income: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
85 |
|
|
83 |
|
Interest expense |
|
|
35 |
|
|
35 |
|
Other non-operating (income) expense(a) |
|
|
(2) |
|
|
(3) |
|
Income tax expense(b) |
|
|
34 |
|
|
36 |
|
Transaction-related expenses and other(c) |
|
|
2 |
|
|
2 |
|
Stock-based compensation(d) |
|
|
17 |
|
|
17 |
|
Loss on extinguishment of debt(e) |
|
|
3 |
|
|
3 |
|
Adjusted EBITDA |
|
$ |
265 |
|
$ |
268 |
|
(a) |
Represents other non-operating (income) expense that consists primarily of interest income and gains and losses on transactions settled in foreign currencies. Income received for certain sub-leases is included herein. |
(b) |
Income tax expense for 2017 assumes an effective tax rate of approximately 38% excluding the impact of the benefit related to stock option exercises that have actually occurred through September 30, 2017. |
(c) |
Represents transaction-related expenses that consist primarily of certain expenses associated with our secondary offerings and our Initial Public Offering and other offering costs in 2016 as well as certain corporate development activity, including the RowdMap Acquisition. |
(d) |
Represents expense related to equity incentive awards granted to certain employees, officers and non-employee directors as long-term incentive compensation and restricted stock issued in connection with the RowdMap Acquisition. We recognize the related expense for these awards ratably over the vesting period or as achievement of performance criteria become probable. |
(e) |
Represents loss on extinguishment of debt that consists primarily of fees paid and write-offs of unamortized debt issuance costs and original issue discount in connection with the 2017 repricing of our First Lien Term B Loan, the 2016 early repayment of a portion of our long-term debt and the 2016 refinancing of our long-term debt. |
Investor and Media Contact
Cotiviti Holdings, Inc.
Jennifer DiBerardino
Vice President, Investor Relations
203-642-0718
Investor.Relations@Cotiviti.commailto:Investor.relations@cotiviti.com
Media@Cotiviti.com
9
Exhibit 99.2
|
2017 Third Quarter Financial Supplement Analytics. Insight. Value. As of September 30, 2017 |
|
Cotiviti Holdings, Inc. 2017 Revenue by Segment Change Change Healthcare $ 88,396 $ 78,133 13 % $ 252,538 $ 224,335 13 % 62,628 57,233 9 % 184,365 169,632 9 % 5,195 3,104 67 % 10,678 9,676 10 % Total Healthcare 156,219 138,470 13 % 447,581 403,643 11 % Global Retail and Other 17,470 17,039 3 % 52,529 51,730 2 % Other 499 732 (32) % 1,822 1,877 (3) % Total Global Retail and Other 17,969 17,771 1 % 54,351 53,607 1 % $ 174,188 $ 156,241 11 % $ 501,932 $ 457,250 10 % Nine Months Ended September 30, 2017 2016 2016 2017 Three Months Ended September 30, Consolidated Net Revenue (unaudited, $ in thousands) Retrospective claims accuracy Prospective claims accuracy Transaction services Retrospective claims accuracy |
|
Cotiviti Holdings, Inc. 2017 Consolidated Statement of Operations (unaudited, $ in thousands) Change Change Net revenue $ 174,188 $ 156,241 11 % 501,932 457,250 10 % Cost of revenue 65,081 65,175 NM % 193,048 184,594 5 % Selling, general and administrative expenses 46,475 46,474 NM % 128,911 118,934 8 % Depreciation and amortization of property and equipment 6,070 5,218 16 % 17,541 14,864 18 % Amortization of intangible assets 14,747 15,203 (3) % 45,147 45,618 (1) % Transaction-related expenses 773 16 NM % 2,165 909 138 % Total Operating Expenses 133,146 132,086 1 % 386,812 364,919 6 % Operating income 41,042 24,155 70 % 115,120 92,331 25 % Other expense (income) 8,652 18,861 (54) % 27,785 55,991 (50) % Income tax expense 12,918 711 NM % 19,800 12,780 55 % Net Income $ 19,472 $ 4,583 325 % $ 67,535 $ 23,560 187 % Earnings per share: Basic $ 0.21 $ 0.05 $ 0.74 $ 0.28 Diluted 0.20 0.05 0.71 0.27 Effective Tax Rate 39.9 % 13.4 % 22.7% 35.2% Cost of revenue $ 638 $ 4,153 (85) % $ 1,598 $ 4,738 (66) % Selling, general and administrative expenses 5,114 12,889 (60) % 8,692 16,806 (48) % Total Stock-Based Compensation $ 5,752 $ 17,042 (66) % $ 10,290 $ 21,544 (52) % 2017 2016 Nine Months Ended September 30, Stock-based Compensation (included within the lines shown above) Three Months Ended September 30, 2017 2016 |
|
Cotiviti Holdings, Inc. 2017 Adjusted EBITDA (Non-GAAP) Represents other non-operating (income) expense that consists primarily of interest income and gains and losses on transactions settled in foreign currencies. Income received for certain sub-leases is included herein. Represents transaction-related expenses that consist primarily of certain expenses associated with our secondary offerings and our Initial Public Offering and other offering costs in 2016 as well as certain corporate development activity, including the RowdMap Acquisition. Represents expense related to equity incentive awards granted to certain employees, officers and non‑employee directors as long‑term incentive compensation and restricted stock issued in connection with the RowdMap Acquisition. We recognize the related expense for these awards ratably over the vesting period or as achievement of performance criteria become probable. Represents loss on extinguishment of debt that consists primarily of fees paid and write-offs of unamortized debt issuance costs and original issue discount in connection with the 2017 repricing of our First Lien Term B Loan, the 2016 early repayment of a portion of our long-term debt and the 2016 refinancing of our long-term debt. Change Change Net Income $ 19,472 $ 4,583 325 % $ 67,535 $ 23,560 187 % Adjustments to net income: Depreciation and amortization 20,817 20,421 2 % 62,688 60,482 4 % Interest expense 9,101 9,625 (5) % 26,060 40,345 (35) % Other non-operating (income) expense (a) (449) (113) 299 % (1,458) (771) 89 % Income tax expense 12,918 711 NM % 19,800 12,780 55 % Transaction-related expenses and other (b) 773 16 NM % 2,165 909 138 % Stock-based compensation (c) 5,752 17,042 (66) % 10,290 21,544 (52) % Loss on extinguishment of debt (d) - 9,349 (100) % 3,183 16,417 (81) % Adjusted EBITDA $ 68,384 $ 61,634 11 % $ 190,263 $ 175,266 9 % % of revenue 39.3% 39.4% 37.9% 38.3% 2016 Nine Months Ended September 30, (unaudited, $ in thousands) Three Months Ended September 30, 2017 2016 2017 |
|
Cotiviti Holdings, Inc. 2017 Adjusted Net Income (Non-GAAP) Represents loss on extinguishment of debt that consists primarily of fees paid and write-offs of unamortized debt issuance costs and original issue discount in connection with the 2017 repricing of our First Lien Term B Loan, the 2016 early repayment of a portion of our long-term debt and the 2016 refinancing of our long-term debt. Represents transaction-related expenses that consist primarily of certain expenses associated with our secondary offerings and our Initial Public Offering and other offering costs in 2016 as well as certain corporate development activity, including the RowdMap Acquisition. Represents expense related to equity incentive awards granted to certain employees, officers and non‑employee directors as long‑term incentive compensation. We recognize the related expense for these awards ratably over the vesting period. Represents expense related to restricted stock issued in connection with the RowdMap Acquisition. We recognize the related expense for these awards ratably over the vesting period or as achievement of performance criteria become probable. This line represents the tax impact of the amortization of acquired intangible assets - tax deductible, loss on extinguishment of debt and stock-based compensation – tax deductible. The tax rate assumed is 38% and 40% for the three and nine months ended September 30, 2017 and 2016, respectively. Change Change Net Income $ 19,472 $ 4,583 325 % $ 67,535 $ 23,560 187 % Adjustments to net income: Amortization of acquired intangible assets - non tax deductible 11,191 10,402 8 % 31,995 31,206 3 % Amortization of acquired intangible assets - tax deductible 3,556 4,801 (26) % 13,152 14,412 (9) % Loss on extinguishment of debt (a) - 9,349 (100) % 3,183 16,417 (81) % Transaction-related expenses and other (b) 773 16 NM % 2,165 909 138 % Stock-based compensation - tax deductible (c) 1,786 17,042 (90) % 6,324 21,544 (71) % Stock-based compensation - non tax deductible (d) 3,966 - NM % 3,966 - NM % Tax effect of above adjustments (e) (2,030) (12,476) (84) % (8,611) (20,949) (59) % Tax benefit related to stock option exercises (1,833) - NM % (14,874) - NM % Adjusted Net Income $ 36,881 $ 33,717 9 % $ 104,835 $ 87,099 20 % Weighted average shares of common stock - Diluted (000s) 95,266 93,954 1 % 95,151 86,858 10 % Adjusted Net Income per Diluted Share $ 0.39 $ 0.36 8 % $ 1.10 $ 1.00 10 % (unaudited, $ in thousands) 2017 2016 2017 2016 Nine Months Ended September 30, Three Months Ended September 30, |
|
Cotiviti Holdings, Inc. 2017 Adjusted EBITDA Guidance (Non-GAAP) Represents other non-operating (income) expense that consists primarily of interest income and gains and losses on transactions settled in foreign currencies. Income received for certain sub-leases is included herein. Income tax expense for 2017 assumes an effective tax rate of approximately 38% excluding the impact of the benefit related to stock option exercises that have actually occurred through September 30, 2017. Represents transaction-related expenses that consist primarily of certain expenses associated with our secondary offerings and our Initial Public Offering and other offering costs in 2016 as well as certain corporate development activity, including the RowdMap Acquisition. Represents expense related to equity incentive awards granted to certain employees, officers and non-employee directors as long-term incentive compensation and restricted stock issued in connection with the RowdMap Acquisition. We recognize the related expense for these awards ratably over the vesting period or as achievement of performance criteria become probable. Represents loss on extinguishment of debt that consists primarily of fees paid and write-offs of unamortized debt issuance costs and original issue discount in connection with the 2017 repricing of our First Lien Term B Loan, the 2016 early repayment of a portion of our long-term debt and the 2016 refinancing of our long-term debt. (unaudited, in millions) Low High Net income 91 $ 95 $ Adjustments to net income: Depreciation and amortization 85 83 Interest expense 35 35 Other non-operating (income) expense (a) (2) (3) Income tax expense (b) 34 36 Transaction-related expenses and other (c) 2 2 Stock-based compensation (d) 17 17 Loss on extinguishment of debt (e) 3 3 Adjusted EBITDA 265 $ 268 $ |
|
Cotiviti Holdings, Inc. Cash Flow Data Free cash flow is a non-GAAP financial measure. Therefore, it should not be considered a substitute for income or cash flow data prepared in accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other companies. The Company defines free cash flow as net cash provided by operating activities less capital expenditures. It should not be inferred that the entire free cash flow amount is available for discretionary expenditures. Management believes free cash flow is meaningful as it is used by management and investors as a measure and indicator of the financial strength of the company and its ability to generate cash. Operating Cash Flow $ 107,163 $ 108,345 Capex 23,610 22,578 Free Cash Flow (a) $ 83,553 $ 85,767 (unaudited, $ in thousands) Nine Months Ended September 30, 2017 2016 |
|
Cotiviti Holdings, Inc. Consolidated Balance Sheet Data ($ in thousands) September 30, 2017 December 31, 2016 (unaudited) Cash and cash equivalents $ 123,008 $ 110,635 Total assets 2,072,225 2,002,263 Total long-term debt (a) 771,592 780,202 Total liabilities 1,041,359 1,062,927 Total stockholders’ equity 1,030,866 939,336 Net debt leverage 2.6x 2.9x Working capital 70,951 31,037 a) Includes the current portion of our long-term debt and is net of debt issuance costs. |
|
0 Analytics. Insight. Value. |
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