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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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02-0698101
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification Number)
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|
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401 North Michigan Avenue Suite 2700 Chicago, Illinois
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60611
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(Address of principal executive offices)
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(Zip code)
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Large accelerated filer
o
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Accelerated filer
þ
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Non-accelerated filer
o
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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Part I. Financial Information
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|
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Consolidated Financial Statements
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||
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Condensed Consolidated Balance Sheets as of September 30, 2015 (unaudited) and December 31, 2014
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|
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Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (unaudited) — For the Three and Nine Months ended September 30, 2015 and 2014
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Condensed Consolidated Statements of Cash Flows (unaudited) — For the Nine Months ended September 30, 2015 and 2014
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Notes to Condensed Consolidated Financial Statements (unaudited)
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Part II.
Other Information
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|
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SIGNATURES
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||
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EXHIBIT INDEX
|
|
ITEM 1.
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CONSOLIDATED FINANCIAL STATEMENTS
|
|
September 30,
2015 |
|
December 31,
2014 |
||||
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(Unaudited)
|
|
|
||||
Assets
|
|
|
|
||||
Current assets:
|
|
|
|
|
|
||
Cash and cash equivalents
|
$
|
137,716
|
|
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$
|
145,167
|
|
Restricted cash
|
—
|
|
|
5,000
|
|
||
Accounts receivable, net
|
5,137
|
|
|
4,438
|
|
||
Prepaid income taxes
|
5,425
|
|
|
6,138
|
|
||
Current deferred tax assets
|
99,987
|
|
|
62,322
|
|
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Other current assets
|
7,798
|
|
|
7,389
|
|
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Total current assets
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256,063
|
|
|
230,454
|
|
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Property, equipment and software, net
|
26,579
|
|
|
14,594
|
|
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Non-current deferred tax assets
|
208,278
|
|
|
201,163
|
|
||
Goodwill and other assets, net
|
6
|
|
|
162
|
|
||
Total assets
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$
|
490,926
|
|
|
$
|
446,373
|
|
Liabilities and stockholders' equity (deficit)
|
|
|
|
||||
Current liabilities:
|
|
|
|
|
|
||
Accounts payable
|
$
|
6,340
|
|
|
$
|
12,488
|
|
Current portion of customer liabilities
|
348,828
|
|
|
219,998
|
|
||
Accrued compensation and benefits
|
15,290
|
|
|
14,983
|
|
||
Other accrued expenses
|
12,261
|
|
|
15,680
|
|
||
Total current liabilities
|
382,719
|
|
|
263,149
|
|
||
Non-current portion of customer liabilities
|
323,293
|
|
|
317,065
|
|
||
Other non-current liabilities
|
8,421
|
|
|
8,405
|
|
||
Total liabilities
|
714,433
|
|
|
588,619
|
|
||
Stockholders' equity (deficit):
|
|
|
|
|
|
||
Common stock, $0.01 par value, 500,000,000 shares authorized,108,673,951 shares issued and 103,387,953 shares outstanding at September 30, 2015; 102,890,241 shares issued and 98,112,019 shares outstanding at December 31, 2014
|
1,087
|
|
|
1,029
|
|
||
Additional paid-in capital
|
317,543
|
|
|
307,075
|
|
||
Accumulated deficit
|
(487,220
|
)
|
|
(397,517
|
)
|
||
Accumulative other comprehensive loss
|
(2,465
|
)
|
|
(1,763
|
)
|
||
Treasury stock
|
(52,452
|
)
|
|
(51,070
|
)
|
||
Total stockholders' equity (deficit)
|
(223,507
|
)
|
|
(142,246
|
)
|
||
Total liabilities and stockholders’ equity (deficit)
|
$
|
490,926
|
|
|
$
|
446,373
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
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2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
|
(Unaudited)
|
|
(Unaudited)
|
||||||||||||
Net services revenue
|
$
|
15,842
|
|
|
$
|
90,745
|
|
|
$
|
48,898
|
|
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$
|
162,684
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|||||
Costs of services
|
45,326
|
|
|
45,370
|
|
|
130,284
|
|
|
138,251
|
|
||||
Selling, general and administrative
|
21,395
|
|
|
16,785
|
|
|
59,726
|
|
|
53,609
|
|
||||
Restatement and other
|
3,964
|
|
|
13,846
|
|
|
5,850
|
|
|
67,907
|
|
||||
Total operating expenses
|
70,685
|
|
|
76,001
|
|
|
195,860
|
|
|
259,767
|
|
||||
Income (loss) from operations
|
(54,843
|
)
|
|
14,744
|
|
|
(146,962
|
)
|
|
(97,083
|
)
|
||||
Net interest income
|
73
|
|
|
100
|
|
|
147
|
|
|
252
|
|
||||
Income (loss) before income tax provision
|
(54,770
|
)
|
|
14,844
|
|
|
(146,815
|
)
|
|
(96,831
|
)
|
||||
Income tax provision (benefit)
|
(21,800
|
)
|
|
5,291
|
|
|
(57,112
|
)
|
|
(34,862
|
)
|
||||
Net income (loss)
|
$
|
(32,970
|
)
|
|
$
|
9,553
|
|
|
$
|
(89,703
|
)
|
|
$
|
(61,969
|
)
|
Net Income (loss) per common share:
|
|
|
|
|
|
|
|
||||||||
Basic
|
$
|
(0.34
|
)
|
|
$
|
0.10
|
|
|
$
|
(0.93
|
)
|
|
$
|
(0.65
|
)
|
Diluted
|
$
|
(0.34
|
)
|
|
$
|
0.10
|
|
|
$
|
(0.93
|
)
|
|
$
|
(0.65
|
)
|
Weighted average shares used in calculating net income (loss) per common share:
|
|
|
|||||||||||||
Basic
|
97,230,069
|
|
95,775,597
|
|
96,358,342
|
|
95,750,887
|
|
|||||||
Diluted
|
97,230,069
|
|
97,250,282
|
|
96,358,342
|
|
95,750,887
|
|
|||||||
Consolidated statements of comprehensive income (loss):
|
|
|
|
|
|
|
|
||||||||
Net income (loss)
|
(32,970
|
)
|
|
9,553
|
|
|
(89,703
|
)
|
|
(61,969
|
)
|
||||
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
||||||||
Foreign currency translation adjustments
|
(429
|
)
|
|
(253
|
)
|
|
(702
|
)
|
|
6
|
|
||||
Comprehensive income (loss)
|
$
|
(33,399
|
)
|
|
$
|
9,300
|
|
|
$
|
(90,405
|
)
|
|
$
|
(61,963
|
)
|
|
Nine Months Ended
September 30, |
||||||
|
2015
|
|
2014
|
||||
|
(Unaudited)
|
||||||
Operating activities:
|
|
|
|
|
|
||
Net loss
|
$
|
(89,703
|
)
|
|
$
|
(61,969
|
)
|
Adjustments to reconcile net loss to net cash provided by (used in) operations:
|
|
|
|||||
Depreciation and amortization
|
6,556
|
|
|
4,279
|
|
||
Share-based compensation
|
22,974
|
|
|
22,992
|
|
||
Loss on disposal
|
—
|
|
|
234
|
|
||
Recoveries for doubtful receivables
|
(79
|
)
|
|
(455
|
)
|
||
Deferred income taxes
|
(58,567
|
)
|
|
(33,869
|
)
|
||
Excess tax benefits from share-based awards
|
—
|
|
|
(176
|
)
|
||
Changes in operating assets and liabilities:
|
|
|
|
||||
Accounts receivable
|
(621
|
)
|
|
16,539
|
|
||
Prepaid income taxes
|
632
|
|
|
2,646
|
|
||
Other assets
|
(334
|
)
|
|
(2,328
|
)
|
||
Accounts payable
|
(6,108
|
)
|
|
685
|
|
||
Accrued compensation and benefits
|
311
|
|
|
1,960
|
|
||
Other liabilities
|
(3,648
|
)
|
|
(4,228
|
)
|
||
Customer liabilities
|
135,058
|
|
|
21,840
|
|
||
Net cash provided by (used in) operating activities
|
6,471
|
|
|
(31,850
|
)
|
||
Investing activities:
|
|
|
|
||||
Purchases of property, equipment and software
|
(18,304
|
)
|
|
(3,206
|
)
|
||
Net cash used in investing activities
|
(18,304
|
)
|
|
(3,206
|
)
|
||
Financing activities:
|
|
|
|
|
|||
Exercise of vested options
|
1,331
|
|
|
—
|
|
||
Restricted cash released from letter of credit
|
5,000
|
|
|
—
|
|
||
Excess tax benefit from share-based awards
|
—
|
|
|
176
|
|
||
Purchase of treasury stock
|
(1,382
|
)
|
|
(280
|
)
|
||
Net cash provided by (used in) financing activities
|
4,949
|
|
|
(104
|
)
|
||
Effect of exchange rate changes on cash
|
(567
|
)
|
|
18
|
|
||
Net decrease in cash and cash equivalents
|
(7,451
|
)
|
|
(35,142
|
)
|
||
Cash and cash equivalents at beginning of period
|
145,167
|
|
|
228,891
|
|
||
Cash and cash equivalents at end of period
|
$
|
137,716
|
|
|
$
|
193,749
|
|
|
|
|
|
||||
Supplemental disclosure of non-cash investing activities
|
|
|
|
||||
Other liabilities related to purchases of property, equipment and software
|
$
|
348
|
|
|
$
|
—
|
|
|
|
|
|
•
|
Level 1:
Observable inputs such as quoted prices in active markets for identical assets and liabilities;
|
•
|
Level 2:
Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
|
•
|
Level 3:
Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
|
|
|
September 30, 2015
|
|
December 31, 2014
|
||||
|
|
(Unaudited)
|
|
|
||||
Level 1 assets
|
|
|
|
|
||||
Money market funds with maturities of less than 90 days
|
|
—
|
|
|
137,802
|
|
||
Total
|
|
$
|
—
|
|
|
$
|
137,802
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
|
(unaudited)
|
|
(unaudited)
|
||||||||||||
Beginning balance
|
$
|
112
|
|
|
$
|
253
|
|
|
$
|
314
|
|
|
$
|
740
|
|
(Recoveries)/Provision
|
(34
|
)
|
|
39
|
|
|
(79
|
)
|
|
(455
|
)
|
||||
Write-offs
|
(12
|
)
|
|
—
|
|
|
(169
|
)
|
|
7
|
|
||||
Ending balance
|
$
|
66
|
|
|
$
|
292
|
|
|
$
|
66
|
|
|
$
|
292
|
|
|
September 30, 2015
|
|
December 31, 2014
|
||||
|
(unaudited)
|
|
|
||||
Computer and other equipment
|
$
|
20,711
|
|
|
$
|
17,701
|
|
Leasehold improvements
|
17,598
|
|
|
12,491
|
|
||
Software
|
20,687
|
|
|
12,398
|
|
||
Office furniture
|
4,903
|
|
|
3,152
|
|
||
Property, equipment and software, gross
|
63,899
|
|
|
45,742
|
|
||
Less: Accumulated depreciation and amortization
|
(37,320
|
)
|
|
(31,148
|
)
|
||
Property, equipment and software, net
|
$
|
26,579
|
|
|
$
|
14,594
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
|
(unaudited)
|
|
(unaudited)
|
||||||||||||
Cost of services
|
$
|
2,491
|
|
|
$
|
1,053
|
|
|
$
|
5,799
|
|
|
$
|
3,142
|
|
Selling, general and administration
|
247
|
|
|
350
|
|
|
757
|
|
|
1,137
|
|
||||
Total depreciation and amortization
|
$
|
2,738
|
|
|
$
|
1,403
|
|
|
$
|
6,556
|
|
|
$
|
4,279
|
|
|
September 30,
|
|
December 31,
|
||||
|
2015
|
|
2014
|
||||
|
(unaudited)
|
|
|
||||
Deferred customer billings, current
|
$
|
234,436
|
|
|
$
|
132,063
|
|
Accrued service costs, current
|
96,237
|
|
|
68,077
|
|
||
Customer deposits, current
|
18,027
|
|
|
19,675
|
|
||
Deferred revenue, current
|
128
|
|
|
183
|
|
||
Current portion of customer liabilities
|
348,828
|
|
|
219,998
|
|
||
|
|
|
|
||||
Deferred customer billings, non-current
|
323,293
|
|
|
317,065
|
|
||
Total customer liabilities
|
$
|
672,121
|
|
|
$
|
537,063
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
|
(unaudited)
|
|
(unaudited)
|
||||||||||||
Share-based Compensation Expense Allocation Details:
|
|
|
|
|
|
|
|
||||||||
Cost of services
|
$
|
3,152
|
|
|
$
|
1,736
|
|
|
$
|
5,756
|
|
|
$
|
5,614
|
|
Selling, general and administrative
|
9,163
|
|
|
3,488
|
|
|
19,562
|
|
|
10,077
|
|
||||
Restatement and other
|
—
|
|
|
144
|
|
|
—
|
|
|
8,049
|
|
||||
Total share-based compensation expense (1)
|
$
|
12,315
|
|
|
$
|
5,368
|
|
|
$
|
25,318
|
|
|
$
|
23,740
|
|
|
Nine Months Ended September 30,
|
||
|
2015
|
|
2014
|
Future dividends
|
—
|
|
—
|
Risk-free interest rate
|
1.5% to 2.0%
|
|
1.9% to 2.2%
|
Expected volatility
|
50% to 68%
|
|
50%
|
Expected life
|
6.25 years
|
|
6.25 to 7.00 years
|
Forfeitures
|
5.68% annually
|
|
5.68% annually
|
|
Shares
|
|
Weighted-Average Exercise Price
|
|||
Outstanding at January 1, 2015
|
19,924,405
|
|
|
$
|
10.91
|
|
Granted
|
2,201,189
|
|
|
5.64
|
|
|
Exercised
|
(1,230,281
|
)
|
|
1.08
|
|
|
Canceled
|
(3,889,964
|
)
|
|
14.25
|
|
|
Forfeited
|
(983,712
|
)
|
|
8.43
|
|
|
Outstanding at September 30, 2015
|
16,021,637
|
|
|
$
|
10.28
|
|
Outstanding and vested at September 30, 2015
|
9,052,988
|
|
|
$
|
11.69
|
|
Outstanding and vested at December 31, 2014
|
11,879,209
|
|
|
$
|
11.73
|
|
|
|
|
Weighted-Average Grant Date Fair Value
|
|||
|
Shares
|
|
||||
Outstanding at January 1, 2015
|
2,477,465
|
|
|
$
|
8.71
|
|
Granted
|
4,553,429
|
|
|
3.48
|
|
|
Vested
|
(842,183
|
)
|
|
7.29
|
|
|
Forfeited
|
(219,286
|
)
|
|
8.22
|
|
|
Outstanding at September 30, 2015
|
5,969,425
|
|
|
$
|
4.94
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
|
(unaudited)
|
|
(unaudited)
|
||||||||||||
Reorganization liability, beginning balance
|
$
|
844
|
|
|
$
|
2,982
|
|
|
$
|
3,454
|
|
|
$
|
1,143
|
|
Restructuring charges
|
2,428
|
|
|
1,953
|
|
|
2,428
|
|
|
16,292
|
|
||||
Cash payments
|
(852
|
)
|
|
(1,562
|
)
|
|
(3,462
|
)
|
|
(6,157
|
)
|
||||
Non-cash payments
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,905
|
)
|
||||
Reorganization liability, ending balance
|
$
|
2,420
|
|
|
$
|
3,373
|
|
|
$
|
2,420
|
|
|
$
|
3,373
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
|
(unaudited)
|
|
(unaudited)
|
||||||||||||
Net income (loss)
|
$
|
(32,970
|
)
|
|
$
|
9,553
|
|
|
$
|
(89,703
|
)
|
|
$
|
(61,969
|
)
|
Basic weighted-average common shares
|
97,230,069
|
|
|
95,775,597
|
|
|
96,358,342
|
|
|
95,750,887
|
|
||||
Add: Effect of dilutive securities
|
—
|
|
|
1,474,685
|
|
|
—
|
|
|
—
|
|
||||
Diluted weighted average common shares
|
97,230,069
|
|
|
97,250,282
|
|
|
96,358,342
|
|
|
95,750,887
|
|
||||
Net income (loss) per common share (basic)
|
$
|
(0.34
|
)
|
|
$
|
0.10
|
|
|
$
|
(0.93
|
)
|
|
$
|
(0.65
|
)
|
Net income (loss) per common share (diluted)
|
$
|
(0.34
|
)
|
|
$
|
0.10
|
|
|
$
|
(0.93
|
)
|
|
$
|
(0.65
|
)
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
|
Three Months Ended September 30,
|
|
2015 vs. 2014
Change
|
|
Nine Months Ended September 30,
|
|
2015 vs. 2014
Change
|
||||||||||||||||||||||
|
2015
|
|
2014
|
|
Amount
|
|
%
|
|
2015
|
|
2014
|
|
Amount
|
|
%
|
||||||||||||||
|
(In thousands except percentages)
|
||||||||||||||||||||||||||||
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
RCM services: net operating fees
|
$
|
6,232
|
|
|
$
|
37,861
|
|
|
$
|
(31,629
|
)
|
|
(83.5
|
)%
|
|
$
|
19,402
|
|
|
$
|
62,817
|
|
|
$
|
(43,415
|
)
|
|
(69.1
|
)%
|
RCM services: incentive fees
|
1,017
|
|
|
45,970
|
|
|
(44,953
|
)
|
|
(97.8
|
)%
|
|
9,022
|
|
|
75,076
|
|
|
(66,054
|
)
|
|
(88.0
|
)%
|
||||||
RCM services: other
|
5,359
|
|
|
1,858
|
|
|
3,501
|
|
|
n.m.
|
|
|
9,591
|
|
|
5,787
|
|
|
3,804
|
|
|
65.7
|
%
|
||||||
Other service fees
|
3,234
|
|
|
5,056
|
|
|
(1,822
|
)
|
|
(36.0
|
)%
|
|
10,883
|
|
|
19,004
|
|
|
(8,121
|
)
|
|
(42.7
|
)%
|
||||||
Total net services revenue
|
15,842
|
|
|
90,745
|
|
|
(74,903
|
)
|
|
(82.5
|
)%
|
|
48,898
|
|
|
162,684
|
|
|
(113,786
|
)
|
|
(69.9
|
)%
|
||||||
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Cost of services
|
45,326
|
|
|
45,370
|
|
|
(44
|
)
|
|
(0.1
|
)%
|
|
130,284
|
|
|
138,251
|
|
|
(7,967
|
)
|
|
(5.8
|
)%
|
||||||
Selling, general and administrative
|
21,395
|
|
|
16,785
|
|
|
4,610
|
|
|
27.5
|
%
|
|
59,726
|
|
|
53,609
|
|
|
6,117
|
|
|
11.4
|
%
|
||||||
Restatement and other
|
3,964
|
|
|
13,846
|
|
|
(9,882
|
)
|
|
(71.4
|
)%
|
|
5,850
|
|
|
67,907
|
|
|
(62,057
|
)
|
|
(91.4
|
)%
|
||||||
Total operating expenses
|
70,685
|
|
|
76,001
|
|
|
(5,316
|
)
|
|
(7.0
|
)%
|
|
195,860
|
|
|
259,767
|
|
|
(63,907
|
)
|
|
(24.6
|
)%
|
||||||
Income (loss) from operations
|
(54,843
|
)
|
|
14,744
|
|
|
(69,587
|
)
|
|
n.m
|
|
|
(146,962
|
)
|
|
(97,083
|
)
|
|
(49,879
|
)
|
|
51.4
|
%
|
||||||
Net interest income
|
73
|
|
|
100
|
|
|
(27
|
)
|
|
(27.0
|
)%
|
|
147
|
|
|
252
|
|
|
(105
|
)
|
|
(41.7
|
)%
|
||||||
Net income (loss) before income tax provision
|
(54,770
|
)
|
|
14,844
|
|
|
(69,614
|
)
|
|
n.m
|
|
|
(146,815
|
)
|
|
(96,831
|
)
|
|
(49,984
|
)
|
|
51.6
|
%
|
||||||
Income tax provision (benefit)
|
(21,800
|
)
|
|
5,291
|
|
|
(27,091
|
)
|
|
n.m
|
|
|
(57,112
|
)
|
|
(34,862
|
)
|
|
(22,250
|
)
|
|
63.8
|
%
|
||||||
Net income (loss)
|
$
|
(32,970
|
)
|
|
$
|
9,553
|
|
|
$
|
(42,523
|
)
|
|
n.m
|
|
|
$
|
(89,703
|
)
|
|
$
|
(61,969
|
)
|
|
$
|
(27,734
|
)
|
|
44.8
|
%
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||||||
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Non-GAAP Measures:
|
(in thousands)
|
||||||||||||||
Adjusted EBITDA
|
$
|
(35,826
|
)
|
|
$
|
35,217
|
|
|
$
|
(109,238
|
)
|
|
$
|
(9,206
|
)
|
Net cash generated from customer contracting activities
|
$
|
3,715
|
|
|
$
|
3,396
|
|
|
$
|
(637
|
)
|
|
$
|
983
|
|
Gross cash generated from customer contracting activities
|
$
|
55,383
|
|
|
$
|
58,924
|
|
|
$
|
157,499
|
|
|
$
|
172,873
|
|
•
|
Gross and net cash generated from customer contracting activities include invoiced or accrued net operating fees, and invoiced as well as collected incentive fees which may be subject to adjustment or concession prior to the end of a contract or "other contractual agreement event";
|
•
|
Gross and net cash generated from customer contracting activities include progress billings on incentive fees that have been collected for a number of our RCM contracts. These progress billings have, from time-to-time, been subject to adjustments, and the fees included in these non-GAAP measures may be subject to adjustments in the future;
|
•
|
Net cash generated from customer contracting activities and adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;
|
•
|
Net cash generated from customer contracting activities and adjusted EBITDA do not reflect share-based compensation expense;
|
•
|
Net cash generated from customer contracting activities and adjusted EBITDA do not reflect income tax expenses or cash requirements to pay taxes;
|
•
|
Although depreciation and amortization charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and net cash generated from customer contracting activities and adjusted EBITDA do not reflect cash requirements for such replacements or other purchase commitments, including lease commitments; and
|
•
|
Other companies in our industry may calculate gross or net cash generated from customer contracting activities or adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
|
|
Three Months Ended September 30,
|
|
2015 vs. 2014 Change
|
|
Nine Months Ended September 30,
|
|
2015 vs. 2014 Change
|
||||||||||||||||||||||
|
2015
|
|
2014
|
|
Amount
|
|
%
|
|
2015
|
|
2014
|
|
Amount
|
|
%
|
||||||||||||||
Net income (loss)
|
$
|
(32,970
|
)
|
|
$
|
9,553
|
|
|
$
|
(42,523
|
)
|
|
n.m
|
|
|
$
|
(89,703
|
)
|
|
$
|
(61,969
|
)
|
|
$
|
(27,734
|
)
|
|
44.8
|
%
|
Net interest income
|
(73
|
)
|
|
(100
|
)
|
|
27
|
|
|
(27.0
|
)%
|
|
(147
|
)
|
|
(252
|
)
|
|
105
|
|
|
(41.7
|
)%
|
||||||
Income tax provision (benefit)
|
(21,800
|
)
|
|
5,291
|
|
|
(27,091
|
)
|
|
n.m
|
|
|
(57,112
|
)
|
|
(34,862
|
)
|
|
(22,250
|
)
|
|
63.8
|
%
|
||||||
Depreciation and amortization expense
|
2,738
|
|
|
1,403
|
|
|
1,335
|
|
|
95.2
|
%
|
|
6,556
|
|
|
4,279
|
|
|
2,277
|
|
|
53.2
|
%
|
||||||
Share-based compensation expense (1)
|
12,315
|
|
|
5,224
|
|
|
7,091
|
|
|
n.m.
|
|
|
25,318
|
|
|
15,691
|
|
|
9,627
|
|
|
61.4
|
%
|
||||||
Restatement and other (2)
|
3,964
|
|
|
13,846
|
|
|
(9,882
|
)
|
|
(71.4
|
)%
|
|
5,850
|
|
|
67,907
|
|
|
(62,057
|
)
|
|
(91.4
|
)%
|
||||||
Adjusted EBITDA
|
(35,826
|
)
|
|
35,217
|
|
|
(71,043
|
)
|
|
n.m
|
|
|
(109,238
|
)
|
|
(9,206
|
)
|
|
(100,032
|
)
|
|
n.m
|
|
||||||
Change in deferred customer billings (3)
|
39,541
|
|
|
(31,821
|
)
|
|
71,362
|
|
|
n.m
|
|
|
108,601
|
|
|
10,189
|
|
|
98,412
|
|
|
n.m
|
|
||||||
Net cash generated from customer contracting activities
|
$
|
3,715
|
|
|
$
|
3,396
|
|
|
$
|
319
|
|
|
9.4
|
%
|
|
$
|
(637
|
)
|
|
$
|
983
|
|
|
$
|
(1,620
|
)
|
|
n.m.
|
|
Net services revenue (GAAP basis)
|
$
|
15,842
|
|
|
$
|
90,745
|
|
|
$
|
(74,903
|
)
|
|
(82.5
|
)%
|
|
$
|
48,898
|
|
|
162,684
|
|
|
$
|
(113,786
|
)
|
|
(69.9
|
)%
|
|
Change in deferred customer billings (3)
|
39,541
|
|
|
(31,821
|
)
|
|
71,362
|
|
|
n.m
|
|
|
108,601
|
|
|
10,189
|
|
|
98,412
|
|
|
n.m
|
|
||||||
Gross cash generated from customer contracting activities
|
$
|
55,383
|
|
|
$
|
58,924
|
|
|
$
|
(3,541
|
)
|
|
(6.0
|
)%
|
|
$
|
157,499
|
|
|
$
|
172,873
|
|
|
$
|
(15,374
|
)
|
|
(8.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Components of Gross Cash Generated from Customer Contracting Activities:
|
|
|
|
|
|
|
|||||||||||||||||||||||
RCM services: net operating fee
|
$
|
31,522
|
|
|
$
|
26,454
|
|
|
$
|
5,068
|
|
|
19.2
|
%
|
|
$
|
88,761
|
|
|
$
|
90,684
|
|
|
$
|
(1,923
|
)
|
|
(2.1
|
)%
|
RCM services: incentive fee
|
14,859
|
|
|
25,556
|
|
|
(10,697
|
)
|
|
(41.9
|
)%
|
|
47,501
|
|
|
57,398
|
|
|
(9,897
|
)
|
|
(17.2
|
)%
|
||||||
RCM services: other
|
5,768
|
|
|
1,218
|
|
|
4,550
|
|
|
n.m
|
|
|
10,354
|
|
|
4,147
|
|
|
6,207
|
|
|
n.m.
|
|
||||||
Total RCM service fees
|
52,149
|
|
|
53,228
|
|
|
$
|
(1,079
|
)
|
|
(2.0
|
)%
|
|
146,616
|
|
|
152,229
|
|
|
$
|
(5,613
|
)
|
|
(3.7
|
)%
|
||||
Other service fees
|
3,234
|
|
|
5,696
|
|
|
(2,462
|
)
|
|
(43.2
|
)%
|
|
10,883
|
|
|
20,644
|
|
|
(9,761
|
)
|
|
(47.3
|
)%
|
||||||
Gross cash generated from customer contracting activities
|
$
|
55,383
|
|
|
$
|
58,924
|
|
|
$
|
(3,541
|
)
|
|
(6.0
|
)%
|
|
$
|
157,499
|
|
|
$
|
172,873
|
|
|
$
|
(15,374
|
)
|
|
(8.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Share-based compensation expense represents the expense associated with stock options and restricted shares granted, as reflected in our Condensed Consolidated Statements of Operations and Comprehensive Income. See Note 7, Share-Based Compensation, to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for the detail of the amounts of share-based compensation expense.
|
(2)
|
Restatement and other costs are comprised of reorganization-related, Restatement-related and certain other costs. For the three months ended September 30, 2015 and 2014, we incurred Restatement-related costs of $0.2 million and $6.8 million, respectively. For the nine months ended September 30, 2015 and 2014, we incurred $2.4 million and $45.5 million, respectively, in Restatement-related costs. The costs incurred during the three and nine months ended September 30, 2015 and 2014 were due to professional services fees related to our Restatement. For both the three and nine months ended September 30, 2015, we incurred reorganization-related costs of $2.4 million. For the three and nine months ended September 30, 2014, we incurred reorganization-related costs of $2.0 million and $16.3 million, respectively. These costs included severance payments, healthcare benefits, and outplacement job training in connection with a reduction in workforce in certain corporate, administrative and management functions in 2014 and 2015. During the three and nine months ended September 30, 2015, we incurred other costs of $1.4 million and $1.1 million, respectively, primarily related to $1.4 million in costs incurred related to the exploration of potential strategic alternatives during the three months ended September 30, 2015, offset during the nine months ended September 30, 2015 by a decrease of $0.3 million in employment tax expense relating to prior years during the six months ended June 30, 2015. During the three and nine months ended
September 30, 2014
, we incurred other costs
|
(3)
|
Deferred customer billings include the portion of both (i) invoiced or accrued net operating fees and (ii) cash collections on incentive fees, in each case, that have not met our revenue recognition criteria. Deferred customer billings are included in the detail of our customer liabilities account in the condensed consolidated balance sheet. Deferred customer billings are reduced by revenue recognized when revenue recognition occurs. Change in deferred customer billings represents the net change in the cumulative net operating fees and incentive fees that have not met revenue recognition criteria.
|
|
Nine Months Ended
|
||||||
|
September 30,
|
||||||
Cash Flows
|
2015
|
|
2014
|
||||
Net cash provided by (used in):
|
|
|
|
|
|
||
Operating activities
|
$
|
6,471
|
|
|
$
|
(31,850
|
)
|
Investing activities
|
(18,304
|
)
|
|
(3,206
|
)
|
||
Financing activities
|
4,949
|
|
|
(104
|
)
|
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
ITEM 4.
|
CONTROLS AND PROCEDURES
|
•
|
adopted new accounting policies for revenue recognition and software capitalization;
|
•
|
established a contract governance committee to oversee all contracting activity;
|
•
|
appointed experienced professionals to key leadership positions;
|
•
|
established a new reporting structure with more clearly defined accountabilities;
|
•
|
implemented a new internal reporting model and performance metrics based on cash flow performance;
|
•
|
centralized certain accounting functions and revised organizational structures to enhance accurate reporting and ensure appropriate accountability;
|
•
|
hired additional accounting personnel with appropriate backgrounds and skill sets, including professionals with certified public accountant qualifications, master’s degrees and public accounting experience and created new positions for a Director of Revenue and a Director of Taxes;
|
•
|
completed the implementation of a more robust contract governance structure to assure appropriate administration, compliance and accounting treatment for new or amended contract terms;
|
•
|
established a contracting boundaries protocol to clarify the delegation of contracting authority to personnel involved in establishing customer contract terms;
|
•
|
established a formal delegation of authority from the Board of Directors to management with further delegation to accountable personnel;
|
•
|
expanded the use of our financial reporting systems to facilitate more robust analysis of operating performance, budgeting and forecasting;
|
•
|
strengthened our current disclosure committee with formalized processes to enhance the transparency of our external financial reporting;
|
•
|
restructured key revenue, cost and related reimbursement accounting policies and processes; and
|
•
|
executed our financial account closing and the financial statement preparation process in a timely and accurate manner.
|
•
|
establishing additional programs to provide appropriate accounting and controls training to financial, operations and sales staff and corporate executives on an ongoing basis; and
|
•
|
continue executing our Sarbanes-Oxley compliance procedures.
|
ITEM 1.
|
LEGAL PROCEEDINGS
|
ITEM 1A.
|
RISK FACTORS
|
ITEM 2.
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
Date of Grant
|
|
Common Stock Subject to Options Granted
|
|
Exercise Price
|
|
Number of
Employees and
Directors Granted
Options
|
||||
7/1/2015
|
|
22,900
|
|
|
$
|
5.45
|
|
|
4
|
|
7/2/2015
|
|
5,558
|
|
|
$
|
5.40
|
|
|
1
|
|
7/23/2015
|
|
100,000
|
|
|
$
|
2.39
|
|
|
1
|
|
|
|
128,458
|
|
|
|
|
|
Date of Grant
|
|
Number of Restricted Common Stock Granted
|
|
Number of
Employees and
Directors Granted Restricted Stock
|
||
7/9/2015
|
|
1,825,946
|
|
|
175
|
|
7/23/2015
|
|
345,063
|
|
|
4
|
|
8/17/2015
|
|
2,382,420
|
|
|
7
|
|
|
|
4,553,429
|
|
|
|
Period
|
Number of
Shares Purchased (1)
|
|
Average Price Paid per Share
|
|
Total Number of
Shares Purchased
as Part of
Publicly
Announced Plans
or Programs(2)
|
|
Maximum Dollar
Value of Shares
that May Yet be
Purchased Under
Publicly
Announced Plans
or Programs (2)
|
|||||||
July 1, 2015 through July 31, 2015
|
|
227,873
|
|
|
$
|
5.34
|
|
|
—
|
|
|
$
|
50,000
|
|
August 1, 2015 through August 31, 2015
|
|
38,886
|
|
|
$
|
2.70
|
|
|
—
|
|
|
$
|
50,000
|
|
September 1, 2015 through September 30, 2015
|
|
21,731
|
|
|
$
|
2.73
|
|
|
—
|
|
|
$
|
50,000
|
|
(1)
|
Repurchases of our common stock related to employees’ tax withholding upon vesting of RSAs. See Note 7, Share-Based Compensation, to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
|
(2)
|
On November 13, 2013, our board of directors announced that it authorized, subject to the completion of the Restatement, the repurchase of up to $50.0 million of our common stock from time to time in the open market or in privately negotiated transactions, or the 2013 Repurchase Program. The timing and amount of any shares repurchased under the 2013 Repurchase Program will be determined by our management based on its evaluation of market conditions and other factors. The 2013 Repurchase Program may be suspended or discontinued at any time. We currently intend to fund any repurchases from cash on hand. We did not repurchase any shares of common stock under the 2013 Repurchase Program during the quarter ended September 30, 2015.
|
ITEM 6.
|
EXHIBITS
|
Exhibit
Number
|
Exhibit Description
|
3.1
|
Certificate of Amendment and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No. 001-34746) filed on August 20, 2015)
|
3.2
|
Amendment No. 1 to the Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K (File No. 001-34746) filed on August 20, 2015)
|
10.1
|
Amended and Restated 2010 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-34746) filed on August 20, 2015)
|
10.2
|
Retention Bonus and Enhanced Severance Agreement, dated August 12, 2015, between Registrant and Emad Rizk
|
10.3
|
Amendment to Retention and Severance Bonus Agreement, dated October 19, 2015, between Registrant and Emad Rizk
|
10.4
|
Retention Bonus and Enhanced Severance Agreement, dated August 12, 2015, between Registrant and Peter Csapo
|
10.5
|
Retention Bonus and Enhanced Severance Agreement, dated August 12, 2015, between Registrant and Joseph Flanagan
|
31.1
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
31.2
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
32.1
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
32.2
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
101.INS
|
XBRL Instance Document
|
101.SCH
|
XBRL Schema Document
|
101.CAL
|
XBRL Calculation Linkbase Document
|
101.LAB
|
XBRL Labels Linkbase Document
|
101.DEF
|
XBRL Taxonomy Extension Document
|
101.PRE
|
XBRL Presentation Linkbase Document
|
Date:
|
November 9, 2015
|
ACCRETIVE HEALTH, INC
|
|
|
(Registrant)
|
|
|
|
|
|
|
|
By:
|
/s/ Emad Rizk
|
|
|
Emad Rizk
|
|
|
President and Chief Executive Officer
|
|
|
|
|
|
|
|
By:
|
/s/ Peter P. Csapo
|
|
|
Peter P. Csapo
|
|
|
Chief Financial Officer and Treasurer
|
|
|
|
1.
|
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
2.
|
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
1.
|
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
2.
|
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|