Cotiviti Holdings: Striving for Payment Accuracy

August 31 2016

Cotiviti Holdings (NYSE: COTV), based in Atlanta, Georgia, is a recent addition to our Battle Road IPO Review Business Services sector coverage. The company provides payment accuracy solutions in the form of analytics and services to the healthcare and retail industries. For 2016, Consensus estimates call for revenue of $614 million, followed by a 10 percent increase in 2017 to $676 million. EPS is expected to be $1.30 this year, followed by $1.36 in 2017, an increase of just five percent.

Cotiviti is the result of the May 2014 merger between Connolly Superholdings, a provider of post-payment accuracy solutions for the healthcare and retail sectors, and iHealth Technologies, a provider of pre-payment accuracy solutions for the healthcare sector. The leveraged merger was managed by Advent International, which now owns roughly 65 percent of the outstanding shares.

COTV priced its 12.5 million share IPO at $19 per share on the NYSE on May 25, 2016. All proceeds from the IPO went to the company, thus raising roughly $225 million, net of underwriter and other fees. The IPO was led by Goldman Sachs, J.P. Morgan, Barclays, Citigroup, Credit Suisse, Morgan Stanley, RBC Capital Markets, SunTrust Robinson Humphrey, R.W. Baird, and William Blair. At a recent share price of $33, COTV’s market cap is roughly $3 billion.

Cotiviti’s solutions help healthcare providers identify claim discrepancies throughout the claims process, from pre to post payment. Also referred to as recovery auditing, solutions from Cotiviti help government agencies and companies recover erroneous payments made to suppliers and customers. The US healthcare sector accounts for roughly 85 percent of the company’s revenue, and eight of the top 10 US healthcare providers are customers in some shape or form. Over 40 healthcare organizations utilize the company’s services, including Medicare and Medicaid. The remaining 10-15 percent of sales is derived primarily from the retail sector. Cotiviti counts eight of the top ten US retailers as customers. Cotiviti claims that commercial healthcare clients realized over $2.5 billion in savings utilizing its solutions in 2015, up from $2 billion in 2014.

Cotiviti has indicated that its ten largest healthcare customers on average have been customers of the company for ten years. That said, the company has significant customer concentration, as its top three customers accounted for 32 percent of sales in 2015, and its top ten customers comprised 59 percent of sales in 2015. Prior to its IPO Cotiviti had a net debt position of nearly $1 billion. Thus, it is not surprising that the company recently used proceeds from its IPO as well as cash from operations to pay down $238 million of its second lien credit facility. To learn more about where COTV trades in relation to its Business Services peers within our Battle Road IPO Review, please contact Battle Road Research.