Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

Commission file number 1-34435

 

 

EMDEON INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Delaware   20-5799664

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

3055 Lebanon Pike, Suite 1000

Nashville, TN

  37214
(Address of Principal Executive Offices)   (Zip Code)

(615) 932-3000

(Registrant’s Telephone Number, Including Area Code)

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

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

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   x  (Do not check if a smaller reporting company)    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  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

Class

 

Outstanding as of July 24, 2015

Common Stock, $0.01 par value   100

 

* The registrant is a voluntary filer of certain reports required to be filed by companies under Section 13 or 15(d) of the Securities and Exchange Act of 1934 and has filed all reports that would have been required to have been filed by the registrant during the preceding 12 months had it been subject to such filing requirements during the entirety of such period.

 

 

 


Table of Contents

Emdeon Inc.

Table of Contents

 

Part I. Financial Information

  

Item 1. Financial Statements

     3   

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

     36   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     50   

Item 4. Controls and Procedures

     51   

Part II. Other Information

  

Item 1. Legal Proceedings

     51   

Item 1A. Risk Factors

     51   

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

     51   

Item 3. Defaults Upon Senior Securities

     51   

Item 4. Mine Safety Disclosures

     51   

Item 5. Other Information

     51   

Item 6. Exhibits

     51   

Signatures

     52   

Exhibit Index

     53   


Table of Contents
PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

Emdeon Inc.

Condensed Consolidated Balance Sheets

(unaudited and amounts in thousands, except share and per share amounts)

 

     June 30,
2015
    December 31,
2014
 
ASSETS   

Current assets:

    

Cash and cash equivalents

   $ 160,376      $ 82,306   

Accounts receivable, net of allowance for doubtful accounts of $3,470 and $6,377 at June 30, 2015 and December 31, 2014, respectively

     234,140        233,791   

Deferred income tax assets

     14,055        18,893   

Prepaid expenses and other current assets

     29,939        29,246   
  

 

 

   

 

 

 

Total current assets

     438,510        364,236   

Property and equipment, net

     222,392        244,153   

Goodwill

     1,697,891        1,702,569   

Intangible assets, net

     1,484,772        1,539,394   

Other assets, net

     18,849        20,312   
  

 

 

   

 

 

 

Total assets

   $ 3,862,414      $ 3,870,664   
  

 

 

   

 

 

 
LIABILITIES AND EQUITY   

Current liabilities:

    

Accounts payable

   $ 21,896      $ 16,399   

Accrued expenses

     196,494        175,206   

Deferred revenues

     10,636        10,518   

Current portion of long-term debt

     27,133        27,308   
  

 

 

   

 

 

 

Total current liabilities

     256,159        229,431   

Long-term debt, excluding current portion

     2,137,214        2,146,597   

Deferred income tax liabilities

     378,488        413,227   

Tax receivable agreement obligations to related parties

     172,780        163,983   

Other long-term liabilities

     12,858        15,361   

Commitments and contingencies

    

Equity:

    

Common stock (par value, $.01), 100 shares authorized and outstanding at June 30, 2015 and December 31, 2014, respectively

     —          —     

Additional paid-in capital

     1,150,667        1,149,360   

Accumulated other comprehensive income (loss)

     (2,590     (1,955

Accumulated deficit

     (243,162     (245,340
  

 

 

   

 

 

 

Total equity

     904,915        902,065   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 3,862,414      $ 3,870,664   
  

 

 

   

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

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Table of Contents

Emdeon Inc.

Condensed Consolidated Statements of Operations

(unaudited and amounts in thousands)

 

      Three Months
Ended June 30,
2015
    Three Months
Ended June 30,
2014
    Six Months
Ended June 30,
2015
    Six Months
Ended June 30,
2014
 

Revenue:

        

Solutions revenue

   $ 263,805      $ 249,077      $ 522,216      $ 485,211   

Postage revenue

     90,996        87,081        178,280        170,154   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     354,801        336,158        700,496        655,365   

Costs and expenses:

        

Cost of operations (exclusive of depreciation and amortization below)

     121,288        115,499        242,474        227,832   

Development and engineering

     10,123        7,062        20,949        15,968   

Sales, marketing, general and administrative

     46,973        52,738        95,237        103,911   

Customer postage

     90,996        87,081        178,280        170,154   

Depreciation and amortization

     49,515        46,630        97,629        93,093   

Accretion

     3,818        4,844        8,797        4,768   

Impairment of long-lived assets

     122        76,508        961        79,576   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     31,966        (54,204     56,169        (39,937

Interest expense, net

     38,135        36,543        76,143        73,106   

Contingent consideration

     1,850        (290     (165     1,670   

Other

     —          (3,971     —          (3,971
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax provision (benefit)

     (8,019     (86,486     (19,809     (110,742

Income tax provision (benefit)

     (15,947     (26,959     (21,987     (48,226
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 7,928      $ (59,527   $ 2,178      $ (62,516
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

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Table of Contents

Emdeon Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(unaudited and amounts in thousands)

 

      Three Months
Ended June 30,
2015
     Three Months
Ended June 30,
2014
    Six Months
Ended June 30,
2015
    Six Months
Ended June 30,
2014
 

Net income (loss)

   $ 7,928       $ (59,527     2,178        (62,516

Other comprehensive income (loss):

         

Changes in fair value of interest rate swap, net of taxes

     109         (735     (451     (859

Foreign currency translation adjustment

     92         100        (184     27   
  

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     201         (635     (635     (832
  

 

 

    

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss)

   $ 8,129       $ (60,162   $ 1,543      $ (63,348
  

 

 

    

 

 

   

 

 

   

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

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Emdeon Inc.

Condensed Consolidated Statements of Equity

(unaudited and amounts in thousands, except share amounts)

 

     Common Stock      Additional
Paid-in
    Accumulated     Accumulated
Other
Comprehensive
    Total  
     Shares      Amount      Capital     Deficit     Income (Loss)     Equity  

Balance at January 1, 2014

     100      $ —         $ 1,139,375     $ (169,486   $ (1,343   $ 968,546  

Equity compensation expense

     —           —           3,682       —          —          3,682  

Repurchase of Parent common stock

     —           —           (869     —          —          (869

Capital contribution from Parent

     —           —           2,092       —          —          2,092  

Net income (loss)

     —           —           —          (62,516     —          (62,516

Foreign currency translation adjustment

     —           —           —          —          27       27  

Change in fair value of interest rate swap, net of taxes

     —           —           —          —          (859     (859
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2014

     100      $ —         $ 1,144,280     $ (232,002   $ (2,175   $ 910,103  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at January 1, 2015

     100      $ —         $ 1,149,360     $ (245,340   $ (1,955   $ 902,065  

Equity compensation expense

     —           —           4,183       —          —          4,183  

Issuance of shares in connection with equity compensation plans, net of taxes

     —           —           305       —          —          305  

Repurchase of Parent common stock

     —           —           (3,681     —          —          (3,681

Capital contribution from Parent

     —           —           500       —          —          500  

Net income (loss)

     —           —           —          2,178       —          2,178  

Foreign currency translation adjustment

     —           —           —          —          (184     (184

Change in fair value of interest rate swap, net of taxes

     —           —           —          —          (451     (451
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2015

     100      $ —         $ 1,150,667     $ (243,162   $ (2,590   $ 904,915  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

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Emdeon Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited and amounts in thousands)

 

     Six Months Ended
June 30, 2015
    Six Months Ended
June 30, 2014
 

Operating activities

    

Net income (loss)

   $ 2,178      $ (62,516

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

    

Depreciation and amortization

     97,629        93,093   

Accretion

     8,797        4,768   

Equity compensation

     4,183        3,682   

Deferred income tax expense (benefit)

     (23,213     (48,695

Amortization of debt discount and issuance costs

     4,579        3,843   

Contingent consideration

     (165     1,670   

Impairment of long-lived assets

     961        79,576   

Other

     —          (2,029

Changes in operating assets and liabilities:

    

Accounts receivable

     (1,420     (25,648

Prepaid expenses and other

     (1,084     (7,251

Accounts payable

     6,293        1,237   

Accrued expenses, deferred revenue and other liabilities

     24,860        (7,897
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     123,598        33,833   
  

 

 

   

 

 

 

Investing activities

    

Purchases of property and equipment

     (24,654     (25,952

Proceeds/(payments) for acquisitions, net of cash acquired

     824        (779

Other

     (90     36   
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (23,920     (26,695
  

 

 

   

 

 

 

Financing activities

    

Payments on Term Loan Facility

     (7,240     (7,669

Payment of debt assumed from acquisition

     —          (1,877

Deferred financing obligation payments

     (5,939     (4,176

Repurchase of Parent common stock

     (3,681     (869

Capital contribution from Parent

     805        2,092   

Payment of Contingent Consideration

     (5,553     —     
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (21,608     (12,499
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     78,070        (5,361

Cash and cash equivalents at beginning of period

     82,306        76,538   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 160,376      $ 71,177   
  

 

 

   

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

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Table of Contents

Emdeon Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited and amounts in thousands, except share and per share amounts)

1. Nature of Business and Organization

Nature of Business

Emdeon Inc. (the “Company”), through its subsidiaries, is a provider of software and analytics, network solutions and technology-enabled services that optimize communications, payments and actionable insights by leveraging its intelligent healthcare platform, which includes one of the largest financial and administrative networks in the United States healthcare system. The Company’s platform and solutions integrate and automate key functions of its payer, provider and pharmacy customers throughout the patient encounter, from consumer engagement and pre-care eligibility and enrollment through payment.

Organization

The Company was formed as a Delaware limited liability company in September 2006 and converted into a Delaware corporation in September 2008 in anticipation of the Company’s August 2009 initial public offering (the “IPO”). On November 2, 2011, pursuant to an Agreement and Plan of Merger among the Company, Beagle Parent Corp. (“Parent”) and Beagle Acquisition Corp. (“Merger Sub”), Merger Sub merged with and into the Company with the Company surviving the merger (the “Merger”). Subsequent to the Merger, the Company became an indirect wholly-owned subsidiary of Parent, which is controlled by affiliates of The Blackstone Group L.P. (“Blackstone”).

2. Basis of Presentation

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the Securities and Exchange Commission (“SEC”) Guidelines, Rules and Regulations (“Regulation S-X”) and, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of results for the unaudited interim periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. The results of operations for the interim period are not necessarily indicative of the results to be obtained for the full fiscal year. All material intercompany accounts and transactions have been eliminated in the unaudited condensed consolidated financial statements.

Reclassifications

Certain reclassifications have been made to the prior period financial statements to conform to the current period presentation.

Effective January 1, 2015, the Company completed an internal reorganization of its reporting structure which resulted in a change in the composition of its reportable segments to software and analytics, network solutions and technology-enabled services. Prior period segment information has been restated to reflect the current organizational structure.

Effective January 1, 2015, in order to clarify the nature of its customer related postage activities, the Company also created separate captions on the statement of operations within revenue and costs and expenses, respectively. Previously, such amounts were included within revenue and costs of operations. To conform to the current period presentation, costs of operations were reduced by $87,081 and $170,154 and reclassified as customer postage for the three and six months ended June 30, 2014, respectively.

Accounting Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company bases its estimates on historical experience, current business factors and various other assumptions that the Company believes are necessary to consider in order to form a basis for making judgments about the carrying values of assets and liabilities, the recorded amounts of revenue and expenses and disclosure of contingent assets and liabilities. The Company is subject to uncertainties such as the impact of future events, economic, environmental and political factors and changes in the Company’s business environment; therefore, actual results could differ materially from these estimates. Accordingly, the accounting estimates used in the preparation of the Company’s financial statements will change as new events occur, as more

 

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Table of Contents

Emdeon Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited and amounts in thousands, except share and per share amounts)

 

experience is acquired, as additional information is obtained and as the Company’s operating environment changes. Changes in estimates are made when circumstances warrant. Such changes in estimates and refinements in estimation methodologies are reflected in the reported results of operations; and if material, the effects of changes in estimates are disclosed in the notes to the consolidated financial statements. Estimates and assumptions by management affect: the allowance for doubtful accounts; the fair value assigned to assets acquired and liabilities assumed in business combinations; tax receivable agreement obligations; the fair value of interest rate swap obligations; contingent consideration; loss accruals; the carrying value of long-lived assets (including goodwill and intangible assets); the amortization period of long-lived assets (excluding goodwill); the carrying value, capitalization and amortization of software development costs; the provision and benefit for income taxes and related deferred tax accounts; certain accrued expenses; revenue recognition; contingencies; and the value attributed to equity awards.

Business Combinations

The preliminary values of the consideration transferred, assets acquired and liabilities assumed in the recent Change Healthcare Corporation and Adminisource Communications, Inc. acquisitions, including the related tax effects, remain subject to receipt of a final valuation and finalization of tax amounts.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, which replaces most prior general and industry specific revenue recognition guidance with a principles-based comprehensive revenue recognition framework. Under this revised framework, a company will recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. This update is effective for fiscal years and interim periods beginning in those years after December 15, 2017. Early adoption is permitted in years beginning after December 15, 2016. Upon adoption, a company may elect to either retrospectively restate each prior reporting period or reflect the cumulative effect of initially applying the update with an adjustment to retained earnings. The Company is currently assessing the potential effects this update may have on its consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-12, which clarifies, in the context of share-based payment awards, that a performance target that affects vesting and could be achieved after the requisite service period has been rendered should be treated as a performance condition. Prior to this update, because there was no explicit guidance, there was diversity in practice among companies. This update is effective for fiscal years and interim periods within those years beginning after December 15, 2015, with early adoption permitted. The Company does not expect the adoption of this update to have a material effect on its consolidated financial statements.

In January 2015, the Company adopted FASB ASU No. 2014-08, which changes the requirements for reporting discontinued operations. Following adoption of this update, discontinued operations generally will be reported for the disposal by sale or otherwise of a component or a group of components that represents a strategic shift that has or will have a major effect on an entity’s operations and financial results. Upon adoption, this update had no effect on the Company’s consolidated financial statements

In April 2015, the FASB issued ASU No. 2015-03, which requires that debt issue costs related to a debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. This update is required to be applied on a retrospective basis wherein the balance sheet of each individual period presented must be adjusted to reflect the period specific effects of applying this new guidance. This update is effective for fiscal years and interim periods within those years beginning after December 31, 2015, with early adoption permitted. The Company expects to adopt this update effective July 1, 2015. If the update were adopted as of June 30, 2015, other assets within the consolidated balance sheet and long-term debt, excluding current portion would be reduced by $9,911.

In April 2015, the FASB issued ASU No. 2015-05, which provides guidance to customers about whether a cloud computing arrangement includes a software license and requires that all software licenses utilized in internal use software arrangements be accounted for consistent with other licenses of intangible assets. This update is effective for fiscal years and interim periods within those years beginning after December 31, 2015, with early adoption permitted. Upon adoption, a company may elect to apply the update prospectively to all arrangements entered into or materially modified after the effective date or retrospectively. The Company expects to adopt this update prospectively on all new or materially modified arrangements effective July 1, 2015 but does not expect the adoption of this update to have a material effect on its consolidated financial statements.

 

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Emdeon Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited and amounts in thousands, except share and per share amounts)

 

3. Concentration of Credit Risk

The Company’s revenue is primarily generated in the United States. Changes in economic conditions, government regulations or demographic trends, among other matters, in the United States could adversely affect the Company’s revenue and results of operations.

The Company maintains its cash and cash equivalent balances in either insured depository accounts or money market mutual funds. The money market mutual funds are limited to investments in low-risk securities such as United States or government agency obligations, or repurchase agreements secured by such securities.

4. Long-Term Debt

In November 2011, the Company entered into a credit agreement which was comprised of a senior secured term loan facility (as amended, the “Term Loan Facility”), a revolving credit facility (the “Revolving Facility”; together with the Term Loan Facility, the “Senior Credit Facilities”), 11% senior notes due 2019 (the “2019 Notes”) and 11.25% senior notes due 2020 (the “2020 Notes”; together with the 2019 Notes, the “Senior Notes”).

Long-term debt as of June 30, 2015 and December 31, 2014, consisted of the following:

 

     June 30,     December 31,  
     2015     2014  

Senior Credit Facilities

    

$1,301 million Senior Secured Term Loan facility, due November 2, 2018, net of unamortized discount of $11,162 and $12,740 at June 30, 2015 and December 31, 2014, respectively (effective interest rate of 4.21%)

   $ 1,247,790      $ 1,252,652   

$160 million Senior Secured Term Loan facility, due November 2, 2018, net of unamortized discount of $2,078 and $2,369 at June 30, 2015 and December 31, 2014, respectively (effective interest rate of 4.56%)

     156,722        157,231   

$125 million Senior Secured Revolving Credit facility, expiring on November 2, 2016 and bearing interest at a variable base rate plus a spread rate

     —          —     

Senior Notes

    

$375 million 11% Senior Notes due December 31, 2019, net of unamortized discount of $6,207 and $6,720 at June 30, 2015 and December 31, 2014, respectively (effective interest rate of 11.53%)

     368,793        368,280   

$375 million 11.25% Senior Notes due December 31, 2020, net of unamortized discount of $8,113 and $8,624 at June 30, 2015 and December 31, 2014, respectively (effective interest rate of 11.86%)

     366,887        366,376   

Obligation under data sublicense agreement

     17,242        17,237   

Other

     6,913        12,129   

Less current portion

     (27,133     (27,308
  

 

 

   

 

 

 

Long-term debt

   $ 2,137,214      $ 2,146,597   
  

 

 

   

 

 

 

Senior Credit Facilities

The credit agreement governing the Senior Credit Facilities (the “Senior Credit Agreement”) provides that, subject to certain conditions, the Company may request additional tranches of term loans, increase commitments under the Revolving Facility or the Term Loan Facility or add one or more incremental revolving credit facility tranches (provided that the revolving credit commitments outstanding at any time have no more than three different maturity dates) in an aggregate amount not to exceed (a) $300,000 plus (b) an unlimited amount at any time, subject to compliance on a pro forma basis with a first lien net leverage ratio of no greater than 4.00 to 1.00. Availability of such additional tranches of term loans or

 

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Emdeon Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited and amounts in thousands, except share and per share amounts)

 

revolving credit facilities and/or increased commitments is subject to, among other conditions, the absence of any default under the Senior Credit Agreement and the receipt of commitments by existing or additional financial institutions. Proceeds of the Revolving Facility, including up to $30,000 in the form of borrowings on same-day notice, referred to as swingline loans, and up to $50,000 in the form of letters of credits, are available to provide financing for working capital and general corporate purposes.

Borrowings under the Senior Credit Facilities bear interest at an annual rate equal to an applicable margin plus, at the Company’s option, either (a) a base rate determined by reference to the highest of (i) the applicable prime rate, (ii) the federal funds rate plus 0.50% and (iii) a LIBOR rate determined by reference to the costs of funds for United States dollar deposits for an interest period of one month, adjusted for certain additional costs, plus 1.00%, which base rate, in the case of the Term Loan Facility only, shall be no less than 2.25%, or (b) a LIBOR rate determined by reference to the costs of funds for United States dollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs, which, in the case of the Term Loan Facility only, shall be no less than 1.25%.

In April 2012, the Company amended the Senior Credit Agreement to reprice the Senior Credit Facilities and borrow $80,000 of additional term loans. In April 2013, the Company again amended the Senior Credit Agreement to further reprice, and also to modify certain financial covenants under the Senior Credit Facilities. Following the April 2013 amendment, the interest rate on both the Term Loan Facility and Revolving Facility is LIBOR plus 2.50%. The Term Loan Facility remains subject to a LIBOR floor of 1.25%, and there continues to be no LIBOR floor on the Revolving Facility. In connection with the April 2013 repricing, the Senior Credit Agreement also was amended to, among other things, eliminate the financial covenant related to the consolidated cash interest coverage ratio and modify the financial covenant related to the net leverage test by maintaining the required first lien net leverage ratio at 5.35 to 1.00 for the remaining term of the Senior Credit Facilities.

In December 2014, through another amendment to the Senior Credit Agreement, the Company borrowed an additional $160,000 under an incremental term loan facility on identical terms and having the same rights and obligations as the existing term loans under the Senior Credit Agreement.

In addition to paying interest on outstanding principal under the Senior Credit Facilities, the Company is required to pay customary agency fees, letter of credit fees and a 0.50% commitment fee in respect of the unutilized commitments under the Revolving Facility.

The Senior Credit Agreement requires that the Company prepay outstanding loans under the Term Loan Facility, subject to certain exceptions, with (a) 100% of the net cash proceeds of any incurrence of debt other than debt permitted under the Senior Credit Agreement, (b) 50% (which percentage will be reduced to 25% and 0% based on the Company’s first lien net leverage ratio) of the Company’s annual excess cash flow and (c) 100% of the net cash proceeds of certain asset sales and casualty and condemnation events, subject to reinvestment rights and certain other exceptions.

The Company generally may voluntarily prepay outstanding loans under the Senior Credit Facilities at any time without premium or penalty other than breakage costs with respect to LIBOR loans.

The Company is required to make quarterly payments equal to 0.25% of the aggregate principal amount of the loans under the Term Loan Facility, with the balance due and payable on November 2, 2018. Any principal amount outstanding under the Revolving Facility is due and payable on November 2, 2016.

Certain of the Company’s United States wholly-owned restricted subsidiaries, together with the Company, are co-borrowers and jointly and severally liable for all obligations under the Senior Credit Facilities. Such obligations of the co-borrowers are unconditionally guaranteed by Beagle Intermediate Holdings, Inc. (a direct wholly-owned subsidiary of Parent), the Company and each of its existing and future United States wholly-owned restricted subsidiaries (with certain exceptions including immaterial subsidiaries). These obligations are secured by a perfected security interest in substantially all of the assets of the co-borrowers and guarantors now owned or later acquired, including a pledge of all of the capital stock of the Company and its United States wholly-owned restricted subsidiaries and 65% of the capital stock of its foreign restricted subsidiaries, subject in each case to the exclusion of certain assets and additional exceptions.

 

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Emdeon Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited and amounts in thousands, except share and per share amounts)

 

The Senior Credit Agreement requires the Company to comply with a maximum first lien net leverage ratio financial maintenance covenant, to be tested on the last day of each fiscal quarter. A breach of the first lien net leverage ratio covenant is subject to certain equity cure rights. In addition, the Senior Credit Facilities contain a number of negative covenants that, among other things and subject to certain exceptions, restrict the Company’s ability and the ability of its subsidiaries to:

 

   

incur additional indebtedness or guarantees;

 

   

incur liens;

 

   

make investments, loans and acquisitions;

 

   

consolidate or merge;

 

   

sell assets, including capital stock of subsidiaries;

 

   

pay dividends on capital stock or redeem, repurchase or retire capital stock of the Company or any restricted subsidiary, subject to customary covenants, including compliance with leverage ratios and subject to limitation based on net income generated during the term of the Senior Credit Agreement;

 

   

alter the business of the Company;

 

   

amend, prepay, redeem or purchase subordinated debt;

 

   

engage in transactions with affiliates; and

 

   

enter into agreements limiting dividends and distributions of certain subsidiaries.

The Senior Credit Agreement also contains certain customary representations and warranties, affirmative covenants and provisions relating to events of default (including upon change of control).

As of June 30, 2015, the Company believes it was in compliance with all of the applicable debt covenants under the Senior Credit Agreement.

Senior Notes

The 2019 Notes bear interest at an annual rate of 11.00% with interest payable semi-annually on June 30 and December 31 of each year. The 2019 Notes mature on December 31, 2019. The 2020 Notes bear interest at an annual rate of 11.25% with interest payable quarterly on March 31, June 30, September 30 and December 31 of each year. The 2020 Notes mature on December 31, 2020.

The Company may redeem the 2019 Notes, the 2020 Notes or both, in whole or in part, at any time on or after December 31, 2015 at the applicable redemption price, plus accrued and unpaid interest. At any time prior to December 31, 2015, the Company may redeem the 2019 Notes, the 2020 Notes or both, in whole or in part, at its option and on one or more occasions, at a redemption price equal to 100% of the principal amount, plus an applicable premium and accrued and unpaid interest. If the Company experiences specific kinds of changes in control, it must offer to purchase the Senior Notes at a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest.

The Senior Notes are senior unsecured obligations and rank equally in right of payment with all of the Company’s existing and future indebtedness and senior in right of payment to all of its existing and future subordinated indebtedness. The Company’s obligations under the Senior Notes are guaranteed on a senior basis by all of its existing and subsequently acquired or organized wholly-owned United States restricted subsidiaries that guarantee the Senior Credit Facilities or its other indebtedness or indebtedness of any affiliate guarantor. The Senior Notes and the related guarantees are effectively subordinated to the Company’s existing and future secured obligations and that of its affiliate guarantors to the extent of the value of the collateral securing such obligations, and are structurally subordinated to all existing and future indebtedness and other liabilities of any of the Company’s subsidiaries that do not guarantee the Senior Notes.

The indentures governing the Senior Notes (the “Indentures”) contain customary covenants that restrict the ability of the Company and its restricted subsidiaries to:

 

   

pay dividends on our capital stock or redeem, repurchase or retire our capital stock, subject to customary covenants, including compliance with a fixed charge coverage ratio and subject to limitation based on net income generated during the term of the Indentures;

 

   

incur additional indebtedness or issue certain capital stock;

 

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Emdeon Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited and amounts in thousands, except share and per share amounts)

 

   

incur certain liens;

 

   

make investments, loans, advances and acquisitions;

 

   

consolidate, merge or transfer all or substantially all of their assets and the assets of their subsidiaries;

 

   

prepay subordinated debt;

 

   

engage in certain transactions with affiliates; and

 

   

enter into agreements restricting the subsidiaries’ ability to pay dividends.

The Indentures also contain certain customary affirmative covenants and events of default.

As of June 30, 2015, the Company believes it was in compliance with all of the applicable debt covenants under the Senior Notes.

Obligation Under Data Sublicense Agreement

In 2009 and 2010, the Company acquired certain additional rights to specified uses of its data from the former owner of the Company’s business in order to broaden the Company’s ability to pursue business intelligence and data analytics solutions for payers and providers. The Company previously licensed exclusive rights to this data to the former owner of the Company’s business. In connection with these data rights acquisitions, the Company recorded amortizable intangible assets and corresponding obligations at inception based on the present value of the scheduled annual payments through 2018, which totaled $65,000 in the aggregate (approximately $21,400 remained payable at June 30, 2015). In connection with the Merger, the Company was required to adjust this obligation to its fair value.

Other

From time to time, the Company enters into deferred financing arrangements with certain vendors. The obligations under such arrangements are generally recorded at the present value of the scheduled payments. Such future payments totaled approximately $6,900 at June 30, 2015.

5. Interest Rate Swap

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s borrowings.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. During the six months ended June 30, 2015, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt pursuant to the Term Loan Facility. As of June 30, 2015, the Company had three outstanding interest rate derivatives with a combined notional amount of $640,000 that were designated as cash flow hedges of interest rate risk.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is

 

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Emdeon Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited and amounts in thousands, except share and per share amounts)

 

recognized directly in earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the next twelve months, the Company estimates that an additional $2,573 will be reclassified as an increase to interest expense.

The following table summarizes the fair value of the Company’s derivative instruments at June 30, 2015 and December 31, 2014:

 

    

Fair Values of Derivative Instruments

Asset (Liability) Derivatives

 
    

Balance Sheet Location

   June 30,
2015
     December 31,
2014
 

Derivatives designated as hedging instruments:

        

Interest rate swaps

   Other assets    $ —         $ 222   

Interest rate swaps

   Accrued expenses      (1,922      (2,567

Interest rate swaps

   Other long-term liabilities      (1,190      —     
     

 

 

    

 

 

 
      $ (3,112    $ (2,345
     

 

 

    

 

 

 

Tabular Disclosure of the Effect of Derivative Instruments on the Statement of Operations

The effect of the derivative instruments on the accompanying unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2015 and 2014, respectively, is summarized in the following table:

 

      Three Months Ended
June 30,
     Three Months Ended
June 30,
     Six Months Ended
June 30,
     Six Months Ended
June 30,
 
     2015      2014      2015      2014  

Derivatives in Cash Flow Hedging Relationships

           

Gain/ (loss) related to effective portion of derivative recognized in other comprehensive loss

   $ (459    $ (1,897    $ (2,050    $ (2,745
  

 

 

    

 

 

    

 

 

    

 

 

 

Gain/ (loss) related to effective portion of derivative reclassified from accumulated other comprehensive loss to interest expense

   $ (645    $ (645    $ (1,283    $ (1,283
  

 

 

    

 

 

    

 

 

    

 

 

 

Credit Risk-related Contingent Features

The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company also could be declared in default on its derivative obligations.

As of June 30, 2015, the termination value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $3,814. If the Company had breached any of these provisions at June 30, 2015, the Company could have been required to settle its obligations under the agreements at this termination value. The Company does not offset any derivative instruments and the derivative instruments are not subject to collateral posting requirements.

 

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Emdeon Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited and amounts in thousands, except share and per share amounts)

 

6. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company’s assets and liabilities that are measured at fair value on a recurring basis consist of the Company’s derivative financial instruments and contingent consideration associated with business combinations. The table below summarizes these items as of June 30, 2015, aggregated by the level in the fair value hierarchy within which those measurements fall.

 

Description

   Balance at
June 30,
2015
     Quoted in
Markets
Identical (Level 1)
     Significant Other
Observable
Inputs (Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Interest rate swaps

   $ (3,112    $ —         $ (3,112    $ —     

Contingent consideration obligations

     (9,310      —           —           (9,310
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ (12,422    $ —         $ (3,112    $ (9,310
  

 

 

    

 

 

    

 

 

    

 

 

 

The valuation of the Company’s derivative financial instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivative, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The fair value of the interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments) using the overnight index swap rate as the discount rate.

The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements and measures the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs to evaluate the likelihood of default by itself and by its counterparties. As of June 30, 2015, the Company determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

The valuation of the Company’s contingent consideration obligations is estimated as the present value of total expected contingent consideration payments which are determined using a Monte Carlo simulation. This analysis reflects the contractual terms of the purchase agreements and utilizes assumptions with regard to future sales, probabilities of achieving such future sales, the likelihood and timing of expected payments and a discount rate. Significant increases with respect to assumptions as to future sales and probabilities of achieving such future sales would result in a higher fair value measurement, while an increase in the discount rate would result in a lower fair value measurement.

The table below presents a reconciliation of the fair value of the liabilities that use significant unobservable inputs (Level 3).

 

     Three Months Ended
June 30,
    Six Months Ended
Ended June 30,
 
     2015     2014     2015     2014  

Balance at beginning of period

   $ (7,460   $ (13,459   $ (17,486   $ (5,484

Adjustment of provisional amounts

     —          —          (50     —     

Issuance of contingent consideration

     —          —          —          (6,015

Settlement of contingent consideration

     —          —          8,061        —     

Total changes included in contingent consideration

     (1,850     290        165        (1,670
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ (9,310   $ (13,169   $ (9,310   $ (13,169
  

 

 

   

 

 

   

 

 

   

 

 

 

During April 2015, the Company exercised its option to terminate all future obligations under the Vieosoft, Inc. (“Vieosoft”) stock purchase agreement in exchange for a cash payment of $4,650 to the former stockholders of Vieosoft. This termination payment was not accepted and the former stockholders of Vieosoft have filed a lawsuit against the Company. The Company has reflected a liability of $4,650 within accrued expenses on the accompanying condensed consolidated balance sheet as of June 30, 2015.

 

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Emdeon Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited and amounts in thousands, except share and per share amounts)

 

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

During the six months ended June 30, 2014, the Company’s technology-enabled services segment received notice that its existing contract with a customer would not be renewed in full upon its expiration. As a result, the Company abandoned a customer related project that was under development and assessed the recoverability of the net assets included in the relevant asset group. The Company recognized an impairment charge, measured as of April 30, 2014, to write off the abandoned project and to adjust the carrying value of the asset group to its fair value. This latter impairment charge was generally allocated to the affected long-lived assets on a pro rata basis. Additionally, the Company abandoned certain network solutions and technology-enabled services segment development projects in connection with execution of certain strategic initiatives during the six months ended June 30, 2014.

The following table summarizes the affected financial statement captions, the allocation of the impairment charges among those captions and provides certain quantitative information associated with the required fair value measurements for the six months ended June 30, 2014.

 

     Range of Inputs   Fair Value      Impairment  

Long-lived assets to be held and used (Level 3)

       

Relevant asset group

   N/A   $ 13,066       $ 73,220   

Balance sheet account:

       

Customer relationships

   N/A     N/A       $ 72,290   

Property and equipment

   N/A     N/A       $ 930   

Unobservable inputs (discounted cash flow method):

       

Probability of contract extension

   80%     N/A         N/A   

Probability of new contract execution

   20%-90%     N/A         N/A   

Expected annual revenue range

   $3,080-$3,590     N/A         N/A   

Risk free interest rate

   1.6%     N/A         N/A   

Long-lived assets to be disposed of

       

Property and Equipment

   N/A   $ —         $ 3,040   

Assets and Liabilities Measured at Fair Value upon Initial Recognition

The carrying amount and the estimated fair value of financial instruments held by the Company as of June 30, 2015 were:

 

     Carrying
Amount
     Fair Value  

Cash and cash equivalents

   $ 160,376       $ 160,376   

Accounts receivable

   $ 234,140       $ 234,140   

Senior Credit Facilities (Level 1)

   $ 1,417,752       $ 1,413,811   

Senior Notes (Level 2)

   $ 750,000       $ 812,344   

The carrying amounts of cash equivalents and accounts receivable approximate fair value because of their short-term maturities. The fair value of long-term debt is based upon market quotes and trades by investors in partial interests of these instruments.

7. Legal Proceedings

In the normal course of business, the Company is involved in various claims and legal proceedings. While the ultimate resolution of these matters has yet to be determined, the Company does not believe that their outcomes will have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.

8. Income Taxes

In May 2015, the state of Tennessee enacted the Tennessee Revenue Modernization Act, which changed the manner in which the Company’s Tennessee apportionment is determined. This change in the Company’s Tennessee apportionment resulted in a change in the Company’s effective state income tax rate.

 

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Emdeon Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited and amounts in thousands, except share and per share amounts)

 

In January 2014, the Company effected a change in the tax status of EBS Master LLC (“EBS Master”) from a partnership to a corporation. Prior to the tax status change, the Company recognized a deferred tax liability for the difference in the book and tax basis of its investment in EBS Master (i.e. outside basis). Following the tax status change, the Company’s deferred tax balances reflect the differences in the book and tax bases of the individual assets and liabilities included in the corporation. In addition, as a result of the change in tax status, the Company was required to revise the apportionment of its income taxes among various state taxing jurisdictions.

After giving effect to the changes in the Company’s Tennessee apportionment and tax status and other items, income taxes for the six months ended June 30, 2015 amounted to an income tax benefit of $21,987 and an effective tax rate of 111.0%. The income tax benefit for the six months ended June 30, 2014, was $48,226 and resulted in an effective tax rate of 43.5%.

9. Tax Receivable Agreement Obligation to Related Parties

The Company is a party to tax receivable agreements which obligate it to make payments to certain of its current and former owners, including affiliates of Blackstone, Hellman & Friedman and certain members of management (collectively, the “TRA Members”), equal to 85% of the applicable cash savings that the Company realizes as a result of tax attributes arising from certain previous transactions, including the Merger. The Company will retain the benefit of the remaining 15% of these tax savings. The Company expects cumulative remaining payments under the tax receivable agreements of approximately $350,383. $173,724 of this amount, which reflected the initial fair value of the tax receivable agreement obligations plus recognized accretion, was reflected as an obligation on the accompanying unaudited condensed consolidated balance sheet at June 30, 2015.

10. Segment Reporting

Management views the Company’s operating results in three reportable segments: (a) software and analytics, (b) network solutions and (c) technology-enabled services. Listed below are the results of operations for each of the reportable segments. This information is reflected in the manner utilized by management to make operating decisions, assess performance and allocate resources. Such amounts include allocations of corporate shared services functions that are essential to the core operations of the reportable segments such as information technology, operations and product development functions. Segment assets and related depreciation expenses are not presented to management for purposes of operational decision making, and therefore are not included in the accompanying tables. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies in the notes to the Company’s audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2014 as filed with the SEC.

Software and Analytics

The software and analytics segment provides revenue cycle technology, revenue optimization, payment integrity, electronic payment, data and analytic and consumer engagement solutions.

Network Solutions

The network solutions segment provides financial and administrative information exchange solutions for medical, dental and pharmacy claims management and other standardized healthcare transactions, including clinical information exchange capabilities.

Technology-enabled Services

The technology-enabled services segment provides payment and communication, eligibility and enrollment, healthcare consulting, payment automation and pharmacy benefits administration solutions.

Corporate and Eliminations

Inter-segment revenue and expenses primarily represent claims management and payment and communication solutions provided between segments.

 

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Emdeon Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited and amounts in thousands, except share and per share amounts)

 

Corporate and eliminations includes pass-through postage costs, management, administrative and certain other shared corporate services functions such as legal, finance, human resources and marketing, as well as eliminations to remove inter-segment revenue and expenses. These administrative costs are excluded from the adjusted EBITDA measure for each respective operating segment.

 

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Emdeon Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited and amounts in thousands, except share and per share amounts)

 

The revenue and adjusted EBITDA for the operating segments are as follows:

 

     Three Months Ended June 30, 2015  
      Software and
Analytics
     Network
Solutions
     Technology-
enabled
Services
     Corporate
and
Eliminations
    Consolidated  

Revenue from external customers:

             

Solutions revenue

   $ 67,049      $ 92,691      $ 110,420      $ (6,355   $ 263,805  

Postage revenue

     —           —           —           90,996       90,996  

Inter-segment revenue

     255        70        1,168        (1,493     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Net revenue

   $ 67,304      $ 92,761      $ 111,588      $ 83,148     $ 354,801  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Income (loss) before income taxes

     22,079        46,797        40,602        (117,497     (8,019

Interest expense

     —           —           —           38,135       38,135  

Depreciation and amortization

     —           —           —           49,515       49,515  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

EBITDA

     22,079        46,797        40,602        (29,847     79,631  

Equity compensation

     310        141        199        1,348       1,998  

Acquisition accounting adjustments

     324        —           160        —          484  

Acquisition-related costs

     16        32        336        2,001       2,385  

Transaction-related costs and advisory fees

     —           —           —           1,662       1,662  

Strategic initiatives, duplicative and transition costs

     630        300        348        1,000       2,278  

Severance costs

     104        451        157        1,302       2,014  

Accretion

     —           —           —           3,818       3,818  

Impairment of long-lived assets

     —           60        111        (49     122  

Contingent consideration

     —           1,463        627        (240     1,850  

Other non-routine, net

     291        296        205        856       1,648  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

EBITDA Adjustments

     1,675        2,743        2,143        11,698       18,259  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Adjusted EBITDA

   $ 23,754      $ 49,540      $ 42,745      $ (18,149   $ 97,890  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

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Emdeon Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited and amounts in thousands, except share and per share amounts)

 

     Three Months Ended June 30, 2014  
     Software and
Analytics
     Network
Solutions
    Technology-
enabled
Services
    Corporate
and
Eliminations
    Consolidated  

Revenue from external customers:

           

Solutions revenue

   $ 61,888      $ 84,351     $ 108,916     $ (6,078   $ 249,077  

Postage revenue

     —           —          —          87,081       87,081  

Inter-segment revenue

     305        104       2,078       (2,487     —     
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

   $ 62,193      $ 84,455     $ 110,994     $ 78,516     $ 336,158  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     22,295        40,114       (36,679     (112,216     (86,486

Interest expense

     —           —          —          36,543       36,543  

Depreciation and amortization

     —           —          —          46,630       46,630  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     22,295        40,114       (36,679     (29,043     (3,313

Equity compensation

     160        141       284       1,205       1,790  

Acquisition accounting adjustments

     31        —          551       (358     224  

Acquisition-related costs

     16        10       12       1,651       1,689  

Transaction-related costs and advisory fees

     —           —          —          1,615       1,615  

Strategic initiatives, duplicative and transition costs

     66        17       34       4,190       4,307  

Severance costs

     30        80       321       542       973  

Accretion

     —           —          —          4,844       4,844  

Impairment of long-lived assets

     468        2,031       73,936       73       76,508  

Contingent consideration

     —           (290     —          —          (290

Other non-routine, net

     90        166       2,557       (829     1,984  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA Adjustments

     861        2,155       77,695       12,933       93,644  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 23,156      $ 42,269     $ 41,016     $ (16,110   $ 90,331  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

20


Table of Contents

Emdeon Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited and amounts in thousands, except share and per share amounts)

 

     Six Months Ended June 30, 2015  
     Software and
Analytics
     Network
Solutions
    Technology-
enabled
Services
     Corporate
and
Eliminations
    Consolidated  

Revenue from external customers:

            

Solutions revenue

   $ 132,918      $ 182,900     $ 219,170      $ (12,772   $ 522,216  

Postage revenue

     —           —          —           178,280       178,280  

Inter-segment revenue

     510        122       2,024        (2,656     —     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Net revenue

   $ 133,428      $ 183,022     $ 221,194      $ 162,852     $ 700,496  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Income (loss) before income taxes

     40,938        93,518       77,045        (231,310     (19,809

Interest expense

     —           —          —           76,143       76,143  

Depreciation and amortization

     —           —          —           97,629       97,629  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

EBITDA

     40,938        93,518       77,045        (57,538     153,963  

Equity compensation

     684        256       347        2,896       4,183  

Acquisition accounting adjustments

     606        2       318        —          926  

Acquisition-related costs

     33        52       828        2,241       3,154  

Transaction-related costs and advisory fees

     —           —          —           3,179       3,179  

Strategic initiatives, duplicative and transition costs

     704        354       371        1,806       3,235  

Severance costs

     328        310       2,164        1,316       4,118  

Accretion

     —           —          —           8,797       8,797  

Impairment of long-lived assets

     107        844       264        (254     961  

Contingent consideration

     —           (66     41        (140     (165

Other non-routine, net

     415        391       536        1,758       3,100  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

EBITDA Adjustments

     2,877        2,143       4,869        21,599       31,488  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Adjusted EBITDA

   $ 43,815      $ 95,661     $ 81,914      $ (35,939   $ 185,451  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

21


Table of Contents

Emdeon Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited and amounts in thousands, except share and per share amounts)

 

     Six Months Ended June 30, 2014  
     Software and
Analytics
     Network
Solutions
     Technology-
enabled
Services
    Corporate
and
Eliminations
    Consolidated  

Revenue from external customers:

            

Solutions revenue

   $ 116,171      $ 167,109      $ 213,350     $ (11,419   $ 485,211  

Postage revenue

     —           —           —          170,154       170,154  

Inter-segment revenue

     760        181        3,812       (4,753     —     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Net revenue

   $ 116,931      $ 167,290      $ 217,162     $ 153,982     $ 655,365  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     37,387        78,671        (5,430     (221,370     (110,742

Interest expense

     —           —           —          73,106       73,106  

Depreciation and amortization

     —           —           —          93,093       93,093  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

EBITDA

     37,387        78,671        (5,430     (55,171     55,457  

Equity compensation

     316        298        562       2,506       3,682  

Acquisition accounting adjustments

     76        12        447       —          535  

Acquisition-related costs

     29        38        989       2,498       3,554  

Transaction-related costs and advisory fees

     —           —           —          3,115       3,115  

Strategic initiatives, duplicative and transition costs

     87        136        63       9,067       9,353  

Severance costs

     1,143        359        883       1,336       3,721  

Accretion

     —           —           —          4,768       4,768  

Impairment of long-lived assets

     534        2,613        76,376       53       79,576  

Contingent consideration

     —           1,169        452       49       1,670  

Other non-routine, net

     367        222        2,903       (287     3,205  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

EBITDA Adjustments

     2,552        4,847        82,675       23,105       113,179  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 39,939      $ 83,518      $ 77,245     $ (32,066   $ 168,636  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

11. Accumulated Other Comprehensive Income (Loss)

The following is a summary of the accumulated other comprehensive income (loss) balances, net of taxes, as of and for the six months ended June 30, 2015.

 

     Foreign
Currency
Translation
Adjustment
     Cash Flow
Hedge
     Accumulated
Other
Comprehensive
Income (Loss)
 

Balance at January 1, 2015

   $ (483    $ (1,472    $ (1,955

Change associated with foreign currency translation

     (184      —           (184

Change associated with current period hedging

     —           832         832   

Reclassification into earnings

     —           (1,283      (1,283
  

 

 

    

 

 

    

 

 

 

Balance at June 30, 2015

   $ (667    $ (1,923    $ (2,590
  

 

 

    

 

 

    

 

 

 

12. Supplemental Condensed Consolidating Financial Information

In lieu of providing separate annual and interim financial statements for each guarantor of the Senior Notes, Regulation S-X provides companies, if certain criteria are satisfied, with the option to instead provide condensed consolidating financial information for its issuers, guarantors and non-guarantors. In the case of the Company, the applicable criteria include the following: (i) the Senior Notes are fully and unconditionally guaranteed on a joint and several basis (subject to customary release provisions), (ii) each of the guarantors of the Senior Notes is a direct or indirect 100% owned subsidiary of the Company and (iii) any non-guarantors are considered minor as that term is defined in Regulation S-X. Because each of these criteria has been satisfied by the Company, condensed consolidating balance sheets as of June 30, 2015 and December 31, 2014, condensed consolidating statements of operations and comprehensive income (loss) for the three and six months ended June 30, 2015 and 2014, respectively, and condensed consolidating statements of cash flows for the six months ended June 30, 2015 and 2014, respectively, for the Company, segregating the issuer, the subsidiary guarantors and consolidating adjustments, are reflected below. Prior period amounts have been reclassified to conform to the current year presentation.

 

22


Table of Contents

Emdeon Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited and amounts in thousands, except share and per share amounts)

 

Condensed Consolidating Balance Sheet

 

     As of June 30, 2015  
     Emdeon Inc.      Guarantor
Subsidiaries
     Consolidating
Adjustments
    Consolidated  

ASSETS

          

Current assets:

          

Cash and cash equivalents

   $ 741       $ 159,635       $ —        $ 160,376   

Accounts receivable, net of allowance for doubtful accounts

     —           234,140         —          234,140   

Deferred income tax assets

     —           14,055         —          14,055   

Prepaid expenses and other current assets

     4,555         25,384         —          29,939   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     5,296         433,214         —          438,510   

Property and equipment, net

     5         222,387         —          222,392   

Due from affiliates

     —           235,147         (235,147     —     

Investment in consolidated subsidiaries

     1,784,204         —           (1,784,204     —     

Goodwill

     —           1,697,891         —          1,697,891   

Intangible assets, net

     129,000         1,355,772         —          1,484,772   

Other assets, net

     179,699         16,292         (177,142     18,849   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 2,098,204       $ 3,960,703       $ (2,196,493   $ 3,862,414   
  

 

 

    

 

 

    

 

 

   

 

 

 

LIABILITIES AND EQUITY

          

Current liabilities:

          

Accounts payable

   $ —         $ 21,896       $ —        $ 21,896   

Accrued expenses

     5,389         191,105         —          196,494   

Deferred revenues

     —           10,636         —          10,636   

Current portion of long-term debt

     6,709         20,424         —          27,133   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     12,098         244,061         —          256,159   

Due to affiliates

     235,147         —           (235,147     —     

Long-term debt, excluding current portion

     772,075         1,365,139         —          2,137,214   

Deferred income tax liabilities

     —           555,630         (177,142     378,488   

Tax receivable agreement obligations to related parties

     172,780         —           —          172,780   

Other long-term liabilities

     1,189         11,669         —          12,858   

Commitments and contingencies

          

Equity

     904,915         1,784,204         (1,784,204     904,915   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 2,098,204       $ 3,960,703       $ (2,196,493   $ 3,862,414   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

23


Table of Contents

Emdeon Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited and amounts in thousands, except share and per share amounts)

 

Condensed Consolidating Balance Sheet

 

     As of December 31, 2014  
     Emdeon Inc.      Guarantor
Subsidiaries
     Consolidating
Adjustments
    Consolidated  

ASSETS

          

Current assets:

          

Cash and cash equivalents

   $ 796       $ 81,510       $ —        $ 82,306   

Accounts receivable, net of allowance for doubtful accounts

     —           233,791         —          233,791   

Deferred income tax assets

     —           18,893         —          18,893   

Prepaid expenses and other current assets

     2,267         26,979         —          29,246   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     3,063         361,173         —          364,236   

Property and equipment, net

     7         244,146         —          244,153   

Due from affiliates

     —           180,610         (180,610     —     

Investment in subsidiaries

     1,740,062         —           (1,740,062     —     

Goodwill

     —           1,702,569         —          1,702,569   

Intangible assets, net

     133,500         1,405,894         —          1,539,394   

Other assets, net

     152,689         17,270         (149,647     20,312   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 2,029,321       $ 3,911,662       $ (2,070,319   $ 3,870,664   
  

 

 

    

 

 

    

 

 

   

 

 

 

LIABILITIES AND EQUITY

          

Current liabilities:

          

Accounts payable

   $ —         $ 16,399       $ —        $ 16,399   

Accrued expenses

     4,935         170,271         —          175,206   

Deferred revenues

     —           10,518         —          10,518   

Current portion of long-term debt

     6,709         20,599         —          27,308   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     11,644         217,787         —          229,431   

Due to affiliates

     180,610         —           (180,610     —     

Long-term debt, excluding current portion

     771,019         1,375,578         —          2,146,597   

Deferred income tax liabilities

     —           562,874         (149,647     413,227   

Tax receivable agreement obligations to related parties

     163,983         —           —          163,983   

Other long-term liabilities

     —           15,361         —          15,361   

Commitments and contingencies

          

Total equity

     902,065         1,740,062         (1,740,062     902,065   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 2,029,321       $ 3,911,662       $ (2,070,319   $ 3,870,664   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

24


Table of Contents

Emdeon Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited and amounts in thousands, except share and per share amounts)

 

Condensed Consolidating Statement of Operations

 

     Three Months Ended June 30, 2015  
     Emdeon Inc.     Guarantor
Subsidiaries
    Consolidating
Adjustments
    Consolidated  

Revenue:

        

Solutions revenue

   $ —        $ 263,805      $ —        $ 263,805   

Postage revenue

     —          90,996        —          90,996   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     —          354,801        —          354,801   

Costs and expenses:

        

Cost of operations (exclusive of depreciation and amortization below)

     —          121,288        —          121,288   

Development and engineering

     —          10,123        —          10,123   

Sales, marketing, general and administrative

     2,803        44,170        —          46,973   

Customer postage

     —          90,996        —          90,996   

Depreciation and amortization

     2,251        47,264        —          49,515   

Accretion

     3,818        —          —          3,818   

Impairment of long-lived assets

     —          122        —          122   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (8,872     40,838        —          31,966   

Equity in earnings of consolidated subsidiaries

     (26,575     —          26,575        —     

Interest expense, net

     23,308        14,827        —          38,135   

Contingent consideration

     —          1,850        —          1,850   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax provision (benefit)

     (5,605     24,161        (26,575     (8,019

Income tax provision (benefit)

     (13,533     (2,414     —          (15,947
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 7,928      $ 26,575      $ (26,575   $ 7,928   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

25


Table of Contents

Emdeon Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited and amounts in thousands, except share and per share amounts)

 

Condensed Consolidating Statement of Operations

 

     Three Months Ended June 30, 2014  
     Emdeon Inc.     Guarantor
Subsidiaries
    Consolidating
Adjustments
    Consolidated  

Revenue:

        

Solutions revenue

   $ —        $ 249,077      $ —        $ 249,077   

Postage revenue

     —          87,081        —          87,081   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     —          336,158        —          336,158   

Costs and expenses:

        

Cost of operations (exclusive of depreciation and amortization below)

     —          115,499        —          115,499   

Development and engineering

     —          7,062        —          7,062   

Sales, marketing, general and administrative

     5,472        47,266        —          52,738   

Customer postage

     —          87,081          87,081   

Depreciation and amortization

     2,251        44,379        —          46,630   

Accretion

     4,844        —          —          4,844   

Impairment of long-lived assets

     —          76,508        —          76,508   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (12,567     (41,637     —          (54,204

Equity in earnings of consolidated subsidiaries

     39,723        —          (39,723     —     

Interest expense, net

     23,417        13,126        —          36,543   

Contingent consideration

     —          (290     —          (290

Other

     (114     (3,857     —          (3,971
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax provision (benefit)

     (75,593     (50,616     39,723        (86,486

Income tax provision (benefit)

     (16,066     (10,893     —          (26,959
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (59,527   $ (39,723   $ 39,723      $ (59,527
  

 

 

   

 

 

   

 

 

   

 

 

 

 

26


Table of Contents

Emdeon Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited and amounts in thousands, except share and per share amounts)

 

Condensed Consolidating Statement of Operations

 

     Six Months Ended June 30, 2015  
     Emdeon Inc.     Guarantor
Subsidiaries
    Consolidating
Adjustments
    Consolidated  

Revenue:

        

Solutions revenue

   $ —        $ 522,216      $ —        $ 522,216   

Postage revenue

     —          178,280        —          178,280   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     —          700,496        —          700,496   

Costs and expenses:

        

Cost of operations (exclusive of depreciation and amortization below)

     —          242,474        —          242,474   

Development and engineering

     —          20,949        —          20,949   

Sales, marketing, general and administrative

     5,854        89,383        —          95,237   

Customer postage

     —          178,280        —          178,280   

Depreciation and amortization

     4,501        93,128        —          97,629   

Accretion

     8,797        —          —          8,797   

Impairment of long-lived assets

     —          961        —          961   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (19,152     75,321        —          56,169   

Equity in earnings of consolidated subsidiaries

     (40,741     —          40,741        —     

Interest expense, net

     46,589        29,554        —          76,143   

Contingent consideration

     —          (165     —          (165
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax provision (benefit)

     (25,000     45,932        (40,741     (19,809

Income tax provision (benefit)

     (27,178     5,191        —          (21,987
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 2,178      $ 40,741      $ (40,741   $ 2,178   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

27


Table of Contents

Emdeon Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited and amounts in thousands, except share and per share amounts)

 

Condensed Consolidating Statement of Operations

 

     Six Months Ended June 30, 2014  
     Emdeon Inc.     Guarantor
Subsidiaries
    Consolidating
Adjustments
    Consolidated  

Revenue

        

Solutions revenue

   $ —        $ 485,211      $ —        $ 485,211   

Postage revenue

     —          170,154        —          170,154   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     —          655,365        —          655,365   

Costs and expenses:

        

Cost of operations (exclusive of depreciation and amortization below)

     —          227,832        —          227,832   

Development and engineering

     —          15,968        —          15,968   

Sales, marketing, general and administrative

     12,488        91,423        —          103,911   

Customer postage

     —          170,154        —          170,154   

Depreciation and amortization

     4,502        88,591        —          93,093   

Accretion

     4,768        —          —          4,768   

Impairment of long-lived assets

     —          79,576        —          79,576   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (21,758     (18,179     —          (39,937

Equity in earnings of consolidated subsidiaries

     61,129        —          (61,129     —     

Interest expense, net

     46,807        26,299        —          73,106   

Contingent consideration

     —          1,670        —          1,670   

Other

     (114     (3,857     —          (3,971
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax provision (benefit)

     (129,580     (42,291     61,129        (110,742

Income tax provision (benefit)

     (67,064     18,838        —          (48,226
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (62,516   $ (61,129   $ 61,129      $ (62,516
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Emdeon Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited and amounts in thousands, except share and per share amounts)

 

Condensed Consolidating Statement of Comprehensive Income (Loss)

 

     Three Months Ended June 30, 2015  
     Emdeon Inc.      Guarantor
Subsidiaries
     Consolidating
Adjustments
    Consolidated  

Net income (loss)

   $ 7,928       $ 26,575       $ (26,575   $ 7,928   

Other comprehensive income (loss):

          

Changes in fair value of interest rate swap, net of taxes

     109         —           —          109   

Foreign currency translation adjustment

     —           92         —          92   

Equity in other comprehensive earnings

     92         —           (92     —     
  

 

 

    

 

 

    

 

 

   

 

 

 

Other comprehensive income (loss)

     201         92         (92     201   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total comprehensive income (loss)

   $ 8,129       $ 26,667       $ (26,667   $ 8,129   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

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Emdeon Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited and amounts in thousands, except share and per share amounts)

 

Condensed Consolidating Statement of Comprehensive Income (Loss)

 

     Three Months Ended June 30, 2014  
     Emdeon Inc.     Guarantor
Subsidiaries
    Consolidating
Adjustments
    Consolidated  

Net income (loss)

   $ (59,527   $ (39,723   $ 39,723      $ (59,527

Other comprehensive income (loss):

        

Changes in fair value of interest rate swap, net of taxes

     (735     —          —          (735

Foreign currency translation adjustment

     —          100        —          100   

Equity in other comprehensive earnings

     100        —          (100     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     (635     100        (100     (635
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss)

   $ (60,162   $ (39,623   $ 39,623      $ (60,162
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Emdeon Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited and amounts in thousands, except share and per share amounts)

 

Condensed Consolidating Statement of Comprehensive Income (Loss)

 

     Six Months Ended June 30, 2015  
     Emdeon Inc.     Guarantor
Subsidiaries
    Consolidating
Adjustments
    Consolidated  

Net income (loss)

   $ 2,178      $ 40,741      $ (40,741   $ 2,178   

Other comprehensive income (loss):

        

Changes in fair value of interest rate swap, net of taxes

     (451     —          —          (451

Foreign currency translation adjustment

     —          (184     —          (184

Equity in other comprehensive earnings

     (184     —          184        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     (635     (184     184        (635
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss)

   $ 1,543      $ 40,557      $ (40,557   $ 1,543   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Emdeon Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited and amounts in thousands, except share and per share amounts)

 

Condensed Consolidating Statement of Comprehensive Income (Loss)

 

     Six Months Ended June 30, 2014  
     Emdeon Inc.     Guarantor
Subsidiaries
    Consolidating
Adjustments
    Consolidated  

Net income (loss)

   $ (62,516   $ (61,129   $ 61,129      $ (62,516

Other comprehensive income (loss):

        

Changes in fair value of interest rate swap, net of taxes

     (859     —          —          (859

Foreign currency translation adjustment

     —          27        —          27   

Equity in other comprehensive earnings

     27        —          (27     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     (832     27        (27     (832
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss)

   $ (63,348   $ (61,102   $ 61,102      $ (63,348
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Emdeon Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited and amounts in thousands, except share and per share amounts)

 

Condensed Consolidating Statement of Cash Flows

 

     Six Months Ended June 30, 2015  
     Emdeon Inc.     Guarantor
Subsidiaries
    Consolidating
Adjustments
    Consolidated  

Operating activities

        

Net income (loss)

   $ 2,178      $ 40,741      $ (40,741   $ 2,178   

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

        

Depreciation and amortization

     4,501        93,128        —          97,629   

Accretion

     8,797        —          —          8,797   

Equity compensation

     156        4,027        —          4,183   

Deferred income tax expense (benefit)

     (27,178     3,965        —          (23,213

Amortization of debt discount and issuance costs

     1,452        3,127        —          4,579   

Contingent consideration

     —          (165     —          (165

Impairment of long lived assets

     —          961        —          961   

Equity in earnings of consolidated subsidiaries

     (40,741     —          40,741        —     

Changes in operating assets and liabilities:

        

Accounts receivable

     —          (1,420     —          (1,420

Prepaid expenses and other

     (2,288     1,204        —          (1,084

Accounts payable

     —          6,293        —          6,293   

Accrued expenses, deferred revenue, and other liabilities

     918        23,942        —          24,860   

Due to/from affiliates

     54,537        (54,537     —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided (used in) by operating activities

     2,332        121,266        —          123,598   
  

 

 

   

 

 

   

 

 

   

 

 

 

Investing activities

        

Purchases of property and equipment

     —          (24,654     —          (24,654

Payments for acquisitions, net of cash acquired

     —          824        —          824   

Other

     —          (90     —          (90

Investment in subsidiary

     627        —          (627     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     627        (23,920     (627     (23,920
  

 

 

   

 

 

   

 

 

   

 

 

 

Financing activities

        

Distributions from (to) Emdeon Inc. net

     —          (627     627        —     

Payments on Term Loan Facility

     (138     (7,102     —          (7,240

Repayment of deferred financing arrangements

     —          (5,939     —          (5,939

Repurchase of Parent common stock

     (3,681     —          —          (3,681

Capital contribution from Parent

     805        —          —          805   

Payment of Contingent Consideration

     —          (5,553     —          (5,553
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (3,014     (19,221     627        (21,608
  

 

 

   

 

 

   

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (55     78,125        —          78,070   

Cash and cash equivalents at beginning of period

     796        81,510        —          82,306   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 741      $ 159,635      $ —        $ 160,376   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Emdeon Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited and amounts in thousands, except share and per share amounts)

 

Condensed Consolidating Statement of Cash Flows

 

     Six Months Ended June 30, 2014  
     Emdeon Inc.     Guarantor
Subsidiaries
    Consolidating
Adjustments
    Consolidated  

Operating activities

        

Net income (loss)

   $ (62,516   $ (61,129   $ 61,129      $ (62,516

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

        

Depreciation and amortization

     4,502        88,591        —          93,093   

Accretion expense

     4,768        —          —          4,768   

Equity compensation expense

     182        3,500        —          3,682   

Deferred income tax expense (benefit)

     (67,669     18,974        —          (48,695

Amortization of debt discount and issuance costs

     1,319        2,524        —          3,843   

Contingent consideration

     —          1,670        —          1,670   

Impairment of long lived assets

     —          79,576        —          79,576   

Equity in earnings of consolidated subsidiaries

     61,129        —          (61,129     —     

Other

     —          (2,029     —          (2,029

Changes in operating assets and liabilities:

        

Accounts receivable

     —          (25,648     —          (25,648

Prepaid expenses and other

     (1,496     (5,755     —          (7,251

Accounts payable

     —          1,237        —          1,237   

Accrued expenses, deferred revenue, and other liabilities

     (541     (7,356     —          (7,897

Due to/from affiliates

     57,599        (57,599     —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (2,723     36,556        —          33,833   
  

 

 

   

 

 

   

 

 

   

 

 

 

Investing activities

        

Purchases of property and equipment

     —          (25,952     —          (25,952

Payments for acquisitions, net of cash acquired

     —          (779     —          (779

Other

     36        —          —          36   

Investment in subsidiaries, net

     (332     —          332        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (296     (26,731     332        (26,695
  

 

 

   

 

 

   

 

 

   

 

 

 

Financing activities

        

Distributions from (to) Emdeon Inc., net

     —          332        (332     —     

Payments on Term Loan Facility

     (162     (7,507     —          (7,669

Payment of debt assumed from acquisition

     —          (1,877     —          (1,877

Repayment of deferred financing arrangements

     —          (4,176     —          (4,176

Repurchase of Parent common stock

     (815     (54     —          (869

Capital contribution from Parent

     2,092        —          —          2,092   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     1,115        (13,282     (332     (12,499
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     (1,904     (3,457     —          (5,361

Cash and cash equivalents at beginning of period

     2,794        73,744        —          76,538   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 890      $ 70,287      $ —        $ 71,177   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Emdeon Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited and amounts in thousands, except share and per share amounts)

 

13. Subsequent Event

In July 2015, the Company executed a definitive agreement to acquire Altegra Health, Inc. (“Altegra”), a national provider of technology and intervention platforms that combine data aggregation and analytics with unique member engagement and reporting capabilities to achieve actionable insights and improved management for value-based healthcare. The Company expects to acquire Altegra for approximately $910,000 in cash, subject to certain adjustments, and has obtained debt and equity financing commitments to support the acquisition. The acquisition is subject to customary closing conditions, including expiration or early termination of the waiting period under the Hart-Scott-Rodino Act, and is expected to close in the third quarter of 2015.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and the accompanying notes in Part I, Item 1 of this Quarterly Report on Form 10-Q (“Quarterly Report”), together with the risk factors contained in the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2014 (“Form 10-K”) on file with the Securities and Exchange Commission (“SEC”).

Unless stated otherwise or the context otherwise requires, references in this Quarterly Report to “we”, “us”, “our”, “Emdeon” and “the Company” refer to Emdeon Inc. and its subsidiaries.

Forward-Looking Statements

This Quarterly Report includes certain forward-looking statements within the meaning of the federal securities laws regarding, among other things, our or our management’s intentions, plans, beliefs, expectations or predictions of future events, which are considered forward-looking statements. You should not place undue reliance on those statements because they are subject to numerous uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business strategy. These statements often include words such as “may,” “will,” “should,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate” or similar expressions. These statements are based upon assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors that we believe are appropriate under the circumstances. As you read this Quarterly Report, you should understand that these statements are not guarantees of performance or results. They involve known and unknown risks, uncertainties and assumptions, including those described under the heading “Risk Factors” in our Form 10-K. Although we believe that these forward-looking statements are based upon reasonable assumptions, you should be aware that many factors, including those described under the heading “Risk Factors” in our Form 10-K, could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements.

Our forward-looking statements made herein speak only as of the date on which made. We expressly disclaim any intent, obligation or undertaking to update or revise any forward-looking statements made herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this Quarterly Report.

Overview

We are a leading provider of software and analytics, network solutions and technology-enabled services that optimize communications, payments and actionable insights by leveraging our intelligent healthcare platform, which includes one of the largest financial and administrative networks in the United States healthcare system. Our platform and solutions integrate and automate key functions of our payer, provider and pharmacy customers throughout the patient encounter, from consumer engagement and pre-care eligibility and enrollment through payment. By using our comprehensive suite of solutions, our customers are able to improve efficiency, reduce costs, increase cash flow and more efficiently manage complex workflows. Customers receive additional synergistic and enhanced benefits when using multiple Emdeon solutions. Emdeon’s Intelligent Healthcare Network™, which reaches 700,000 physicians, 105,000 dentists, 60,000 pharmacies, 5,000 hospitals, 600 vendors, 450 laboratories and 1,200 government and commercial payers and processed approximately 8.1 billion transactions in 2014, allows us to bring actionable data, analytics and insights to our customers.

We deliver our solutions and operate our business in three reportable segments: (i) software and analytics, which provides payment and reimbursement optimization and decision support solutions; (ii) network solutions, which leverages our health information network to optimize information exchange and workflows among healthcare system participants; and (iii) technology-enabled services, which provides payment and communication, workflow, advisory and other administrative solutions to optimize payment and reimbursement efficiencies. Through our software and analytics segment, we provide revenue cycle technology, revenue optimization, payment integrity, electronic payment, data and analytic and consumer engagement solutions. Through our network solutions segment, we provide financial and administrative information exchange solutions for medical, dental and pharmacy claims management and other standardized healthcare transactions, including clinical information exchange capabilities. Through our technology-enabled services segment, we provide payment and communication, eligibility and enrollment, healthcare consulting, payment automation and pharmacy benefits

 

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administration solutions. We generally provide our solutions to payer, provider and pharmacy customers, including commercial insurance companies, third party administrators, governmental payers, self-insured employers, hospitals, physician practices, laboratories, pharmacies, pharmacy benefit management companies and government agencies.

There are a number of company-specific initiatives and industry trends that may affect our business volumes, revenues, cost of operations and margins. As part of our strategy, we encourage our customers to migrate from paper-based claim, communication, payment and other transaction processing to electronic, automated processing in order to improve efficiency. Our business is aligned with our customers to support this transition, and as they migrate from paper-based processing to electronic processing, even though our revenues for an applicable customer generally will decline, our margins and profitability will typically increase.

Part of our strategy also includes the development and introduction of new and updated solutions. Our new and updated solutions are likely to require us to incur development and engineering expenditures, both operating and capital, and related sales and marketing costs at increased levels in order to successfully develop and achieve market acceptance of such solutions. We also may acquire, or enter into agreements with third parties to assist us in providing, new solutions. For example, we offer our electronic payment solutions through banks or vendors who contract with banks and other financial service firms. The costs of these initiatives or the failure to achieve broad penetration in target markets with respect to new or updated solutions may negatively affect our results of operations, margins and cash flow. Because newly introduced solutions generally will have lower margins initially as compared to our existing and more mature solutions, our margins and margin growth may be adversely affected on a percentage basis until these new solutions achieve scale and maturity. In addition, we continue to improve the scalability and performance of our network and platform. Any improvements in our current network or platform, or the development of new networks or platforms, including those leveraging cloud-based environments, may result in more operating costs and less capital expenditures as compared to prior periods.

In addition to our internal development efforts, we actively evaluate opportunities to improve and expand our solutions through strategic acquisitions. Our acquisition strategy focuses on identifying acquisitions that improve and streamline the business and administrative functions of healthcare. We believe our broad customer footprint allows us to deploy acquired solutions into our installed base, which, in turn, can help accelerate growth of our acquired businesses. We also believe our management team’s ability to identify acquisition opportunities that are complementary and synergistic to our business, and to integrate them into our existing operations with minimal disruption, will continue to play an important role in the expansion of our business and growth. Our success in acquiring and integrating acquired businesses into our existing operations, the associated costs of such acquisitions, including integration costs, and the operating characteristics of the acquired businesses also may impact our results of operations and margins. Because the businesses we acquire sometimes have lower margins than our existing businesses, primarily as a result of their lack of scale and maturity, our margins on a percentage basis may be adversely affected in the periods subsequent to an acquisition from revenue mix changes and integration activities associated with these acquisitions.

We also expect to continue to be affected by general economic, regulatory and demographic factors affecting the healthcare industry. Significant changes in regulatory schemes, such as the updated Health Insurance Portability and Accountability Act of 1996, American Recovery and Reinvestment Act of 2009, the Patient Protection and Affordable Care Act (“ACA”) and other federal healthcare policy initiatives, impact our customers’ healthcare activities. In particular, we believe the ACA has significantly affected the regulatory environment in which we and our customers operate by changing how healthcare services are covered, delivered and reimbursed through expanded coverage of uninsured individuals, reduced federal healthcare program spending, increased efforts to link federal healthcare program payments to quality and efficiency and insurance market reforms. Also, changes in federal and state reimbursement patterns and rates can impact the revenues in certain of our business lines, particularly our government program eligibility and enrollment solutions. Although we believe the ACA has resulted in an overall increase in healthcare utilization and volumes to date, we are unable to predict how providers, payers, pharmacies and other healthcare market participants will continue to respond to the various reform provisions of the ACA, and we cannot be sure that the markets for our solutions will continue to exist at current levels or that we will have adequate technical, financial and marketing resources to react to changes in those markets.

Demographic trends affecting the healthcare industry, such as population growth and aging or unemployment rates, also could affect the frequency and nature of our customers’ healthcare transactional activity. The impact of such changes could impact our revenues, cost of operations and infrastructure expenses and thereby affect our results of operations and the way we operate our business. For example, an increase in the United States population, if such increase is accompanied by an increase in the United States population that has health insurance benefits, or the aging of the United States population, which requires an overall increased need for healthcare services, may result in an increase in our business volumes which, in turn, may increase our revenues and cost of operations. Alternatively, a general economic downturn, which reduces the number of discretionary health procedures by patients, or a persistent high unemployment rate, which lessens healthcare utilization, may decrease or offset other growth in our volumes, which, in turn, may adversely impact our revenues and cost of operations.

 

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Recent Developments

In January 2015, we reorganized our reportable segments as software and analytics, network solutions and technology-enabled services. This discussion and analysis related to prior periods has been restated to reflect our current organizational structure.

In January 2015, in order to clarify the nature of our customer related postage activities, we created separate captions on the statement of operations within revenue and costs and expenses, respectively.

In April 2015, we exercised our option to terminate all future obligations under the Vieosoft, Inc. (“Vieosoft”) stock purchase agreement in exchange for a future cash payment of approximately $4.7 million to the former stockholders of Vieosoft. This termination payment was not accepted and the former stockholders of Vieosoft have filed a lawsuit against us.

In July 2015, we executed a definitive agreement to acquire Altegra Health, Inc. (“Altegra”), a national provider of technology and intervention platforms that combine data aggregation and analytics with unique member engagement and reporting capabilities to achieve actionable insights and improved management for value-based healthcare. Altegra’s cloud-based analytics platform and related healthcare consumer engagement capabilities will enhance Emdeon’s Intelligent Healthcare Network by helping customers elevate care quality, optimize financial performance and improve the member and patient experience. We expect to acquire Altegra for approximately $910.0 million in cash, subject to certain adjustments, and have obtained debt and equity financing commitments to support the acquisition. The acquisition is subject to customary closing conditions, including expiration or early termination of the waiting period under the Hart-Scott-Rodino Act, and is expected to close in the third quarter of 2015.

Our Revenues and Expenses

We generate virtually all of our revenue by using technology solutions to provide our customers services that automate and simplify business and administrative functions for payers, providers and pharmacies generally on either a per transaction, per document, per communication, per member per month, monthly flat-fee, contingent fee or hourly basis.

Cost of operations consists primarily of costs related to services we provide to customers and costs associated with the operation and maintenance of our networks. These costs primarily include materials costs related to our payment and communication solutions, rebates paid to our channel partners (net of rebates to certain customers that offset revenue) and data communications costs, all of which generally vary with our revenues and/or volumes. Cost of operations also includes personnel costs associated with production, network operations, customer support and other personnel, facilities expenses and equipment maintenance, all of which vary less directly with our revenue and/or volumes due to the fixed or semi-fixed nature of these expenses.

Rebates are paid to channel partners for electronic and other volumes delivered through our network to certain payers and can be impacted by the number of comprehensive management services agreements we execute with payers, the associated rate structure with our payer customers, the success of our direct sales efforts to providers and the extent to which direct connections to payers are developed by our channel partners. While these rebates are generally a component of our cost of operations, in cases where the channel partners are also our customers, these rebates generally are recognized as an offset to revenue.

Our data communication expense consists of telecommunication and transaction processing charges.

Our material costs relate primarily to our payment and communication solutions volumes, and consist primarily of paper and printing costs.

Development and engineering expense consists primarily of personnel costs related to the development, management and maintenance of our current and future solutions. We may invest more in this area in the future as we develop new and enhance existing solutions.

Sales, marketing, general and administrative expense consists primarily of personnel costs associated with our sales, account management and marketing functions, as well as management, administrative and other shared corporate services related to the operations of our operating segments and overall business operations.

 

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Our development and engineering expense, sales, marketing, general and administrative expense and corporate expense, while related to our current operations, also are affected and influenced by our future plans including the development of new solutions, business strategies and enhancement and maintenance of our infrastructure.

Postage, which is generally billed as a pass-through cost to our customers, is the most significant cost incurred in the delivery of our payment and communication solutions. Our postage costs and related revenues increase as our payment and communication solutions volumes increase and also when the United States Postal Service (“USPS”) increases postage rates. Although the USPS historically has increased postage rates annually in most recent years, including in January 2014 and May 2015, the frequency and nature of such annual increases may not occur as regularly in the future.

Our depreciation and amortization expense is related to depreciation of our property and equipment, including technology assets, and amortization of intangible assets acquired and recorded in conjunction with acquisition method accounting. As a result, the amount of depreciation and amortization expense is affected by the level of our recent investment in property and equipment and the level of our recent acquisition activity.

Our interest expense consists principally of cash interest associated with our long-term debt obligations and non-cash interest associated with the amortization of borrowing costs and discounts related to debt issuance. If market interest rates on the variable portion of our long-term debt increase in the future, our interest expense may increase.

Our income taxes consist of federal and state income taxes. These amounts include current income taxes payable, as well as income taxes for which the payment is deferred to future periods and dependent on the occurrence of future events. Our income taxes are affected by the recognition of valuation allowances, our tax status and other items. For additional information, see the discussion of income taxes in the section “Significant Items Affecting Comparability-Income Taxes”.

Significant Items Affecting Comparability

Certain significant items or events should be considered to better understand differences in our results of operations from period to period. We believe that the following items or events have had a significant impact on our results of operations for the periods discussed below or may have a significant impact on our results of operations in future periods:

Acquisitions and Divestitures

We actively evaluate opportunities to improve and expand our business through targeted acquisitions that are consistent with our strategy. On occasion, we also may dispose of certain components of our business that no longer fit within our overall strategy. Because of our acquisition activity, our results of operations may not be directly comparable among periods. The following summarizes our acquisition transactions since January 1, 2014 and affected segments:

 

Date

  

Business

  

Description

  

Affected Segment

February 2014

   Vieosoft    Development stage enterprise    Network Solutions

July 2014

   Capario, Corp. (“Capario”)    Technology-enabled provider of revenue cycle management solutions    Software and Analytics; Network Solutions

November 2014

   Change Healthcare Corporation (“Change”)    Technology-enabled provider of healthcare consumer engagement solutions    Software and Analytics

December 2014

   Adminisource Communications, Inc. (“Adminisource”)    Technology-enabled provider of payment and communication solutions    Technology-enabled Services

For certain of our acquisitions, we agreed to transfer additional consideration to the sellers of the acquired businesses in the event that specified performance measures are achieved, including Vieosoft and Change. United States generally accepted accounting principles generally require us to recognize the initial fair value of the expected amount to be paid under such contingent consideration arrangements as a component of the total consideration transferred. Subsequent changes in the fair value of the amounts expected to be paid, however, are generally required to be recognized as a component of net income. Such changes in fair value may occur based on changes in the expected timing or amount of payments or the effect of discounting the liability for the time value of money.

 

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Efficiency Measures

We evaluate and implement efficiency measures and other cost savings initiatives on an ongoing basis to improve our financial and operating performance through reorganization, cost savings, productivity improvements, product development and other process improvements. For instance, we continue to evaluate measures to consolidate our data centers, operations and networks, to outsource certain information technology and operations functions and to streamline product development. The implementation of these measures often involves upfront cash costs related to severance, professional fees, contractor costs and/or capital expenditures, with the cost savings or other improvements not realized until the measures are successfully completed. Additionally, we may recognize impairment charges as a result of such initiatives.

Income Taxes

Our blended statutory federal and state income tax rate ranges from 37% to 40%. Our effective income tax rate, however, is affected by several factors, including the change in tax status of EBS Master LLC (“EBS Master”) from a partnership to a corporation in January 2014 and changes to the state of Tennessee tax law in May 2015. The following table and subsequent commentary reconciles our federal statutory rate to our effective income tax rate and describes the more significant reconciling factors:

 

     Six Months Ended  
     June 30,  
     2015     2014  

Statutory United States federal tax rate

     35.0     35.0

State income taxes (net of federal benefit)

     73.5        5.4   

Change in tax status

     —          2.7   

Other

     2.5        0.4   
  

 

 

   

 

 

 

Effective income tax rate

     111.0     43.5
  

 

 

   

 

 

 

State Income Taxes—Our effective tax rate for state income taxes is generally impacted by changes in our apportionment. In May 2015, the state of Tennessee enacted the Tennessee Revenue Modernization Act. This legislation impacted our Tennessee apportionment which, in turn, resulted in a state tax benefit for the six months ended June 30, 2015. In addition, our effective tax rate for state income taxes for the six months ended June 30, 2014 was affected by the change in tax status of EBS Master from a partnership to a corporation in January 2014.

Change in Tax Status—Prior to the change in tax status of EBS Master from a partnership to a corporation in January 2014, we recognized a deferred tax liability for the difference in the book and tax basis of our investment in EBS Master (i.e., outside basis). The outside tax basis of the investment in EBS Master excluded consideration of goodwill within EBS Master that otherwise would have no tax basis. Following the tax status change, our deferred tax balances reflect only the difference in the book and tax bases of the individual assets and liabilities included in the corporation.

Amendments of the Senior Credit Agreement

In December 2014, we borrowed an additional $160.0 million under an incremental term loan facility through an amendment to our credit agreement (the “Senior Credit Agreement”) governing our senior secured term loan facility (the “Term Loan Facility”) and senior secured revolving credit facility (the “Revolving Facility”) (collectively, the “Senior Credit Facilities”).

Critical Accounting Estimates

The preparation of financial statements in accordance with United States generally accepted accounting principles requires us to make estimates and assumptions that affect reported amounts and related disclosures. We consider an accounting estimate to be critical if:

 

   

it requires assumptions to be made that were uncertain at the time the estimate was made; and

 

   

changes in the estimate or different estimates that could have been made could have a material impact on our consolidated results of operations and financial condition.

We believe the current assumptions and other considerations used to estimate amounts reflected in our unaudited condensed consolidated financial statements are appropriate. However, if actual experience differs from the assumptions and

 

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other considerations used in estimating amounts reflected in our unaudited condensed consolidated financial statements, the resulting changes could have a material adverse effect on our unaudited condensed consolidated results of operations and financial condition.

We believe there have been no significant changes during the six months ended June 30, 2015 to the items we disclosed as our critical accounting estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Form 10-K.

Results of Operations

The following table summarizes our consolidated results of operations for the three and six months ended June 30, 2015 and 2014, respectively (amounts in thousands):

 

     Three Months Ended     Six Months Ended  
     June 30, 2015     June 30, 2014     June 30, 2015     June 30, 2014  
     Amount     % of
Revenue(1)
    Amount     % of
Revenue(1)
    Amount     % of
Revenue(1)
    Amount     % of
Revenue(1)
 

Revenue:

                

Solutions revenue

   $ 263,805       74.4   $ 249,077       74.1   $ 522,216       74.5   $ 485,211       74.0

Postage revenue

     90,996       25.6       87,081       25.9       178,280       25.5       170,154       26.0  
  

 

 

     

 

 

     

 

 

     

 

 

   

Total revenue

     354,801       100.0       336,158       100.0       700,496       100.0       655,365       100.0  

Cost and expenses:

                

Cost of operations (exclusive of depreciation and amortization below)