According to market reports, healthcare costs in the United States grew 5% annually over the past 10-year period to $3.2 trillion in 2015. The Centers for Medicare & Medicaid Services (NYSE:CMS) expects the healthcare costs to continue to grow at 6% annually through 2024. Of the $3.2 trillion spend in the industry, the US federal government estimates that inaccurate provider claim submissions ranged from 3%-10%. Cotiviti Holdings (NYSE:COTV) is hoping to reduce this inaccuracy through its analytical engine.
Cotiviti Holding's Offerings
Atlanta-based Cotiviti offers analytics-driven payment accuracy solutions focused on the healthcare sector. It leverages its technology platform, a configurable analytics engine and proprietary information assets and expertise to provide its clients with improved payment accuracy. It was founded in 2014 through the merger of Connolly Superholdings, Inc. and iHealth Technologies, Inc. Connolly Superholdings was a leader in retrospective payment accuracy solutions for the healthcare and retail sectors and iHealth Technologies was a leader in prospective payment accuracy solutions for the healthcare sector. After the merger, the combined entity rebranded itself as Cotiviti Holdings. Today, Cotiviti claims that it helps Medicare Advantage, private insurers, Medicaid Managed Care organizations and other clients capture more than $3 billion annually through improved accuracy in handling claims and compliance.
The merger also helped Cotiviti grow into payment accuracy solutions for the retail market. While healthcare remains its focus, it also offers solutions to retailers to process and validate high volumes of transactions with disparate suppliers on varying terms. It works with retail clients in the United States, Canada and the United Kingdom to process their negotiated allowances, concessions, rebates and other incentives associated with merchandise procurement, logistics and other service transactions.
The healthcare payment accuracy industry is not free of competition. Competition comes from big players like United Healthcare's (NYSE:UNH) Optum, Veritas Capital's Verisk Health and other dedicated smaller companies like The Rawlings Group, Equian and Trover Solutions. But given its prowess, Cotiviti is delivering strong growth both in terms of revenues and profitability. For the year ended December 31, 2015, revenues grew 22.7% to $541.3 million, and it recorded an adjusted EBITDA of $203.4 million and net income of $13.9 million. The Healthcare segment is its biggest revenue generator, accounting for 86% of the revenues in the last fiscal while the remaining revenues came in from the retail segment.
More recently, Cotiviti announced third quarter fiscal 2016 financials. Revenues for the quarter grew 14% to $156.2 million compared with the Street's forecast of $151.3 million. The increase in revenue was driven by 16% growth in the Healthcare segment which brought in $138.5 million. During the quarter, net income grew 16% to $4.6 million, translating to $0.05 per share. Adjusted EPS of $0.36 was $0.05 above the market estimates for the quarter.
Cotiviti is projecting revenues for fiscal 2016 at $615-$620 million and an adjusted EBITDA of $235-$237 million.
Cotiviti was privately held till May last year, when it announced plans to go public. It sold 12.5 million shares at $19 each to raise $237.5 million at a valuation of $2.55 billion when it listed on the NYSE. Prior valuation of the company is not known, but the iHealth entity was valued at $1.2 billion at the time of the merger in 2014. The stock has fared well since then and is currently trading at $33.52 with a market capitalization of $3.02 billion. It touched a high of $36.44 in November 2016 and a low of $17 at listing. Cotiviti is now looking to sell another 1.5 million shares for additional funding.