Item 1A. Risk Factors
Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this Form 10-K, including our financial statements and related notes appearing elsewhere in this Form 10-K and in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our common stock. The occurrence of any of the events or developments described below, if they occur, or other events, developments or risks not presently known to us or that we current deem immaterial, could materially affect our business, financial condition, results of operations and growth prospects. In such an event, the market price of our common stock could decline and you may lose all or part of your investment.
Summary Risk Factors
The following is a summary of some of the principal risks we face.
Risks Related to Our Business and Industry
• Our ability to retain our existing clients or attract new clients, and sell additional solutions and services to our clients.
• Our dependence on a small number of clients for a substantial portion of our total revenue.
• Our growth prospects may be limited if our clients’ growth prospects are limited or if the size of the total addressable markets in which we compete or expect that we may compete in the future contract or grow at materially lower rates than are currently expected.
• Our ability to achieve or maintain profitability in light of our history of net losses and our anticipation that we will increase expenses in the future.
• Federal reductions in Medicare Advantage funding.
• Significant consolidation in the healthcare industry, and decisions by clients to perform internally some of the same solutions or services we offer.
• The limited operating history we have with certain of our solutions, particularly in light of our recent history of expanding our business through acquisitions.
• A failure to deliver high-quality member management services to our clients’ members.
• The significant competition we face from healthcare services and technology companies.
• Risks related to acquisitions of other businesses or technologies and other significant transactions.
• Increases in labor costs, including due to changing minimum wage laws, and an overall tightening of the labor market.
• The long and unpredictable sales and integration cycles for our solutions.
Table of Contents
• An economic downturn or volatility, including as a result of the ongoing COVID-19 pandemic.
• Our ability to achieve market acceptance of new or updated solutions and services.
• Our reliance on third parties for certain components of our business.
• Our quarterly results of operations may fluctuate significantly due to seasonality.
• Our ability to achieve or maintain adequate utilization and suitable billing rates for our consultants, and our ability to deliver our services to our clients.
Risks Related to Governmental Regulation
• Recent and future developments in the Medicare Advantage market or the healthcare industry generally, including with respect to changing laws and regulations.
• The actual or perceived failure by us to comply with applicable laws, regulations and standards relating to data privacy and security.
Risks Related to Information Technology, Data Privacy and Intellectual Property
• Security breaches or incidents, failures and other disruptions of the information technology systems used in our business operations and of the sensitive information we collect, process, transmit, use and store.
• Disruptions in service, and other software and systems failures, affecting us and our vendors.
• Our ability to obtain, maintain, protect and enforce our intellectual property and proprietary rights.
• Our ability to operate our business without infringing, misappropriating or otherwise violating the intellectual property or proprietary rights of third parties.
Risks Related to Our Capital Structure, Indebtedness and Capital Requirements
• Our substantial indebtedness could adversely affect our financial condition.
• The terms of our indebtedness restrict our current and future subsidiaries.
Risks Related to Our Common Stock
• We have identified material weaknesses in our internal control over financial reporting and we may fail to remediate these material weaknesses, and our internal control over financial reporting may not be effective.
• We are a “controlled company” and our principal stockholder, TPG, will continue to have significant influence over us.
Risks Related to Our Business and Industry
If we are unable to retain our existing clients or attract new clients, and sell additional solutions and services to our clients, our business, results of operations or financial condition would be adversely affected.
Our success depends substantially upon the retention of the existing clients that utilize our solutions and services, which include technology-based solutions and software advisory and analytics services, the attraction of new clients and our ability to sell additional solutions and services to our clients. We may not be able to retain our existing clients, attract new clients or sell additional solutions and services to our clients, if we are unable to provide solutions and services that existing or prospective clients believe address the key challenges they face in effectively managing their health plans or if our clients find our solutions and services unnecessary, unattractive or cost-ineffective. Our success in retaining and attracting clients will also depend, in part, on our ability to innovate successfully and be responsive to changes in the healthcare industry, technological developments, pricing pressures and changing business models.
To remain competitive in the evolving healthcare technology services markets, we must continuously upgrade our existing solutions and services and develop and introduce new and innovative solutions and services on a timely basis. Future advances in healthcare technology services could lead to new technologies, products or services that are competitive with our existing
Table of Contents
solutions and services, resulting in pricing pressures or rendering such solutions and services obsolete or otherwise not competitive. In addition, our ability to integrate these software solutions into clients’ existing health plan infrastructures could be challenged, which may impair our ability to retain clients and harm our reputation with existing and prospective clients. We also may not be able to retain or attract clients if our solutions or services contain errors or otherwise fail to perform properly, if our pricing structure is not competitive or if we are unable to renegotiate client contracts upon expiration.
Our revenue depends, in part, on our ability to maintain high client revenue retention rates and our future growth depends, in part, on attracting new clients and selling additional solutions and services to our clients. In addition, the costs associated with generating revenue can vary by the solution and, depending on the solution or service, or mix of solutions or services, utilized by particular clients, there may be substantial variation in the gross margins across our client base. As a result of an increasingly competitive landscape, we have had clients not renew their contracts with us. If we are unable to maintain client retention rates going forward, attract new clients or sell additional solutions and services to our clients, or if we experience increased non-renewal rates, our business, results of operations or financial condition would be adversely affected.
Our client base is highly concentrated and we currently depend on a small number of clients for a substantial portion of our total revenue, and this concentration exposes us disproportionately to effects from altered contracts with these clients.
We derive a large portion of our total revenue from a limited number of key clients. For the year ended December 31, 2021, our two largest clients, when aggregating all the solutions and services utilized by such clients across separate contracts with multiple product delivery solutions, represented 27.8% and 18.9% of our total revenue, respectively, or collectively 46.7% of our total revenue during this period. During this same period, these two clients accounted for 21.0% and 24.2% of our total accounts receivable, respectively, or collectively 45.2% of our total accounts receivable. For the fiscal year ended December 31, 2020, these same clients, when aggregating all the solutions and services utilized by such clients across separate contracts with multiple product delivery solutions, represented 28.6% and 17.8% of our total revenue, respectively, or collectively 46.4% of our total revenue during this period. During this same period, these two clients accounted for 15.0% and 6.8% of our total accounts receivable, respectively, or collectively 21.8% of our total accounts receivable.
We typically enter into a master service agreement with clients in our Technology Enabled Solutions segment, which provides a framework for services that is then supplemented by statements of work, which specify the particulars of each individual engagement. Contracts with our top clients in our Technology Enabled Solutions segment, including our top two clients, typically have stated terms of one to six years, and many of our contracts with these clients renew automatically. However, our clients, including our top two clients, have no obligation to renew such contracts, and may seek to renegotiate terms less advantageous to us in advance of renewal, may renew with a reduced scope of services or pricing, may choose to discontinue one or more services under an existing contract, may exercise flexibilities within their contracts or may terminate their agreements (with or without cause) prior to such agreements’ expiration dates, generally without penalty. The occurrence of any of these events could reduce our revenue from these clients. In addition, our clients must adhere to extensive and oftentimes changing regulatory requirements and may from time to time be subject to sanctions or other from the CMS or other government entities for to maintain compliance with all applicable requirements. Sanctions and other levied on our clients from CMS or other government entities may impact our clients’ business practices and our clients’ businesses generally, which could impact our relationships with these clients and reduce our revenue from these clients. Furthermore, some of our top clients are, and may in the future be, involved in relating to the administration of their health plans or otherwise relating to their business practices. This type of could have a material impact on some of our clients’ businesses and, as a result, may impact our relationships with our clients and the demand for our services.
We expect to continue to derive a substantial portion of our total revenue from a limited number of key clients. The concentration of a substantial portion of our business with a limited number of clients exposes us disproportionately to effects resulting from altered contracts with these clients or fewer client relationships (whether as a result of the termination of client relationships, client consolidation, impacts stemming from changed business practices at our clients as a result of sanctions, penalties or litigation or for other reasons). If we become dependent on altered contracts with clients, or fewer client relationships, we may become more vulnerable to adverse changes in our relationships with clients, and our business, results of operations or financial condition may suffer.
Our growth prospects may be limited, and our business, results of operations or financial condition may be adversely affected, if our clients’ growth prospects are limited or if the size of the total addressable markets in which we compete or expect that we may compete in the future contract or grow at materially lower rates than are currently expected.
The future growth and success of our business depends, in part, on the ability of our key clients to grow their businesses. If our clients do not continue to grow their businesses, whether as a result of factors affecting the healthcare industry in general or reasons specific to any of our clients, such as a decision by our clients to reduce the number of benefits available to their
Table of Contents
members, overall demand for our solutions and services could decrease, which would have an adverse effect on our business, results of operations or financial condition.
In addition, the future growth and success of our business depends, in part, on the size of the total addressable markets in which we compete or expect that we may compete in the future. For example, we have primarily tailored our business and the solutions and services we offer to the Medicare Advantage market, which has recently experienced strong growth and enrollment trends. U.S. government and third-party industry sources have projected that Medicare Advantage will continue to see increased member enrollment due to many factors, including the growing share of individuals in the U.S. eligible for Medicare enrollment, the increasing tendency for these individuals to choose Medicare Advantage plans over traditional Medicare plans and a shift in the healthcare industry towards a value-based care model and away from a fee-for-service model. However, market size estimates and growth forecasts related to the Medicare Advantage and other markets are subject to significant uncertainty and are based on assumptions and estimates that may prove to be inaccurate. If these or other assumptions related to the size of the Medicare Advantage market and other markets in which we compete or expect we may compete in the future and the forecasted growth in such markets prove , our growth prospects may be limited, and our business, results of operations or financial condition would be affected. Further, even if the markets in which we compete meet our size estimates and forecasted growth, our business could to grow at rates similar to those at which it has historically grown, if at all.
We have a history of net losses, we anticipate increasing expenses in the future, and we may not be able to achieve or maintain profitability.
We have incurred net losses during our history. We incurred net losses of $10.0 million for the year ended December 31, 2021, $6.5 million for December 31, 2020 and $16.8 million for the Successor period, respectively. Our accumulated deficit as of December 31, 2021, was $33.3 million.
We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in rapidly changing industries, including increasing expenses as we continue to grow our business. We anticipate our losses may continue as we expect to invest in increasing our platform capabilities, expanding our operations, hiring additional employees and operating as a public company. These efforts may prove more costly than we currently anticipate, and we may not succeed in increasing our revenue sufficiently to offset these higher expenses. To date, we have financed our operations principally from revenue from our solutions and services and the incurrence of indebtedness. We may not generate positive cash flow from operations or profitability in any given period, and our limited operating history may make it difficult for you to evaluate our current business and future prospects.
Investments in our business may be more costly than we expect, and, if we do not achieve the benefits anticipated from these investments, or if the realization of these benefits is delayed, they may not result in increased revenue or growth in our business. If our growth rate were to decline significantly or become negative, it could adversely affect our business, results of operations or financial condition. If we are not able to achieve or maintain positive cash flow in the long term, we may require additional financing, which may not be available on favorable terms or at all or which would be dilutive to our stockholders. If we are unable to successfully address these risks and challenges as we encounter them, our business, results of operations or financial condition would be affected. Our to or maintain could impact the value of our common stock.
Federal reductions in Medicare Advantage funding could adversely affect our business, results of operations or financial condition.
The majority of our revenues are derived from our contractual arrangements with health plan clients who participate in the government subsidized Medicare Advantage program. Medicare Advantage is a federally-administered program financed by federal funds. Medicare Advantage spending has increased rapidly in recent years, becoming a significant component of the federal budget. This, combined with slower state revenue growth, has led the federal government to institute measures aimed at controlling the growth of healthcare spending, including Medicare Advantage spending, and in some instances reducing aggregate healthcare spending, including Medicare Advantage spending. For example, Medicare remains subject to the automatic spending reductions imposed by the Budget Control Act of 2011 and the American Taxpayer Relief Act of 2012 (“sequestration”), subject to a 2% cap, which was extended by the Bipartisan Budget Act of 2018 for an additional two years through 2027. In addition, future levels of funding for Medicare Advantage may be affected by continuing government efforts to contain healthcare costs and may further be affected by federal budgetary constraints. Congress periodically considers reducing or reallocating the amount of money it spends for healthcare programs, including the Medicare program. economic conditions may put pressures on federal budgets as tax and other federal revenues decrease while the population that is eligible to participate in Medicare programs increases, creating more need for funding. This may
Table of Contents
require CMS to find funding alternatives, which may result in reductions in funding for the Medicare Advantage program or contraction of covered benefits. In addition, while talks appear to have stalled or ended, the U.S. Congress may again try to or in the future pass a significant domestic social spending bill; reports related to prior versions of such a bill had indicated that cuts to Medicare Advantage have been considered to help pay for the bill. Such cuts may also be considered or implemented to pay for future spending or other bills. Reductions in funding for the Medicare Advantage program may impact our health plan clients’ business operations, and may lead our health plan clients to reduce the number of Medicare Advantage health plans and the variety and level of benefits offered through such plans. Reductions in funding may also lead to decreased membership in Medicare Advantage health plans, or cause membership to grow at lower levels than we currently expect. Changes to our clients’ business operations stemming from reductions in Medicare Advantage funding, including if such changes result in decreased health plan membership or reduced benefits levels, could affect our business, results of operations or financial condition.
Significant consolidation in the healthcare industry, and decisions by clients to perform internally some of the same solutions or services that we offer, could adversely alter our relationships with clients and harm our business, results of operations or financial condition.
The healthcare industry in the United States has experienced significant consolidation in recent years. Many healthcare organizations, including some of our clients, have consolidated to create larger enterprises with greater market power. This consolidation trend could give the resulting enterprises greater bargaining power, which may lead to downward price pressure on our solutions or services, or less demand for them, or both. Consolidation in the health insurance industry, particularly involving any of our key clients, could cause a loss of, or changes in, our relationship with that client and may reduce or eliminate our revenue from that client if our solutions and services are no longer utilized by that client at all or in the same capacity as they were utilized prior to the consolidation. If one of our existing clients combines with another healthcare organization that does not use our services, we may be required to compete to retain our existing client’s business. In the future, due to this consolidation, we may be faced with a reduced number of potential clients and derive a greater portion of our revenue from a more concentrated number of clients as our business and the healthcare industry evolve. Any of these effects could harm our business, results of operations or financial condition.
In addition, we face substantial competition from many healthcare services and technology companies, including the growing presence of large technology companies entering the healthcare market. See “— We face significant competition, which may harm our business, results of operations or financial condition.” Some of our existing clients compete with us, or may do so in the future by electing to perform internally any of the business processes our solutions address, either because they believe they can provide such processes more efficiently internally or otherwise. As a result, we may lose such clients, or the volume of our business with such clients may be reduced, which could harm our business, results of operations or financial condition.
Our revenue would be adversely affected if we are unable to maintain currently existing levels of business with any of our key clients and if we are unable to offset any loss of business with alternative clients. We expect to continue to derive a substantial portion of our total revenue from a limited number of key clients, and any impairment of our relationship with, or the material financial impairment of, these clients could adversely affect our business, results of operations or financial condition. See “— Our client base is highly concentrated and we currently depend on a small number of clients for a substantial portion of our total revenue, and this concentration exposes us disproportionately to effects from altered contracts with these clients.”
We have significantly expanded our business in recent years and, as such, have a limited operating history with certain of our solutions, which makes it difficult to predict our future results of operations.
We have significantly expanded our business in recent years, including the solutions and services we offer to clients. Our acquisition of Gorman Health Group in October 2017 followed by our acquisition of HealthScape Advisors in November 2018 created the foundation of our Advisory Services segment, and our acquisition of Pareto Intelligence in November 2018 expanded the analytics capabilities of our TES business. We believe our acquisition of HealthSmart International in February 2022 enhances our ability to provide best-in-class services to the nation’s top health plans. As a result of our limited operating history with the capabilities obtained through each of these acquisitions, as well as additional solutions and services developed through our organic growth since the completion of these acquisitions, our ability to accurately forecast our future results of operations is limited and subject to a number of uncertainties, including our ability to plan for and model future growth. Our historical revenue and growth trends should not be considered indicative of our future performance. If our assumptions regarding the value proposition of our solutions and our ability to be able to cross-sell and up-sell our solutions, particularly to clients currently served by our Advisory Segment business that do not currently utilize any of the solutions offered by our TES business, prove incorrect or change based on any numbers of factors, our business, results of operations or financial condition could differ materially from our expectations.
Table of Contents
A failure to deliver high-quality member management services to our clients’ members could adversely affect our reputation and our relationship with our clients and could harm our business, results of operations or financial condition.
Our clients depend on us to directly implement technological solutions and services that improve the health plan member experience, including with respect to optimizing members’ health plan selections, assisting members to effectively navigate available benefits, obtain appropriate care, and efficiently resolve members’ clinical and non-clinical inquiries. Delivering comprehensive and high-quality member management services requires that our professional staff have technical, healthcare, compliance and other relevant knowledge and expertise. Because we act as a partner to health plans and are trusted to engage directly with health plan members, particularly in connection with our supplemental benefits program, our reputation is highly dependent on, among other things, the quality of the member management services we offer to our clients’ health plan members and our ability to effectively engage with them relating to their healthcare and benefits needs. We may be unable to accurately predict our clients’ or their health plan members’ demand for certain services or accommodate short-term increases in demand for certain services, and we may experience issues with the third parties on which we rely that impact our clients’ members for reasons that are beyond our control. See “— Third parties on which we rely, including to procure inventory for our supplemental benefits solution and to deliver products to health plan members, may not perform or at all, and our reliance on any third party for the distribution of supplemental benefits carries material risks.” A to offer high-quality and direct services, or a market perception that we do not offer high-quality and direct services, would our reputation and our relationship with clients, which could our business, results of operations or financial condition.
We face significant competition, which may harm our business, results of operations or financial condition.
We face substantial competition primarily from healthcare services and technology companies, including the growing presence of large technology companies entering the healthcare market. We also compete in some cases with certain of our customers who themselves provide some of the same solutions that we offer or who may decide to perform internally some of the same solutions that we provide. This vigorous competition requires us to provide high quality, innovative products at a competitive price. These competitive threats will likely remain or expand in the future. Our TES solutions compete with:
• healthcare information system vendors that support providers or payors in their administration of Medicare Advantage (including the administration of supplemental benefits), Medicare Part D Prescription Drug Plan and Employer Group Waiver Plans;
• healthcare insurance companies, pharmacy benefit management and pharmacy benefit administrator companies, hospital management companies and pharmacies that provide or are developing electronic transaction and payment distribution services for use by providers or by their members and customers;
• healthcare payments and communication solutions providers, including financial institutions and payment processors that have invested in healthcare data management assets; and
• healthcare payment accuracy companies; and providers of other data products and data analytics solutions, including healthcare risk adjustment, quality, economic statistics and other data; and other data and analytics solutions.
Our Advisory Services offerings compete with similar offerings of:
• national management consulting firms (including, but not limited to, Deloitte Touche Tohmatsu Limited, Accenture plc, McKinsey & Company and other similar firms);
• boutique consulting firms; and
• internal consulting departments within our clients.
In addition, certain major software, hardware, information systems and business process outsourcing companies, both with and without healthcare companies as their partners, may seek to offer competitive software and services. We cannot fully anticipate whether or when companies in adjacent or other product, service or technology areas may launch competitive products, and any such entry may lead to product obsolescence, loss of market share or erosion of prices. The extent of this competition varies by the size of companies, geographical coverage and scope and breadth of products and services offered. Within certain of the markets in which we operate, our competitors are significantly larger and have greater financial or other resources and have established reputations for success. In addition, many large and well-funded technology companies are pursuing opportunities to enter the healthcare market, and consolidation activity through strategic mergers, acquisitions and joint ventures may result in new competitors that can offer a broader range of products and services or may have greater scale or a lower cost structure.
Table of Contents
Additionally, the pace of change in the healthcare technology and information systems market is rapid, and there are frequent new solution introductions, solution enhancements and evolving industry standards and requirements. We cannot guarantee that we will be able to upgrade our existing solutions or services, or introduce new solutions or services at the same rate as our competitors, or at all, nor can we guarantee that such upgrades or new solutions or services will achieve market acceptance over or among competitive offerings, or at all. Competitors may also commercialize products, services or technologies that render our solutions obsolete or less marketable.
These competitive pressures could have a material adverse impact on our business, results of operations or financial condition.
Acquisitions of other businesses or technologies and other significant transactions, including dispositions, involve many risks and such acquisitions could disrupt our business and harm our results of operations or financial condition.
We have in the past acquired businesses, such as Gorman Health Group in October 2017, Pareto Intelligence and HealthScape Advisors in November 2018 and HealthSmart International in February 2022 and may in the future decide to acquire other businesses, products and technologies or enter into strategic alliances or joint ventures (a “Transaction”). These Transactions could require significant capital infusions and involve many risks, including the following:
• a Transaction may require us to incur unanticipated costs or liabilities or may cause adverse tax consequences, substantial depreciation or deferred compensation charges;
• a Transaction undertaken for strategic business purposes may negatively impact our results of operations;
• we may encounter difficulties in assimilating and integrating the acquired business, including the technologies, products, personnel or operations of the acquired company, particularly if key personnel of the acquired company decide not to work for us;
• a Transaction may disrupt our ongoing business, divert resources, increase our expenses and distract our management;
• we may be required to implement or improve internal controls, procedures and policies appropriate for a public company at a business that prior to the acquisition lacked these controls, procedures and policies;
• the acquired businesses may have unexpected liabilities that we will be forced to assume;
• Transactions have in the past and may in the future require us to incur significant indebtedness, including borrowings under our Credit Agreement;
• the acquired businesses, products or technologies may not generate sufficient revenue to offset acquisition costs or to maintain our financial results; and
• a Transaction may involve the entry into geographic or business markets in which we have little or no prior experience.
In addition, a significant portion of the purchase price of companies we acquire may be allocated to goodwill and other intangible assets, which must be assessed for impairment at least annually. In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our operating results based on this impairment assessment process, which could adversely affect our results of operations. We may use shares of our common stock and equity-linked securities as consideration for acquisitions, and, as a result, we may issue additional shares of our common stock to pay for future acquisitions and a decline in the market price of our common stock may inhibit our ability to successfully pursue future acquisitions.
In addition, we may divest assets or otherwise discontinue businesses that are no longer a part of our strategy. For example, on February 9, 2018, we announced a plan to abandon our Business Processing Outsourcing unit, and all run off operations associated with our Business Processing Outsourcing unit ceased in the first quarter of 2020. For more information regarding this discontinued operation, see Note 17. Discontinued Operations , to our consolidated financial statements in this Form 10-K. Divestitures or other similar strategic endeavors require significant investment of time and resources, may disrupt our business and distract management from other responsibilities and may result in losses on disposition or continued financial involvement in the divested business, including through indemnification or other financial arrangements, for a period following the transaction, which could adversely affect our business, results of operations or financial condition.
We cannot assure you that we will be able to identify or consummate any future Transaction on favorable terms, or at all. If we do pursue a Transaction, it is possible that we may not realize the anticipated benefits from the Transaction or that the
Table of Contents
financial markets or investors will view the Transaction negatively. Even if we successfully complete a Transaction, it could disrupt our business or harm our results of operations or financial condition.
Increases in labor costs, including wages, and an overall tightening of the labor market, could adversely affect our business, results of operations or financial condition.
The labor costs associated with our business are subject to several external factors, including unemployment levels and the quality and the size of the labor market, prevailing wage rates, minimum wage laws, wages and other forms of remuneration and benefits offered to prospective employees by competitor employers, potential collective bargaining arrangements, health insurance costs and other insurance costs and changes in employment and labor legislation or other workplace regulation. From time to time, including following the 2020 U.S. presidential election, legislative proposals are made or otherwise discussed to increase the federal minimum wage in the United States, as well as the minimum wage in a number of individual states and municipalities, and to reform entitlement programs, such as health insurance and paid leave programs. These proposals and discussions have become increasingly common in the current political environment. In addition, from time to time, including recently, the labor market becomes increasingly competitive. If we are unable to mitigate wage rate increases driven by increases to the minimum wage or the increasingly competitive labor market through automation and other labor savings initiatives, our labor costs may increase, which could have an adverse effect on our business, results of operations or financial condition.
If minimum wage rates increase due to changes in regulation, or in the event we must offer increased wages or other competitive benefits and incentives to attract qualified personnel, we have increased and may continue to increase not only the wage rates of our minimum wage employees, but also the wages paid to our other employees as well, and we may need to offer such employees other competitive benefits and incentives. Further, should we fail to increase our wages competitively in response to increasing wage rates, the quality of our workforce could decline, causing certain aspects of our business, such as our client service, to suffer. Increases in labor costs could force us to increase our fees, which could adversely impact sales of our solutions and services to existing clients and prospects and the attractiveness of our solutions and services to existing clients and prospects. We have experienced an overall tightening and increasingly competitive labor market and have recently experienced and expect to continue to experience some labor cost pressures. If we are unable to hire and retain employees capable of performing at a high level, such as by providing a high level of client service, manage labor cost pressures, or if mitigating measures we take in response to increased labor costs, such as utilizing increased automation in how we deliver certain of our solutions and services to clients, have effects, including on client service, our business would be affected. If competitive pressures or other factors prevent us from offsetting increased labor costs, our may and could have an effect on our business, results of operations or financial condition.
In addition, increases in the minimum wage driven by changes in state law may cause increases in costs other than those directly attributable to the increased wage, including costs related to moving certain of our operations to different states and hiring and training new work forces in these areas. An increase in these types of costs may have an adverse effect on our business, results of operations or financial condition.
Long and unpredictable sales and integration cycles for our solutions may adversely impact our business, results of operations or financial condition.
Our sales process entails planning discussions with our clients or prospective clients, analyzing their existing health plan infrastructure, including the solutions and services utilized from their existing partners, and identifying how these potential clients can use and benefit from our solutions. The sales cycle for a new client, from the time of prospect qualification to the completion of the first sale is subject to significant variation, and can take from as short as one month or extend beyond one year. We spend substantial time, effort and money in our sales efforts without any assurance that our efforts will result in the sale of our solutions. Implementing, replacing or expanding a health plan administrative partner is a major decision for the client or prospective client. Many of our solutions require a substantial capital investment and time commitment by the client. Clients may choose to maintain their existing plan administration services providers to avoid the financial cost and time commitment of switching to our solutions. When a client decides to use our services, additional time is required to integrate our solutions into the client’s health plan infrastructure. If the integration process is not executed successfully or is delayed, our relationship with the client may be adversely affected. Our ability to grow our business depends, in part, on expanding the use of our solutions with new clients and deepening our relationships with existing clients. Any decision by our existing clients or prospective clients to purchasing decisions or not to utilize our solutions at all, or with integrating our solutions with clients’ existing infrastructure, would impact our business, results of operations or financial condition.
An economic downturn or volatility, including as a result of the ongoing COVID-19 pandemic, could have a material adverse impact on our business, results of operations or financial condition.
Table of Contents
Our business has been and may continue to be affected by a number of factors beyond our control, such as general geopolitical, economic and business conditions and conditions in the financial markets. The U.S. and world economies have experienced significant economic uncertainty and volatility during recent years and that uncertainty and volatility has become more acute due to the ongoing global COVID-19 pandemic. As a result of such economic uncertainty and volatility in the United States and other countries, we may experience the negative effects of increased financial pressures on our clients, which could reduce the demand for our solutions and services by causing clients to terminate, or elect not to renew, existing contracts with us or to not enter into new contracts with us. If we are not able to timely and appropriately adapt to changes resulting from an uncertain or volatile economic environment, our business, results of operations or financial condition could be materially adversely affected.
In particular, the COVID-19 pandemic has had and continues to have widespread, rapidly evolving and unpredictable impacts on global society, economies, financial markets and business practices. Federal, state and local governments have implemented varying measures in an effort to contain the virus, including social distancing, travel restrictions, border closures, limitations on public gatherings, work from home and supply chain logistical changes. While some of these actions have eased, escalating transmission rates (including of the Delta and Omicron variants of COVID-19), uneven vaccination and vaccination booster rates and further governmental guidance and orders may result in having to reimplement certain of these measures or implementing new and additional ones. We remain focused on protecting the health and well-being of our employees, our clients and our clients’ members while assuring the continuity of our business operations. The COVID-19 impact on our business resulted in elongated sales cycles, postponement of customer contract renewals, and slower implementation of software solutions for our clients, as well as a reduction in billable hours in one of our reportable segments, Advisory Services.
We have developed and implemented a range of measures to address the risks, uncertainties, and operational challenges associated with operating in a COVID-19 environment. We have also increased our interaction with our vendors to continue to monitor and manage inventory levels and are updating our systems regularly to provide current availability information to members. We have taken and will continue to take, proactive measures to provide for the well-being of our workforce while continuing to safely run our operations. We have implemented alternative working practices, which include, modified work schedules, shift rotation and work at home abilities for appropriate employees to best ensure adequate social distancing. In addition, we increased cleaning protocols throughout our facilities. Certain of these measures have resulted in increased costs. Our business, results of operations or financial condition could be further impacted by delays in payments from clients, supply chain interruptions, extended “shelter in place” orders or advisories, warehouse or facility COVID-19 outbreaks or closures or for other reasons related to the pandemic. In addition, the Biden Administration had previously announced, a plan directing the Occupational Safety and Health Administration to issue an emergency temporary standard requiring all private employers with 100 or more workers to mandate COVID-19 vaccinations or a weekly test for all employees (the “Biden ETS”). While the administration has since withdrawn the Biden ETS, reports indicate that it still intends to pursue a permanent vaccination requirement; although the details of any such requirement are currently unknown, it is possible that the cost of compliance may be substantial should the Company need to implement such a requirement.
Although the overall impact of COVID-19 on our business has been limited so far, such effects, if they continue, may have a material adverse effect on our business, results of operations or financial condition. The full extent to which the COVID-19 pandemic and the various responses to the COVID-19 pandemic will impact our business, operations or financial condition continues to depend on numerous evolving factors that we may not be able to accurately predict, including, but not limited to, the duration, severity and scope of the COVID-19 pandemic (including due to new variants such as Delta and Omicron); actions by governmental entities, businesses and individuals that have been and continue to be taken in response to the pandemic; the effect on our clients and demand by clients, clients and our clients’ members for and ability to pay for our solutions and services; and disruptions or restrictions on our employees’ ability to work and travel. The impact of these factors and others on our suppliers and clients could persist for some time after governments ease their restrictions and after the overall number of COVID-19 cases in the United States decreases. To the extent the COVID-19 pandemic adversely affects our business, results of operations or financial condition, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section.
Achieving market acceptance of new or updated solutions and services is necessary in order for such solutions and services to become profitable and will likely require significant efforts and expenditures.
The market for healthcare in the United States is in the early stages of structural change and is evolving towards a more value-based model, and increased technological innovation and adoption in the healthcare industry is transforming the healthcare industry’s business models. Our success depends, in part, on our ability to keep pace with technological developments, satisfy increasingly sophisticated and changing client and health plan member requirements and expectations and achieve market acceptance of new or updated solutions and services. Achieving market acceptance for new or updated solutions and services is likely to require substantial technological and sales and marketing efforts and the expenditure of significant funds to create awareness and demand by existing and prospective clients of our solutions and services. We may not be
Table of Contents
successful in responding to technological and regulatory developments or changing client needs. If we are unable to predict client preferences or industry changes, or if we are unable to modify our existing and future services on a timely or cost-effective basis, we may lose clients and our business, results of operations or financial condition may be adversely affected.
In addition, regulatory, operational or client-imposed requirements may impact the profitability of particular solutions and client engagements. The pace of change in the markets served by us is rapid, and there are frequent new solution and service introductions by competitors. If we do not respond successfully to technological and regulatory changes, as well as evolving industry standards and client demands, our solutions and services may become obsolete. Technological changes also may result in the offering of competitive solutions and services at lower prices than we currently charge for our solutions and services, which could result in us losing sales unless we lower the prices we charge or provide additional efficiencies or capabilities to the client. If we lower our prices on some of our solutions or services, we will need to increase margins on other solutions or services in order to achieve and maintain overall profitability. The failure to demonstrate to existing and potential clients the benefits of our existing and future services and the failure to market acceptance of new or updated solutions for any reason could have a material impact on our business, results of operations or financial condition.
Third parties on which we rely, including to procure inventory for our supplemental benefits solution and to deliver products to health plan members, may not perform satisfactorily or at all, and our reliance on any third party for the distribution of supplemental benefits carries material risks.
We rely on third parties in several components of our business, including in connection with administering our supplemental benefits solution. Our general reliance on third parties in the supply chain entails many risks, including: reliance on the third party for regulatory compliance and quality assurance, the possible breach of the agreement with the third party, the possible termination or non-renewal of the agreement by the third party at a time that is costly or inconvenient for us and disruptions to the operations of our manufacturers or suppliers caused by conditions unrelated to our business or operations, including the bankruptcy of the manufacturer or supplier or a catastrophic event affecting our manufacturers or suppliers. Additionally, even if we are party to an agreement pursuant to which a third party is contractually obligated to indemnify us for any costs incurred as a result of the breach of an agreement by a third party, the indemnifying party may be unable or otherwise unwilling to uphold its contractual obligations.
Certain of our health plan clients depend on us to procure inventory for our supplemental benefits solution and to deliver products to their members. Any changes in, or disruptions to, our ability to procure this inventory or in the shipping arrangements we use to deliver products to health plan members could adversely affect our business, results of operations or financial condition. We have experienced and continue to experience supply chain challenges and those challenges have adversely impacted our business, results of operations or financial condition. We currently rely on third-party providers to deliver the supplemental benefits products that we offer. If we are not able to negotiate acceptable pricing and other terms with these providers, or if these providers experience performance problems or other difficulties in processing our orders or delivering our products to our clients’ members, it could negatively impact our results of operations and the experience of our clients’ members. For example, changes to the terms of our shipping arrangements may impact our margins and . In addition, our ability to receive inbound inventory and ship products to clients’ members may be affected by factors beyond our and these providers’ control, including inclement weather, fire, flood, power , earthquakes, acts of war or terrorism, pandemics, including the COVID-19 pandemic, or other events specifically impacting our or other shipping partners, such as labor , financial , system and other to the operations of the shipping companies on which we rely. Although we do not manufacture supplemental benefits products ordered by our clients’ members, including OTC medications and other medical products, these items may be , or may otherwise cause to the members receiving and using such OTC medications or other medical products. If OTC medications or other medical products ordered by members through our supplement benefits offerings are , or otherwise cause to members, we may be subject to , including involving product liability , or our reputation may be affected among our clients or our clients’ health plan members.
We are also subject to risks of damage or loss during delivery by our shipping vendors. Additionally, competitors or prospective competitors may offer low-cost or free shipping, fast shipping times, favorable return policies and other features that could be difficult for us to match, or could be a reason our clients’ members choose not to buy supplemental benefits from us. If the products ordered by our clients’ members are not delivered in a timely fashion or are damaged or lost during the delivery process, our clients’ members could become dissatisfied and cease buying supplemental benefits products through us, which would adversely affect our business, results of operations or financial condition.
Our quarterly results of operations may fluctuate significantly due to seasonality.
We believe there are significant seasonal factors that may cause us to record higher revenue in some quarters compared with others. We typically generate outsized revenue in the fourth quarter primarily due to increased member utilization of
Table of Contents
supplemental benefits within our Technology Enabled Solutions segment. The supplemental benefit programs, including products, we support may include an in-year roll-over provision, in which benefits not used during the calendar year accumulate and are available for members to use prior to the end of the following calendar year. Similarly, we typically incur outsized expenses in the fourth quarter, driven by the increased member utilization of supplemental benefits described above, as well as increased costs related to our advanced plan administration solutions, that are within our Technology Enabled Solutions segment, for managing the Medicare annual election period. As part of these expenses, we also experience seasonal employee hiring practices primarily from September through December in connection with the Medicare annual enrollment period, which typically results in the hiring of a significant number of full-time employees on a temporary basis.
The seasonality of our business could cause the market price of our common stock to fluctuate as the results of an interim financial period may not be indicative of our full year results. Seasonality also impacts relative revenue and profitability of each quarter of the year, both on a quarter-to-quarter basis and year-over-year basis. This seasonality could change in the future due to other factors, including as a result of changes in timing of health plan enrollment periods and changes in the laws and regulations that govern the sale of health insurance. We may not be able to timely adjust to changes in the seasonality of our business. If the timing of the enrollment periods for health insurance changes, we may not be able to timely adapt to changes in client demand. If we are not successful in responding to changes in the seasonality of our business, our business, results of operations or financial condition would be adversely affected.
Our financial results could suffer if we are unable to achieve or maintain adequate utilization and suitable billing rates for our consultants, or if we are unable to deliver our services due to factors that disrupt travel to our client sites.
Our profitability depends, in part, on the utilization and billing rates of the professionals in our Advisory Services segment. Utilization of our professionals is affected by a number of factors, including:
• the number and size of our engagements;
• the timing of the commencement, completion and termination of engagements, which in many cases is unpredictable;
• our ability to transition our consultants efficiently from completed engagements to new engagements;
• the hiring of additional consultants because there is generally a transition period for new consultants that results in a temporary drop in our utilization rate;
• unanticipated changes in the scope of client engagements;
• our ability to forecast demand for our services; and
• conditions affecting the industries in which we practice as well as general economic conditions.
The billing rates of our consultants that we are able to charge are also affected by a number of factors, including:
• our clients’ perception of our ability to add value through our services;
• the market demand for the services we provide;
• introduction of new services by us or our competitors;
• our competition and the pricing policies of our competitors; and
• current economic conditions.
If we are unable to achieve and maintain adequate overall utilization as well as maintain or increase the billing rates for our consultants in our Advisory Services segment, our financial results could suffer. In addition, our consultants oftentimes perform services at the physical locations of our clients. If there are natural disasters, widespread outbreaks of contagious disease (including the continuation of the COVID-19 pandemic), disruptions to travel and transportation or problems with communications systems, our ability to perform services for, and interact with, our clients at their physical locations may be negatively impacted, which could have an adverse effect on our business, results of operations or financial condition.
Our Advisory Services segment in particular relies on a combination of fixed-fee engagements and performance-based engagements, the profitability of which can be unpredictable.
We have entered into and expect to continue to enter into fixed-fee engagements, particularly with our Advisory Services clients. The profitability of our fixed-fee engagements may not meet our expectations if we underestimate the cost of these engagements. When making proposals for fixed-fee engagements, we estimate the costs and timing for completing the
Table of Contents
engagements. These estimates reflect our best judgment regarding the efficiencies of our methodologies and consultants as we plan to deploy them on engagements. Any increased or unexpected costs or unanticipated delays in connection with the performance of fixed-fee engagements, including delays caused by factors outside of our control or for the scope of fixed-fee engagements to extend beyond what had initially been contemplated without a corresponding increase in the fees charged, could make these types of contracts less profitable or unprofitable, which could have an adverse effect on our business, results of operations or financial condition.
In addition, we have entered into and may in the future enter into engagement agreements with clients pursuant to which our fees include a significant performance-based component. Revenues from our performance-based engagements are difficult to predict, and the timing and extent of recovery of our costs is uncertain. Performance-based fees are contingent on the achievement of specific measures, such as our clients meeting cost-saving or other contractually-defined goals. The achievement of these contractually-defined goals may be subject to acknowledgment by the client and is often impacted by factors outside of our control, such as the actions of the client or other third parties. To the extent that any revenue is contingent upon the achievement of a performance target, we recognize such revenue using a process that requires us to make significant management judgments, estimates and assumptions. While we believe that the estimates and assumptions we have used for revenue recognition are reasonable, subsequent changes could have an impact on our future financial results. The percentage of our revenues derived from performance-based fee arrangements may result in increased volatility in our working capital requirements and greater variations in our quarter-to-quarter results, which could affect the price of our common stock. In addition, an increase in the proportion of performance-based fee arrangements may temporarily offset the effect on our operating results from an increase in our utilization rate until the related revenues are recognized.
Operating and growing our business may require additional capital, and, if capital is not available to us, our business, results of operations or financial condition may suffer.
Operating and growing our business may require further investments in our business. We may be presented with opportunities that we want to pursue, and unforeseen challenges may present themselves, any of which could cause us to require additional capital. Our business model does not require us to hold a significant amount of cash and cash equivalents at any given time and, if our cash needs exceed our expectations or we experience rapid growth, we could experience strain in our cash flow, which could adversely affect our operations in the event we are unable to obtain other sources of liquidity. If we seek to raise funds through equity or debt financing, those funds may prove to be unavailable, may only be available on terms that are not acceptable to us or may result in significant dilution to you or higher levels of leverage. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to pursue our business objectives and to respond to business , including potential acquisitions, or circumstances could be significantly limited, and our business, results of operations or financial condition could be materially affected.
If we fail to manage future growth effectively, our business, results of operations or financial condition could be harmed.
We have expanded our operations significantly, including through acquisitions, and anticipate that further expansion may be required in order for us to grow our business. Our growth has placed and could continue to place increasing and significant demands on our management, our operational and financial systems and infrastructure and our other resources. If we do not effectively manage our growth, the quality of our services could suffer, which could harm our business, results of operations or financial condition. In order to manage future growth, we will need to hire, integrate and retain highly skilled and motivated employees. We may not be able to hire new employees quickly enough to meet our needs. If we fail to effectively manage our hiring needs and successfully integrate our new hires, our efficiency and ability to meet our forecasts and our employee morale, productivity and retention could suffer, and our business, results of operations or financial condition could be harmed. We will also be required to continue to improve our existing systems for operational and financial management, including our reporting systems, procedures and controls. These may require significant capital expenditures and could place increasing demands on our management. We may not be in managing or expanding our operations or in maintaining adequate financial and operating systems and controls. If we do not implement in these areas, our business, results of operations or financial condition could be .
If we are unable to attract, train, motivate and retain senior management and other qualified personnel, our business, results of operations or financial condition could be negatively affected.
Our success depends in large part on our ability to attract and retain senior management personnel, as well as technically qualified and highly skilled technical, operational, sales, consulting, finance and marketing personnel. It could be difficult, time consuming and expensive to identify, recruit, and onboard any key management member or other critical personnel. Competition for highly skilled personnel is often intense. If we are unable to attract and retain qualified individuals, our ability to compete in the markets for our solutions would be adversely affected, which would have a negative impact on our business,
Table of Contents
results of operations or financial condition. Our competitors may be successful in recruiting and hiring members of our management team or other key employees, including key employees obtained through our acquisitions, and it may be difficult for us to find suitable replacements on a timely basis, on competitive terms or at all.
Changes in management or other critical personnel may be disruptive to our business and might also result in our loss of unique skills, loss of knowledge about our business and the departure of other existing employees. The loss of one or more of our key employees could significantly harm our business. If we are unable to attract, integrate, or retain the qualified and highly skilled personnel required to fulfill our current or future needs, our business, results of operations or financial condition could be harmed.
Effective succession planning is also important to the long-term success of our business. If we fail to ensure the effective transfer of knowledge and smooth transitions involving key employees, it could hinder our strategic planning and execution. The loss of senior management or any ineffective transitions in management could significantly delay or prevent the achievement of our development and strategic objectives, which could adversely affect our business, results of operations or financial condition.
Our international operations subject us to additional risks which could have an adverse effect on our business, results of operations or financial condition.
We have certain business operations located in the Philippines. Countries outside of the United States may be subject to relatively higher degrees of political and social instability and may lack the infrastructure to withstand political unrest or natural disasters. These risks and challenges include, but are not limited to:
• difficulties and costs of staffing and managing foreign operations, including any impairment to relationships with employees caused by a reduction in force;
• restrictions imposed by local labor practices and laws on our business and operations;
• exposure to different business practices and legal standards;
• unexpected changes in regulatory requirements;
• political, social and economic stability and the risk of war, terrorist activities or other international incidents;
• the failure of telecommunications and connectivity infrastructure;
• natural disasters and public health emergencies, including the ongoing COVID-19 pandemic; and
• potentially adverse tax consequences, including the possible imposition of increased withholding taxes.
The factors set forth above could interfere with work performed by labor sources in these areas or could result in our having to replace or reduce these labor sources.
The practice of utilizing labor based in foreign countries has come under increased scrutiny in the United States. Governmental authorities, including CMS, could seek to impose financial costs or restrictions on foreign companies providing services to clients or companies in the United States. Governmental authorities may attempt to prohibit or otherwise discourage us from sourcing services from offshore labor. In addition, clients may require us to use labor based in the United States for regulatory or other reasons. To the extent that we are required to use labor based in the United States, we may face increased costs as a result of higher-priced United States-based labor.
The Foreign Corrupt Practices Act of 1977, as amended, and other applicable anti-corruption laws and regulations prohibit certain types of payments by our employees, vendors and agents. Any violation of the applicable anti-corruption laws or regulations by us, our subsidiaries or our local agents could expose us to significant penalties, fines, settlements, costs and consent orders that may curtail or restrict our business as it is currently conducted and could have an adverse effect on our business, results of operations or financial condition.
Contractual relationships with private insurers that are funded by government programs may impose special burdens on us and provide special benefits to those clients.
A large portion of our revenue comes from private insurers that are funded by government programs. Our contracts with private insurers may be subject to some or all of the following:
• termination when appropriated funding for the current fiscal year is exhausted;
Table of Contents
• termination for the governmental client’s convenience, subject to a negotiated settlement for costs incurred and profit on work completed, along with the right to place contracts out for bid before completion of the full contract term, as well as the right to make unilateral changes in contract requirements, subject to negotiated price adjustments;
• compliance and reporting requirements related to, among other things, agency-specific policies and regulations, information security, subcontracting requirements, equal employment opportunity, affirmative action for veterans and workers with disabilities and accessibility for the disabled;
• broad audit rights;
• ownership of inventions made with federal funding under the Bayh-Dole Act; and
• specialized remedies for breach and default, including set-off rights, risk allocation, retroactive price adjustments and civil or criminal fraud penalties, re-procurement expenses, as well as mandatory administrative dispute resolution procedures instead of state contract law remedies.
In addition, certain violations of federal and state law may result in termination of our contracts with private insurers, and, under certain circumstances, suspension or debarment from future such contracts.
We face inspections, reviews, audits and investigations from health plans. These audits could have adverse findings that may negatively affect our business, results of operations or financial condition.
Because we support our health plan clients’ participation in Medicare and other government-sponsored healthcare programs, we are subject to inspections, reviews, audits and investigations by them to verify our compliance with these programs, applicable laws and regulations and contractual requirements. We also periodically conduct internal audits and reviews of our regulatory compliance. An adverse inspection, review, audit or investigation could result in:
• refunding amounts or paying penalties assessed by the health plans;
• state or federal agencies imposing fines, penalties and other sanctions on us;
• decertification or exclusion from participation in one or more health plan networks;
• self-disclosure of violations to applicable regulatory authorities;
• damage to our reputation; and
• loss of certain rights under, or termination of, our contracts with health plans.
The outcome of any current or future inspection, review, audit or investigation cannot be accurately predicted, nor can we predict any of the results noted above. Nevertheless, it is possible that any such outcome of an adverse inspection, review, audit or investigation could be substantial, and the outcome of these matters may have a material adverse effect on our business, results of operations or financial condition. Furthermore, the legal and other costs associated with complying with these inspections, reviews, audits or investigations, including costs associated with maintaining related security and compliance controls, could be significant.
Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.
Our net operating loss (“NOL”) carryforwards could expire unused and be unavailable to offset future income tax liabilities because of their limited duration or because of restrictions under U.S. tax law. NOLs generated in taxable years beginning before January 1, 2018 are permitted to be carried forward for only 20 taxable years under applicable U.S. federal income tax law. Under the Tax Cuts and Jobs Act, or the Tax Act, as modified by the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, NOLs arising in taxable years beginning after December 31, 2017, and before January 1, 2021, may be carried back to each of the five tax years preceding the tax year of such loss, and NOLs arising in tax years beginning after December 31, 2020 may not be carried back. Moreover, under the Tax Act as modified by the CARES Act, NOLs generated in taxable years beginning after December 31, 2017 may be carried forward indefinitely, but the deductibility of such NOLs generally will be limited in taxable years beginning after December 31, 2020 to 80% of current year taxable income. As of December 31, 2021, not all states have conformed to the Tax Act and CARES Act.
Table of Contents
In general, under Section 382 of the Internal Revenue Code of 1986, as amended to the date hereof (the “Code”), a corporation that undergoes an “ownership change” (as defined under Section 382 of the Code (“Section 382”) and applicable Treasury Regulations) is subject to limitations on its ability to utilize its pre-change NOLs to offset future taxable income. As a result of the Merger, an analysis was completed in accordance with Section 382 to determine the limitations associated with our use of preexisting NOL carryforwards in future periods. The annual limitation is based on a number of factors including the value of our stock (as defined for tax purposes) on the date of the ownership change, our net unrealized built in gain position on that date and the effect of any subsequent ownership changes, if any. We retained a third party to complete the required Section 382 analysis who determined that at September 4, 2019 approximately $66.9 million of the NOL carryforwards will be available to future tax periods in varying increments annually. As of December 31, 2021, the Company had $43.3 million of federal NOL carryforwards of which $0.7 million begin to expire between 2023 and 2026 and the remaining $42.6 million has an indefinite carryforward period. The remaining NOLs will be limited to 80% of taxable income in accordance with the Tax Cut and Jobs Act. As of December 31, 2021, we had $41.4 million of combined NOL carryforwards in various states which will begin to expire in 2023.
Risks Related to Governmental Regulation
Recent and future developments in the healthcare industry could have a material adverse impact on our business, results of operations or financial condition.
All of our revenue is derived from the healthcare industry, which is highly regulated and subject to changing political, legislative, regulatory and other influences. From time to time, including after the 2020 U.S. presidential and congressional elections, there have been renewed calls for reform to the U.S. healthcare industry and to health insurance, which could lead to significant changes in the U.S. healthcare market. We cannot predict with certainty what form any potential health insurance reform, if ever adopted, may take and the impact of any such reform on our clients’ businesses and on our business, but such changes could impose new or more stringent regulatory requirements on the activities of our clients, which in turn could negatively impact our business, results of operations or financial condition.
Federal healthcare program spending continues to be a major political and legislative issue in the United States and the federal government continues to consider deficit reduction measures and other changes to government healthcare programs. In recent years, legislative and regulatory changes have limited, and in some cases reduced, the levels of payment that healthcare payors receive for various services under Medicare, Medicaid and other federal healthcare programs. For example, the Budget Control Act requires automatic spending reductions to the federal deficit, and the ACA provides for significant federal healthcare program spending reductions, including reductions in Medicare payments to most healthcare providers and Medicare Advantage plans. See “— Risks Related to our Business and Industry — Federal reductions in Medicare Advantage funding could adversely affect our business, results of operations or financial condition.”
The ACA has also changed how healthcare services are covered, delivered and reimbursed. The ACA mandates that substantially all U.S. citizens maintain health insurance coverage, expands health insurance coverage through a combination of public program expansion and private sector reforms, reduces Medicare program spending and promotes value-based purchasing. However, efforts by certain lawmakers to repeal or make significant changes to the ACA, our implementation or our interpretation have cast uncertainty onto the future of the law. We are unable to predict the full impact of the ACA and other health reform initiatives on our operations in light of the uncertainty regarding whether, when and how the ACA will be further changed, what alternative reforms (including single payer proposals), if any, may be enacted, the timing of enactment and implementation of alternative provisions and the impact of alternative provisions on various healthcare industry participants. While many of the provisions of the ACA and other health reform initiatives may not be directly applicable to us, such initiatives affect the businesses of our clients. For example, as a result of Medicare payment reductions and other reimbursement changes mandated under the ACA, our clients may attempt to seek price concessions from us or reduce their use of our solutions, especially if provisions expanding coverage are repealed without eliminating the payment reductions or other reimbursement changes. Additionally, because many of our solutions are designed to assist clients in effectively navigating the shift to value-based healthcare, the elimination of, or significant revisions to, various value-based healthcare initiatives may impact our business. Thus, the ACA may result in a reduction of expenditures by clients or potential clients in the healthcare industry, which could have a material impact on our business, results of operations or financial condition.
Moreover, there are currently numerous federal, state and private initiatives seeking to increase the use of technology in healthcare as a means of improving care and reducing costs. For example, the Health Information Technology for Economic and Clinical Health (“HITECH”) Act, which was enacted in 2009, and the 21st Century Cures Act (the “Cures Act”), which was enacted in 2016, contain incentives and penalties to promote the use of Electronic Health Records (“EHR”) technology and the efficient exchange of health information electronically. Further, the Cures Act provides for penalties to be imposed on healthcare technology developers, health information exchanges or networks and health providers that are found to improperly block the exchange of health information. These and other initiatives may result in additional or costly legal or regulatory
Table of Contents
requirements that are applicable to us and our clients, may encourage more companies to enter our markets, may provide advantages to our competitors and may result in the development of technology solutions that compete with us. Any such initiatives also may result in a reduction of expenditures by existing or potential clients, which could have a material adverse impact on our business, results of operations or financial condition.
In addition to cost containment efforts at the federal and state levels, general reductions in expenditures by healthcare industry constituents could have a material adverse impact on our business, results of operations or financial condition. Such reductions could result from, among other things, government regulation or private initiatives that affect the manner in which providers interact with patients, payors or other healthcare industry constituents, including changes in pricing or means of delivery of healthcare solutions. Even if general expenditures by healthcare industry constituents remain the same or increase, other developments in the healthcare industry may result in reduced spending on healthcare technology and services or in some or all of the specific markets we serve or are planning to serve. In addition, our clients’ expectations regarding pending or potential healthcare industry developments also may affect their budgeting processes and spending plans with respect to the types of solutions we provide. For example, use of our solutions could be affected by, among other things:
• changes in the design of health insurance plans;
• changes in the contracting methods payors use in their relationships with providers; and
• implementation of government programs that streamline and standardize eligibility enrollment processes, which could result in decreased pricing or demand for our eligibility and enrollment solutions.
The healthcare industry has changed significantly in recent years, and we expect that significant changes will continue to occur. The timing and impact of developments in the healthcare industry are difficult to predict. We cannot be sure that the markets for our solutions will continue to exist at their current levels, will not change in ways that adversely affect us or that we will have adequate technical, financial and marketing resources to react to changes in those markets.
We are subject to complex, stringent and evolving laws, regulations and standards relating to data privacy and security (including the collection, storage, use, transfer, and processing of personally identifiable information), including protected health information, and any actual or perceived failure by us to comply with such laws, regulations or standards, or our own information security policies or contractual or other obligations relating to data privacy and security, could adversely affect our business, including our reputation among clients.
We collect, receive, generate, use, process, and store significant and increasing volumes of sensitive information, such as employee, client and individual protected health information and other personally identifiable information. We are subject to a variety of federal, state and local laws, directives and regulations, as well as contractual obligations, relating to the collection, use, storage, retention, security, disclosure, transfer, return, destruction and other processing of protected health information, other personally identifiable information, and other data. In many jurisdictions, enforcement actions and consequences for noncompliance with such laws, directives and regulations are rising, and the regulatory framework for privacy, data protection and data transfers is complex and rapidly evolving and is likely to remain uncertain for the foreseeable future. As required by applicable laws, we publicly post documentation regarding our privacy practices concerning the collection, processing, use and disclosure of certain data. The publication of our privacy policy and other documentation that provide promises and assurances about privacy and security can subject us to potential state and federal action if they are found to be deceptive, unfair, or misrepresentative of our actual practices. In addition, although we endeavor to comply with our published policies and documentation, individuals could allege we have to do so, or we may at times actually to do so our efforts. Any by us, our vendors or other parties with whom we do business to comply with this documentation or with laws or regulations applicable to our business could result in proceedings us by governmental entities or others. Such a could affect our business, including our reputation among clients.
The U.S. federal and various state government bodies and agencies have adopted or are considering adopting laws and regulations limiting, or laws and regulations regarding the collection, distribution, use, disclosure, storage and security of, personally identifiable information, including protected health information. For example, HIPAA establishes a set of national privacy and security standards for the protection of protected health information by health plans, healthcare clearinghouses and certain healthcare providers, referred to as covered entities, and the business associates with whom such covered entities contract for services, including administrative provisions directed at simplifying electronic data interchange through standardizing transactions, establishing uniform healthcare provider, payor, and employer identifiers and seeking protections for confidentiality and security of patient data. Compliance with HIPAA requires significant systems enhancements, training and administrative effort. HIPAA can also expose us to additional liability for violations by our business associates.
HIPAA imposes mandatory penalties for certain violations, and a single breach incident can result in violations of multiple standards. HIPAA also authorizes state attorneys general to file suit on behalf of their residents. Courts may award damages,
Table of Contents
costs and attorneys’ fees related to violations of HIPAA in such cases. While HIPAA does not create a private right of action allowing individuals to sue in civil court for violations of HIPAA, its standards have been used as the basis for duty of care in state civil suits such as those for negligence or recklessness in the misuse or breach of protected health information or personally identifiable information. Moreover, many state laws do create state-specific private rights of action for conduct that would otherwise violate HIPAA or state law obligations. Class action lawsuits are becoming an expected and more common occurrence in cases of breaches.
In addition, HIPAA mandates that the HHS conduct periodic compliance audits of HIPAA-covered entities and business associates for compliance with HIPAA’s privacy and security standards. It also tasks HHS with establishing a methodology whereby harmed individuals who were the victims of breaches of unsecured protected health information may receive a percentage of the civil monetary penalty fine paid by the violator.
HIPAA further requires that members be notified of any unauthorized acquisition, access, use or disclosure of their unsecured protected health information that compromises the privacy or security of such information, with certain exceptions related to unintentional or inadvertent use or disclosure by employees or authorized individuals. HIPAA specifies that such notifications must be made “without unreasonable delay and in no case later than 60 calendar days after discovery of the breach.” If a breach affects 500 patients or more, it must be reported to HHS without unreasonable delay, and HHS will post the name of the breaching entity on its public website. Breaches affecting 500 patients or more in the same state or jurisdiction must also be reported to the local media. If a breach involves fewer than 500 people, the covered entity must record it in a log and notify HHS at least annually.
In addition to HIPAA, numerous other federal and state laws and regulations designed to protect the collection, distribution, use, disclosure, storage and security of protected health information and other types of personally identifiable information have been enacted. For example, in June 2018 California enacted the California Consumer Privacy Act (“CCPA”), which became effective on January 1, 2020 and, among other things, requires covered companies to provide certain disclosures to California residents and afford such residents data protection rights, including the ability to opt out of certain sales of personally identifiable information. The CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of personally identifiable information that may increase data breach litigation. Additionally, the California Privacy Rights Act (“CPRA”) was passed in November 2020. Effective beginning on January 1, 2023, the CPRA imposes additional obligations on companies covered by the legislation and will significantly modify the CCPA, including by expanding California residents’ rights with respect to certain sensitive personally identifiable information. The CPRA also creates a new state agency that will be vested with authority to implement and enforce the CCPA and the CPRA. While the CCPA may not apply to certain protected health information, the interpretation and enforcement of the CCPA remain unclear, and the effects of the CCPA potentially are significant and still may require us to modify our data practices and policies and to incur substantial costs and expenses in an effort to comply and increase our potential exposure to regulatory enforcement and sanctions and .
In the United States, many state legislatures, government bodies and regulatory agencies have adopted legislation and regulations that regulate how businesses operate online, including measures relating to privacy, data security and data breaches. Additionally, some statutory and regulatory requirements in the United States, such as HIPAA, include obligations for companies to notify individuals of security breaches involving particular personally identifiable information, which could result from breaches experienced by us or our service providers. Laws in all 50 states and other U.S. territories require businesses to provide notice to individuals whose personally identifiable information has been disclosed as a result of a data breach. Such laws are not always consistent, and compliance in the event of a widespread data breach is costly and may be challenging. States are also constantly amending existing laws, requiring attention to frequently changing requirements, and we expect these changes to continue.
In addition to government regulation, privacy advocates and industry groups may propose self-regulatory standards from time to time. These and other industry standards may legally or contractually apply to us, or we may elect to comply with such standards or to facilitate our clients’ compliance with such standards. We expect that there will continue to be new proposed laws and regulations concerning privacy, data protection and information security, and we cannot yet determine the impact such future laws, regulations, and standards may have on our business. New laws, amendments to or re-interpretations of existing laws and regulations, industry standards, contractual and other obligations may require us to incur additional costs and restrict our business operations. Because the interpretation and application of laws, standards, contractual and other obligations relating to privacy and data protection are still uncertain and changing, it is possible that these laws, standards, contractual and other obligations may be interpreted and applied in a manner that is inconsistent with our data management practices, our privacy, data protection or data security policies or procedures or the features of our technology. If so, in addition to the possibility of fines, lawsuits, regulatory investigations, imprisonment of company officials and public censure, other and , significant costs for remediation and to our reputation, we could be required to fundamentally change our business activities and practices or modify our technology, any of which could affect our business. We may be to make
Table of Contents
such changes or modifications in a commercially reasonable manner, or at all, and our ability to develop new software or provide new services could be limited. Any inability to adequately address privacy, data protection or information security-related concerns, even if unfounded, or to successfully negotiate privacy, data protection or information security-related contractual terms with clients, or to comply with applicable laws and regulations, or our policies relating to privacy, data protection, and information security, could result in additional cost and liability to us and harm our reputation and brand. Any of the foregoing could materially and adversely affect our business, results of operations or financial condition.
We are unable to predict what changes to laws, regulations and other requirements, including related to contractual obligations, might be made in the future or how those changes could affect our business and the costs of compliance.
We have attempted to structure our operations to comply with laws, regulations and other requirements applicable to us directly and to our clients, but we cannot assure you that our operations will not be challenged or impacted by enforcement initiatives. We have been, and in the future may become, involved in governmental investigations, audits, reviews and assessments. Certain of our businesses are subject to review, including for compliance with various legal, regulatory or other requirements. Any determination by a court or agency that our solutions violate, or cause our clients to violate, applicable laws, regulations or other requirements could subject us or our clients to civil or criminal penalties. Such a determination also could require us to modify or terminate portions of our business, disqualify us from serving clients that do business with government entities or cause us to refund some or all of our service fees or otherwise compensate our clients. In addition, failure to laws, regulations or other requirements could affect demand for our solutions and could us to expend significant capital, research and development and other resources to address the . Even an by regulatory and other authorities or private whistleblowers could be expensive and time-consuming, could result in of business, exposure to publicity and to our reputation and could affect our ability to retain and attract clients. Laws, regulations and other requirements impacting our operations include, but are not limited to, the following:
• the federal beneficiary inducement civil monetary laws, which generally prohibit giving something of value to an individual if the remuneration is likely to influence that beneficiary’s choice of a particular provider, supplier or practitioner for services covered by applicable federal healthcare programs. There are a number of exceptions, such as, remuneration that “promotes access to care and poses a low risk of harm to patients and federal healthcare programs.” A violation of this statute includes fines or exclusion from federal healthcare programs;
• HIPAA, which created additional federal criminal statutes that prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud or to obtain, by means of false or fraudulent pretenses, representations or promises, any money or property owned by, or under the control or custody of, any healthcare benefit program, including private third-party payors, willingly obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up by trick, scheme or device, a material fact or making any materially false, fictitious or statement in connection with the delivery of or payment for healthcare benefits, items or services. Like the federal Anti- Statute, a person or entity need not have actual knowledge of the statute or specific intent to it in order to have committed a ;
• the TCPA, which subjects us and our vendors to various rules regarding contacting our clients and our clients’ patients via telephone, fax or text message, may impact our operations. Prior express consent, and, in the case of marketing calls, prior express written consent, of consumers may be required to override certain activities prohibited under the TCPA. Because our solutions need and rely upon various messaging components to achieve successful outcomes for us and our clients, our ability to communicate with our clients and their patients may be affected by the TCPA, its implementing regulations and litigation pursuant to the TCPA. In addition, because the scope and interpretation of the TCPA, and other laws that are or may be applicable to making calls and delivering text messages to consumers, continue to evolve and develop, we or our vendors inadvertently could fail to comply or be alleged, with or without merit, to have failed to comply with the TCPA or other similar laws, and consequently be subject to significant liability and statutory damages, negative publicity associated with class action or costs associated with modifying our solutions and business strategies;
• the CAN-SPAM Act, which regulates commercial email messages and specifies penalties for the transmission of commercial email messages that do not comply with certain requirements, such as providing an opt-out mechanism for stopping future emails from senders; and
• analogous state laws and regulations, such as state anti-kickback and false claims laws, which may be more restrictive and may apply to healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, or by the patients themselves.
We also may be impacted by non-healthcare laws, industry standards and other requirements. For example, laws and regulations governing how we communicate with our clients and our clients’ members may impact our operations and, if not
Table of Contents
followed, would result in fines, penalties and other liabilities and adverse publicity and injury to our reputation. Compliance with future laws and regulations or the applicable regulators’ interpretations of the laws and regulations may require us to change our practices at an undeterminable, and possibly significant, initial and annual expense. These additional monetary expenditures may increase future overhead, which could harm our business.
Changes in tax rules and regulations, or in interpretations thereof, may materially adversely affect our effective tax rates.
We have operations in many states in the United States as well as the Philippines. Accordingly, we are subject to taxation in many jurisdictions with increasingly complex tax laws, the application of which can be uncertain.
Unanticipated changes in our tax rates could affect our future results of operations or financial condition. Our future effective tax rates could be unfavorably affected by changes in the tax rates in jurisdictions where our income is earned and taxed, by changes in tax rules and regulations, or in interpretations thereof, in the jurisdictions in which we do business, by increases in expenses not deductible for tax purposes including impairments of goodwill, by changes in GAAP or other applicable accounting standards or by changes in the valuation of our deferred tax assets and liabilities.
In addition, we are subject to the continual examination of our income tax returns by the U.S. Internal Revenue Service (“IRS”) and other domestic and international tax authorities. Tax authorities in various jurisdictions may disagree with and subsequently challenge the amount of profits taxed in their state or country, which may result in increased tax liability, including accrued interest and penalties, which would cause our tax expense to increase. We regularly assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our provision for income taxes and have reserved for potential adjustments that may result. We cannot assure you that the final determination of any of these examinations will not have a material adverse effect on our results of operations or financial condition.
Risks Related to Information Technology, Data Privacy and Intellectual Property
Security breaches or incidents, failures and other disruptions of the information technology (“IT”) systems used in our business operations, including the Internet and related systems of our vendors, and the security measures protecting them, and the sensitive information we collect, process, transmit, use and store, may adversely impact our business, results of operations or financial condition.
Our business relies on sophisticated, commercial off-the-shelf and customized IT systems to obtain, process, store, analyze and manage data and other sensitive information, and to develop, distribute and deliver products and services. Further, our business relies to a significant degree upon the secure collection, transmission, use, storage and other processing of sensitive information, including protected health information and other personally identifiable information, financial information, including payment card data, and other confidential information and data within these systems. To the extent our or our vendors’ IT systems are not successfully protected or fail, our business, results of operations or financial condition may be adversely affected. Our business, results of operations or financial condition may also be adversely affected if a vendor servicing our IT systems does not perform satisfactorily, or if the IT systems are interrupted or damaged by unforeseen events, including the actions of third parties.
To protect our systems and the information stored thereon, we seek to implement commercially reasonable security measures and maintain information security policies and procedures informed by requirements under applicable law and recommended practices, in each case, as applicable to the data received, used, stored, processed and transmitted. Despite our security management efforts with respect to administrative, physical and technical safeguards, employee training, vendor (and sub-vendor) controls and contractual relationships, our infrastructure, data or other operations centers and systems used in connection with our business operations, including the Internet and related systems of our vendors (including vendors to which we outsource data hosting, storage and processing functions) are vulnerable to a security breach, interruption of system or the threat of a breach or other security incident. For example, we and our vendors have experienced, and from time to time in the future may experience, unauthorized access to, misuse, modification, loss or of and disclosure of our or our clients’ (or their members’ and patients’) confidential or personal information or data due to and other data security , power or telecommunications , employee or insider or employee or contractor conduct, computer viruses and other malware, programming and other human , phishing schemes, of ransomware events and -of-service attacks. In December 2021 security industry experts discovered a known as Log4Shell. Log4Shell is a software in Apache Log4j 2, a Java library for logging messages in applications used in a variety of consumer and enterprise applications, infrastructure platforms, and operational technology products. The a remote attacker to potentially take control of a device, leak data, execute code remotely, and initiate of service attacks systems running exploitable versions of Log4j 2. Although we have limited Internet accessible systems utilizing this library, certain of our vendors incorporate it into their software and platforms.
Table of Contents
To date, we have not identified any malicious Log4j 2 activity or impacts to our systems, but continue to scan, monitor, and manage the threat of this vulnerability, including but not limited to applying system upgrades and vendor hotfixes. In the future, we may experience such unauthorized access or disclosures for these reasons or due to other disruptive problems, including, but not limited to, physical break-ins, hackers and other breaches by insiders or third parties due to criminal conduct, ransomware events, fraud, natural disasters, terrorist attacks and other unanticipated events. We may be required to expend significant capital and other resources to protect against, and alleviate problems caused by, such , regardless of whether they affect our systems or networks, or the systems or networks of our third-party service providers.
It is not possible to prevent all security threats to our systems and data or to predict all the ways in which such security threats may materialize. Techniques used to obtain unauthorized access, disable or degrade services or sabotage systems are becoming increasingly complex and sophisticated and change frequently, which can make such events difficult to detect for long periods of time. Further, defects in the design or manufacture of the hardware, software or applications we procure from third parties to develop our products and services could compromise our IT systems. These events, including unauthorized access, misappropriation, disclosure or loss of sensitive information (including personally identifiable information, protected health information or financial information) or a significant disruption of our network generally, expose us to risks, including an to provide our solutions and fulfill contractual demands, and could cause management and the obligation to devote significant financial and other resources to mitigate such , which would increase our future information security costs, including through organizational changes, deploying additional personnel, reinforcing administrative, physical and technical safeguards, further training of employees, changing vendor (and sub-vendor) control practices and engaging third-party subject matter experts and consultants.
Moreover, unauthorized access, use or disclosure of certain sensitive information in our possession or our failure to satisfy legal requirements, including requirements relating to safeguarding protected health information under HIPAA, payment card data under the Payment Card Industry Data Security Standard and personally identifiable information under applicable state data privacy laws, as discussed above, could result in litigation, disputes, indemnity obligations and other liabilities and regulatory investigations, enforcement, orders and actions, which could result in potential fines and penalties, as well as costs relating to investigation of an incident or breach, corrective actions, required notifications to regulatory agencies and clients, credit monitoring services and other necessary expenses. In addition, actual or perceived breaches of our security management efforts can cause existing clients to their relationship with us and existing or prospective clients from using or purchasing our solutions in the future. These events can have a material impact on our business, results of operations, financial condition or reputation.
Because our solutions involve the collection, processing, storage, use and transmission of personally identifiable information of consumers, we and other industry participants have been and expect to routinely be the target of attempted cyber and other security threats by outside third parties, including technically sophisticated and well-resourced bad actors attempting to access or steal the data we store, process or transmit. Vendor, insider or employee cyber and security threats also occur and are a significant concern for all companies, including us. In recent years there have been a number of well-publicized data breaches involving the improper dissemination of personally identifiable information of individuals both within and outside of the healthcare industry and such breaches can result in significant losses. These breaches have resulted in lawsuits and governmental investigations or enforcement actions that have sought or obtained significant fines and , and have required companies to enter into agreements with government regulators that impose ongoing obligations and requirements, including internal and external (third-party) monitorship for five years or more. Most states require holders of personally identifiable information to maintain safeguards and take certain actions in response to a data , such as providing prompt notification of the to affected individuals or the state’s attorney general. In some states, these laws are limited to electronic data, but states increasingly are enacting or considering stricter and broader requirements. Additionally, HIPAA imposes certain notification requirements on both covered entities and business associates. In certain circumstances involving large , requirements may even involve notification to the media. A non-permitted use or disclosure of protected health information is presumed to be a under HIPAA unless the covered entity or business associate establishes that there is a low probability the information has been compromised consistent with requirements enumerated in HIPAA. Further, the Federal Trade Commission has certain data cases as and acts or practices under the Federal Trade Commission Act. In addition, by regulation, the Federal Trade Commission requires creditors, which may include some of our clients, to implement identity theft programs to detect, prevent and mitigate identity theft in connection with client accounts. Although Congress passed legislation that restricts the definition of “creditor” and exempts many healthcare providers from complying with this identity theft rule, we may be required to apply additional resources to our existing processes to assist our affected clients in complying with this rule.
While we maintain liability insurance coverage, including coverage for errors and omissions and cyber-liability, claims may not be sufficiently covered or could exceed the amount of our applicable insurance coverage, if any, or such coverage may not continue to be available on acceptable terms or in sufficient amounts. We also cannot ensure that any limitation of liability or indemnity provisions in our contracts, including with vendors and service providers, for a security lapse or breach or other
Table of Contents
security incident would be enforceable or adequate or would otherwise protect us from any liabilities or damages with respect to any particular claim. Any of the foregoing could adversely affect our business, results of operations or financial condition.
Disruptions in service or damages to our and our vendors’ data center colocation and hosting facilities, public and private cloud subscriptions, distribution centers or other operations centers, or other software or systems failures, could have a material adverse impact on our business, results of operations or financial condition.
Our data center colocation and hosting facilities, public and private cloud subscriptions, distribution centers and other operations centers are essential to our business. Our business operations depend on our and our vendors’ ability to maintain and protect our network and computer systems, many of which are located in our primary data center colocation facilities and operations centers that we lease or subscribe to and operate, some of which are outsourced to certain third-party hosting and cloud service providers. We have consolidated several hosting environments and currently plan to continue such consolidation. We also provide application hosting and managed services that involve operating both our infrastructure and software, as well as the software of vendors for our clients. The ability to access the systems, applications and data that we host and on demand support is important to our clients.
Our operations, cloud service providers and data center colocation and hosting facilities are vulnerable to interruption or damage from a number of sources, many of which are beyond our control, including, without limitation: power loss and telecommunications failures; fire, flood, hurricane, tornado and other natural disasters (which may be affected by climate change); software and hardware errors, failures or crashes; spikes in consumer usage; negligence; infrastructure changes; human or software errors; hardware failures; terrorist attacks; improper operation; cyber and ransomware attacks; and computer viruses, hacking, break-ins, sabotage, fraud, acts of and other similar . The occurrence of any of these events could result in , or cessations in service to users of our solutions, which could or prohibit our ability to provide our solutions, reduce the competitive of our solutions to our clients, our reputation and otherwise have a material impact on our business, results of operations or financial condition. In addition, if clients’ access to our solutions is because of in our operations, facilities or cloud service providers, we could be in of our agreements with clients or to significant , particularly if the access is associated with in the timely delivery of medical care.
We attempt to mitigate these risks through various means, including disaster recovery and business continuity plans, penetration testing, vulnerability scans, patching and other information security procedures and cybersecurity and ransomware measures, insurance against fires, floods, other natural disasters, cyber-liability and general business interruptions, and client and employee training and awareness, but our precautions cannot protect against all risks. Any significant instances of system downtime could negatively affect our reputation and ability to provide our solutions or remote hosting services, which could have a material adverse impact on our business, results of operations or financial condition.
We also rely on a number of vendors, such as cloud service providers, data center colocation and hosting providers and call center technology providers, to provide us with a variety of solutions and services necessary for our transaction services and processing functions. We also utilize contractors and sub-contractors, including, but not limited to, software developers, for the development and maintenance of certain software products we use to provide our solutions, as well as infrastructure, security and IT service management. As a result, our disaster recovery and business continuity plans may rely, in part, upon vendors of related services, which increases our vulnerability to problems with the services they provide. We exercise limited control over these vendors, and our review processes for such vendors may be insufficient to identify, prevent or mitigate adverse events. Our vendors are ultimately responsible for maintaining their own network security, disaster recovery and system management procedures, and, if these vendors do not fulfill their contractual obligations, have system failures, choose to discontinue their products or services or otherwise any type of cybersecurity , our business and operations could be and our brand and reputation, including with our clients and partners, could be . Any of the foregoing could affect our business, results of operations or financial condition.
Interruptions and limitations of the IT systems used in our business operations could have a material adverse impact on our business, results of operations or financial condition.
Our ability to deliver our solutions and services is dependent on the development and maintenance of the infrastructure of the Internet and other telecommunications services by third parties. This includes maintenance of a reliable network connection with the necessary speed, data capacity and security for providing reliable Internet access and services and reliable telephone and facsimile services. Our services are designed to operate without interruption in accordance with our service level commitments.
However, we have experienced limited interruptions of our IT systems in the past, including infrastructure failures that temporarily slow down the performance of our solutions, and we may experience similar or more significant interruptions in the
Table of Contents
future, as discussed above. Interruptions of these systems, whether due to system failures, computer viruses, physical or electronic break-ins or other catastrophic events, could affect the security or availability of our solutions and services and prevent or inhibit the ability of our clients to access our solutions and services. In the event of any errors, failures, interruptions or delays with respect to our IT systems or those of our vendors, we may experience an extended period of system unavailability, which could result in substantially costs to remedy the problem or negatively impact our relationships with our clients and partners and adversely affect our business and could expose us to liabilities. Although we maintain insurance for our business, the coverage under our policies may not be adequate to compensate us for all that may occur, and we cannot provide assurance that we will continue to be to obtain adequate insurance coverage at an acceptable cost.
In addition, as a result of the complexity of the issues facing our clients and the inherent complexity of our solutions to such issues, our clients depend on our support organization to resolve any technical issues relating to our offerings. Our ability to deliver our products and solutions is dependent on our software development lifecycle management processes, including with respect to our change management processes, which impact our ability to effectively identify, track, test, manage and implement changes to our software. As a result, our IT systems require an ongoing commitment of significant resources to maintain and enhance existing systems and develop new systems in order to keep pace with continuing changes in information technology, emerging cybersecurity risks and threats, evolving industry and regulatory standards and changing preferences of our clients. In addition, our sales process is highly dependent on the quality of our offerings, on our business reputation and on strong recommendations from our existing clients. Any failure to maintain high-quality and highly responsive technical support, or a market perception that we do not maintain high-quality and highly responsive support, including as a result of our inability to respond quickly enough to accommodate short-term increases in client demand for certain technical support services, particularly as we increase the size of our client base, could our reputation, affect our ability to sell our offering to existing and prospective clients, and our business, results of operations or financial condition.
The protection of our intellectual property and proprietary rights requires substantial resources, and protections of our intellectual property and proprietary rights may not be adequate. Any failure to obtain, maintain, protect and enforce our intellectual property and proprietary rights, or failure of our intellectual property and proprietary rights to be sufficiently broad, could harm our business, results of operations or financial condition.
Our success is dependent, in part, upon our ability to protect our intellectual property and proprietary technology. We rely upon a combination of trade secret, trademark, patent and copyright laws, license agreements, confidentiality policies and procedures, contractual provisions (e.g., intellectual property assignment agreements), nondisclosure agreements and technical measures of varying duration designed to establish, maintain and protect the intellectual property and proprietary information and commercially valuable confidential information and data used in our business. However, the steps we have taken to obtain, maintain, protect and enforce our proprietary rights and intellectual property may not be adequate, protect against our competitors or other third parties independently developing products or services that are equivalent or superior to our solutions or otherwise allow us to maintain any competitive advantage.
For instance, while we acquired certain foreign patents and trademark applications and registrations as part of our acquisition of HealthSmart International in February 2022, we have not otherwise sought to register our intellectual property outside of the United States and we may not be able to secure trademark or service mark registrations for marks in the United States or take similar steps to secure patents for our proprietary processes, methods and technologies. Even if we are successful in obtaining patent, trademark or other intellectual property rights or registrations, any of these rights and registrations may lapse, be abandoned, be circumvented by others or may be opposed or otherwise challenged or invalidated by a third party through administrative process or litigation.
Third parties also may infringe upon, misappropriate or otherwise violate our trademarks, service marks, patents and other intellectual property and proprietary rights. If we believe a third party has infringed, misappropriated or otherwise violated our intellectual property or proprietary rights, litigation may be necessary to enforce and protect those rights or to determine the validity and scope of the rights of others, which would divert management resources, would be expensive and time-consuming and may not effectively protect our intellectual property and proprietary rights, regardless of whether we are successful or not. In addition, our efforts may be met with defenses and counterclaims challenging the validity and enforceability of our intellectual property rights or may result in a court determining that our intellectual property rights are unenforceable. Even if we establish infringement, or other , a court may decide not to grant an further activity and instead award only monetary , which may or may not be an adequate remedy. Furthermore, because of the substantial amount of discovery required in connection with intellectual property , there is a risk that some of our confidential information could be compromised by disclosure during . There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be , it could have a material effect on the price of shares of our common stock. Moreover, we cannot you that we will have sufficient financial or other resources to file and pursue such , which typically last for years before they are concluded. Even if we ultimately prevail in such , the monetary cost of such
Table of Contents
litigation and the diversion of the attention of our management and scientific personnel could outweigh any benefit we receive as a result of the proceedings. As a result, if we fail to obtain, maintain, protect or enforce adequate intellectual property protection or if a third party infringes, misappropriates or otherwise violates our intellectual property and proprietary rights, it may have a material adverse impact on our business, results of operations or financial condition.
Our currently pending or future patent applications may not result in issued patents, or be approved on a timely basis, if at all. Similarly, any term extensions that we seek may not be approved on a timely basis, if at all. In addition, our issued patents, or any patents that may be issued in the future, may not contain claims sufficiently broad to protect us against third parties with similar technologies or solutions or provide us with any competitive advantage, including exclusivity in a particular area, or may be successfully challenged by third parties, which could result in them being narrowed in scope or declared invalid or unenforceable. In addition, if we are unable to maintain our existing license agreements or other agreements pursuant to which third parties grant us rights to intellectual property, including because such agreements terminate, our business, results of operations or financial condition could be materially adversely affected.
Patent law reform in the United States may also weaken our ability to enforce our patent rights, or make such enforcement financially unattractive. For instance, in September 2011, the United States enacted the Leahy-Smith America Invents Act, which permits enhanced third-party actions for challenging patents and implements a “first-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention. These reforms could result in increased uncertainties and costs to protect our intellectual property or limit our ability to obtain and maintain patent protection for our solutions in these jurisdictions.
Our trademarks, logos and brands may provide us with a competitive advantage in the market as they may be known or trusted by clients. In order to maintain the value of such brands, we must be able to obtain, maintain, enforce and defend our trademarks. We have pursued, and will pursue, the registration of trademarks, logos and service marks in the United States; however, enforcing rights against those who knowingly or unknowingly dilute or infringe our brands can be difficult. We may be unable to obtain trademark protection for our services and brands, and our existing trademark registrations and applications, and any trademarks that may be used in the future, may not sufficiently distinguish our products, services and brands from those of our competitors. In addition, our trademarks may be contested or found to be unenforceable or invalid, and we may not be able to prevent third parties from or otherwise them. We cannot you that the steps we have taken and will take to protect our proprietary rights in our brands and trademarks will be adequate or that third parties will not , dilute or our brands, trademarks, trade dress or other similar proprietary rights.
While we generally seek to enter into proprietary information agreements with our employees and third parties engaged in the development of intellectual property on our behalf which assign intellectual property rights to us, these agreements may not be honored or may not effectively assign intellectual property or proprietary rights to us under the local laws of some countries or jurisdictions. We also cannot guarantee that we have entered into such agreements with each applicable party. We therefore cannot be certain that a competitor or other third party does not have or will not obtain rights to intellectual property that may prevent us from developing or marketing certain of our solutions, regardless of whether we believe such intellectual property rights are valid and enforceable or we believe we would otherwise be able to develop a more commercially successful solution. Any of the foregoing could materially and adversely affect our business, results of operations or financial condition.
If we are unable to protect the confidentiality of our trade secrets, know-how and other proprietary and internally-developed information, the value of our technology could be adversely affected.
Many of our solutions are based on or incorporate proprietary information. We actively seek to protect our proprietary information, including our trade secrets and proprietary know-how, by generally requiring our employees, consultants, other advisors and other third parties who have access to such information to execute proprietary information and confidentiality agreements upon the commencement of their employment, engagement or other relationship. Despite these efforts and precautions, such agreements may not be sufficient in scope or enforceable, we cannot guarantee that we have entered into such agreements with each person or entity that may have or have had access to our trade secrets or proprietary information, and such agreements can be breached. Enforcing a claim that another party illegally disclosed or obtained and is using any of our trade secrets or proprietary information could be difficult, expensive and time-consuming, and the outcome would be unpredictable. We may therefore be unable to prevent a third party from copying or otherwise obtaining and using our trade secrets or our other intellectual property without authorization and legal remedies may not adequately compensate us for the caused by such use. Moreover, third parties may independently develop similar or equivalent proprietary information. Any of the foregoing could materially and affect our business, results of operations or financial condition.
Table of Contents
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed trade secrets or other confidential information of third parties.
We have received confidential and proprietary information from third parties. In addition, we may employ individuals who were previously employed at other healthcare companies or other companies, including our competitors. Although we try to ensure that our employees, consultants and independent contractors do not use the confidential or proprietary information, trade secrets or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants or independent contractors have, inadvertently or otherwise, improperly used or disclosed confidential or proprietary information, trade secrets or know-how of former employers or other third parties. Further, we may be subject to ownership disputes in the future arising, for example, from conflicting obligations of consultants or others who are involved in developing our solutions. We may also be subject to claims that former employees, consultants, independent contractors or other third parties have an ownership interest in our intellectual property. Litigation may be necessary to defend these and other our right to and use of confidential and proprietary information. In addition to paying monetary , if we in any such we may our rights therein, which could have a material effect on our business, results of operations or financial condition. Even if we are in these , could result in substantial costs, result in reputational and be a to our management and employees.
Third parties may claim that we or our licensors are infringing, misappropriating or otherwise violating their intellectual property or proprietary rights, and we could suffer significant litigation, the outcome of which would be uncertain, incur licensing expenses or be prevented from selling certain products and solutions.
Our commercial success depends, in part, on our ability to develop and commercialize our products and solutions and use our technology without infringing, misappropriating or otherwise violating the intellectual property or proprietary rights of third parties. We or our licensors could be subject to claims that we are misappropriating, infringing or otherwise violating intellectual property (including patents, trademarks, trade dress, copyrights, trade secrets and domain names) or other proprietary rights of others. We may become subject to preliminary or provisional rulings in the course of any such litigation, including potential preliminary injunctions requiring us to cease some or all of our operations. Similarly, if any litigation to which we are a party is resolved adversely, we may be subject to an judgment that may not be reversed upon appeal. These , even if not , could be expensive to and management’s attention from our operations, and even if we believe we do not , or otherwise validly existing third-party rights we may choose to license such rights. If we or our licensors become liable to third parties for , or otherwise such third-party rights, we could be required to pay a substantial award, including treble and attorneys’ fees if we are found to have a patent or other intellectual property right. We could also be required to develop non- technology, stop activities or services that use or contain the intellectual property, or obtain a license, which may not be available on commercially reasonable terms and may require us to pay substantial license, royalty or other payments. We may be to develop non- solutions or obtain a license on commercially reasonable terms, or at all. Any license may also be non-, which would potentially allow other parties, including our competitors, to access the same technology.
It may be necessary for us to initiate administrative proceedings or other litigation in order to determine the scope, enforceability or validity of third-party intellectual property or proprietary rights. We may also decide to settle or otherwise resolve such proceedings or litigation on terms that are unfavorable to us. Regardless of whether third-party claims have merit, litigation can be expensive and time-consuming, and could divert management’s attention. Some third parties may be able to sustain the costs of complex litigation more effectively than we can because they have substantially greater resources. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of shares of our common stock. We also may be required to indemnify our clients if they become subject to third-party relating to the , or other of a third party’s intellectual property rights that we license or otherwise provide to them, which could be . Any of the foregoing could materially and affect our business, results of operations or financial condition.
Our solutions depend, in part, on intellectual property and technology licensed from third parties.
Much of our business and many of our software and solutions rely on key technologies or content developed or licensed by third parties. For example, many of our software offerings are developed using software components or other intellectual property licensed from third parties, including both proprietary and open source licenses. These third-party software components may become obsolete, defective or incompatible with future versions of our solutions, or our relationship with the
Table of Contents
third-party licensors may deteriorate, or our contracts with the third-party licensors may expire or be terminated. We may also face legal or business disputes with licensors that may threaten or lead to the disruption of inbound licensing relationships.
In order to remain in compliance with the terms of our licenses, we must carefully monitor and manage our use of third-party software components, including both proprietary and open source license terms that may require the licensing or public disclosure of our intellectual property without compensation or on undesirable terms. Because the availability and cost of licenses from third parties depends upon the willingness of third parties to deal with us on the terms we request, there is a risk that third parties — including those who license to our competitors — either will refuse to license to us at all or refuse to license to us on terms equally favorable to those granted to our competitors or other third parties. Consequently, we may lose a competitive advantage with respect to these intellectual property rights or we may be required to enter into costly arrangements in order to terminate or limit these rights. Additionally, some of these licenses may not be available to us in the future on terms that are acceptable or that allow our solutions to remain competitive. In addition, it is possible that, as a consequence of a merger or acquisition, third parties may obtain licenses to some of our intellectual property rights or our business may be subject to certain restrictions that were not in place prior to such transaction. Any of the foregoing could materially and affect our business, results of operations or financial condition.
Our use of open source software could impose limitations on our ability to commercialize our solutions, require substantial resources to monitor compliance with applicable licenses and protect our intellectual property and proprietary rights, subject us to possible litigation and otherwise adversely affect our business.
Our software and solutions incorporate open source software components that are licensed to us under various open source public domain licenses. Some open source software licenses require users who distribute open source software as part of their own software to publicly disclose all or part of the source code to such software or make available any modifications or derivative works of the open source code on unfavorable terms or at no cost.
The terms of many open source licenses have not been interpreted by U.S. or foreign courts and therefore the potential impact of such licenses on our business is not fully known or predictable. There is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market our solutions.
While we monitor our use of open source software and endeavor to ensure that none is used in a manner that would require us to disclose our proprietary source code or that would otherwise breach the terms of an open source license, such use could inadvertently occur, or could be claimed to have occurred, in part because open source license terms are often ambiguous, and we cannot assure or be certain that we have in all cases incorporated open source software in our solutions in a manner that is consistent with the applicable open source license terms and inclusive of all available updates or security patches. As a result, we may be required to publicly release our proprietary source code, pay damages for breach of contract, re-code or re-engineer one or more of our offerings, discontinue sales of one or more of our solutions in the event re-engineering cannot be accomplished on a timely basis or at all or take other remedial action that may divert resources away from our development efforts, any of which could cause us to obligations to our clients, our reputation, result in client or , increase our costs or otherwise materially affect our business, results of operations or financial condition. A release of our proprietary code could also allow our competitors to create similar offerings with lower development effort and time and ultimately could result in a of our competitive .
Furthermore, use and distribution of open source software may entail greater risks than use of third-party commercial software, as open source licensors generally do not provide support, warranties, indemnification or other contractual protections regarding infringement claims or the quality of the code. Any of the foregoing could materially and adversely affect our business, results of operations or financial condition.
We may be obligated to disclose our proprietary source code to our clients, which may limit our ability to protect our intellectual property and proprietary rights and could reduce the renewals of our services.
Certain of our agreements with our clients contain, and may in the future contain, provisions permitting the client to become a party to, or a beneficiary of, a source code escrow agreement under which we place the proprietary source code for our applicable solutions in escrow with a third party. Under these escrow agreements, the source code to the applicable solution may be released to the client, to be used in accordance with the license granted to the client in the applicable services agreement, upon the occurrence of specified events, such as in situations of our bankruptcy or insolvency, our aggregate cash balances not exceeding a specified threshold or the discontinuance of our ability to offer, support or maintain the applicable services.
Disclosing the content of our source code may limit the intellectual property protection we can obtain or maintain for our source code or our software and solutions containing that source code, and may facilitate intellectual property infringement, misappropriation or other violation claims against us. It also could permit a client to which a solution’s source code is disclosed
Table of Contents
to support and maintain that software or solution without being required to purchase our services. In addition, we cannot be certain that clients will comply with any applicable restrictions on their use or disclosure of the source code and we may be unable to monitor and prevent unauthorized use or disclosure of such source code. Any increase in the number of people familiar with our source code as a result of any such release may also increase the risk of a successful hacking attempt. Each of these could materially adversely affect our business, results of operations or financial condition.
Risks Related to Our Capital Structure, Indebtedness and Capital Requirements
Despite our level of indebtedness, we are able to incur more debt and undertake additional obligations. Incurring such debt or undertaking such additional obligations could further exacerbate the risks our indebtedness poses to our financial condition.
As of December 31, 2021, we had $192.6 million face value of outstanding indebtedness, in addition to $39.4 million of undrawn commitments under our First Lien Credit Agreement (as amended, the “Credit Agreement”). Despite our level of indebtedness, we, including our subsidiaries, may be able to incur significant additional indebtedness in the future. Although the Credit Agreement contains restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and any indebtedness incurred in compliance with these restrictions could be substantial. These restrictions also will not prevent our subsidiaries from incurring obligations that do not constitute indebtedness and, if our subsidiaries refinance existing indebtedness, such refinancing indebtedness may contain fewer restrictions on our subsidiaries’ activities. To the extent new indebtedness is added to our and our subsidiaries’ currently anticipated indebtedness levels, the related risks that we and our subsidiaries face could intensify. While the Credit Agreement also contains restrictions on making certain loans and investments, these restrictions are subject to a number of qualifications and exceptions, and the investments incurred in compliance with these restrictions could be substantial.
We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
Our ability to make scheduled payments on or to refinance our debt obligations and to fund our planned capital expenditures, acquisitions and other ongoing liquidity needs depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We cannot assure you that we will maintain a level of cash flows from operating activities or that future borrowings will be available to CHS or its subsidiaries under the Credit Agreement or otherwise in an amount sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness and fund our planned capital expenditures, acquisitions and other ongoing liquidity needs.
Restrictions imposed by the Credit Agreement may limit our ability to operate our business and to finance our future operations or capital needs or to engage in other business activities.
The Credit Agreement restricts CHS and its restricted subsidiaries from engaging in specified types of transactions. Subject to exceptions specified in the Credit Agreement, these covenants restrict the ability of CHS and its restricted subsidiaries, among other things, to:
• incur liens;
• incur indebtedness;
• make investments and loans;
• engage in mergers, acquisitions and asset sales;
• declare dividends or other distributions, redeem or repurchase equity interests or make other restricted payments;
• alter the businesses CHS and its restricted subsidiaries conduct;
• enter into agreements restricting distributions by CHS’s restricted subsidiaries;
• modify certain terms of certain junior indebtedness; and
• engage in certain transaction with affiliates.
Table of Contents
These covenants will limit our ability to engage in activities that may be in our long-term best interest, such as limiting our flexibility in planning for, or reacting to, changes in our operations or business, restricting us from making strategic acquisitions, engaging in development activities, introducing new technologies or exploiting business opportunities. Our failure to comply with these covenants could result in an event of default under the Credit Agreement which, if not cured or waived, could result in the acceleration of substantially all of our indebtedness.
We are a holding company and will depend on dividends, distributions and other payments from our subsidiaries to meet our obligations.
We are a holding company that does not conduct any business operations of our own. As a result, we are largely dependent upon cash dividends and other transfers from our subsidiaries to meet our obligations. The agreements governing the indebtedness of our subsidiaries impose restrictions on our subsidiaries’ ability to pay dividends or other distributions to us. The deterioration of the earnings from, or other available assets of, our subsidiaries for any reason also could limit or impair their ability to pay dividends or other distributions to us.
Changes in the method for determining LIBOR or the elimination of LIBOR could affect our business, results of operations or financial condition.
Our Credit Agreement provides that interest may be indexed to the London Interbank Offered Rate (“LIBOR”), which is a benchmark rate at which banks offer to lend funds to one another in the international interbank market for short term loans. The current administrator of LIBOR will cease to publish the overnight and 1, 3, 6 and 12 months USD LIBOR settings immediately following the LIBOR publication on June 30, 2023 and has ceased to publish all other LIBOR settings, including the 1 week and 2 months USD LIBOR settings, since December 31, 2021. We cannot predict the impact of any changes in the methods by which LIBOR is determined or any regulatory activity related to a potential phase out of LIBOR on our Credit Agreement and interest rates. While our Credit Agreement provides for the use of an alternative rate to LIBOR in the event LIBOR is phased out, uncertainty remains as to any such replacement rate and any such replacement rate may be higher or lower than LIBOR may have been. At this time, no consensus exists as to what rate or rates will become accepted alternatives to LIBOR, although The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, has recommended replacing LIBOR with the Secured Overnight Financing Rate, or SOFR, a newly created index, calculated with a broad set of short-term repurchase agreements backed by treasury securities. It is not possible to predict the effect of these changes, other reforms or the establishment of alternative reference rates in the United States or elsewhere. The establishment of alternative reference rates or implementation of any other potential changes may materially and affect our business, results of operations or financial condition.
Risks Related to Our Status as an Emerging Growth Company
We are an emerging growth company and because we have decided to take advantage of certain exemptions from various reporting and other requirements applicable to emerging growth companies, our common stock could be less attractive to investors.
For as long as we remain an “emerging growth company,” as defined in the JOBS Act, we will have the option to take advantage of certain exemptions from various reporting and other requirements that are applicable to other public companies that are not emerging growth companies, including presenting only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure in this Form 10-K reduced disclosure obligations regarding executive compensation in our registration statements, periodic reports and proxy statements, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), being permitted to have an extended transition period for adopting any new or revised accounting standards that may be issued by the FASB or the SEC, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. It is unclear whether investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
We will remain an emerging growth company until the earliest of (1) the last day of the fiscal year in which we have annual gross revenues of $1.07 billion or more; (2) the date on which we have issued more than $1.0 billion in non-convertible debt in the previous three years; (3) the date we qualify as a “large accelerated filer” under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates is $700 million or more; and (4) the last day of the fiscal year ending after the fifth anniversary of our initial public offering (“IPO”).
Table of Contents
We elected to take advantage of certain of the reduced disclosure obligations in this Form 10-K and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide to our investors may be different from the information you might receive from other public reporting companies that are not emerging growth companies in which you hold equity interests. In addition, we have elected to avail ourselves of the extended transition period for complying with new or revised accounting standards. As a result, the information that we provide to stockholders will be less comprehensive than what you might receive from other public companies.
Because we have elected to use the extended transition period for complying with new or revised accounting standards for an “emerging growth company” our financial statements may not be comparable to companies that comply with these accounting standards as of the public company effective dates.
We have elected to use the extended transition period for complying with new or revised accounting standards under Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”). This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with these accounting standards as of the public company effective dates. Consequently, our financial statements may not be comparable to companies that comply with public company effective dates. Because our financial statements may not be comparable to companies that comply with public company effective dates, investors may have difficulty evaluating or comparing our business, performance or prospects in comparison to other public companies, which may have a negative impact on the value and liquidity of our common stock. We cannot predict if investors will find our common stock less attractive because we plan to rely on this exemption. If some investors find our common stock less as a result, there may be a less active trading market for our common stock and our stock price may be more .
Risks Related to Our Common Stock
We have identified material weaknesses in our internal control over financial reporting, and the failure to remediate these material weaknesses may adversely affect our business, investor confidence in our company, our financial results and the market value of our common stock.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As previously disclosed, in connection with our audits of the consolidated financial statements presented in this Form 10-K, we identified the following material weaknesses in our internal control over financial reporting:
• We did not design and maintain an effective control environment commensurate with the financial reporting requirements of an SEC registrant. Additionally, we did not design control activities to adequately address identified risks or operate at a sufficient level of precision that would identify material misstatements to our financial statements and did not design and maintain formal documentation of accounting policies and procedures nor did we maintain sufficient evidence to support the operation of key control procedures. Specifically, we did not design and maintain controls to ensure (i) the appropriate segregation of duties within our financial reporting function, including the preparation and review of journal entries and (ii) account reconciliations and balance sheet and income statement fluctuation analyses were reviewed at the appropriate level of precision.
• We also did not design and maintain effective controls over IT general controls for information systems that are relevant to the preparation of our financial statements. Specifically, we did not design and maintain: (i) program change management controls to ensure that information technology program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately; and (ii) user access controls to ensure appropriate segregation of duties and that adequately restrict user and privilege access to financial applications, programs, and data to appropriate Company personnel.
These IT deficiencies did not result in a material misstatement to the financial statements, however, the deficiencies, when aggregated, could impact maintaining effective segregation of duties, as well as the effectiveness of IT-dependent controls (such as automated controls that address the risk of material misstatement to one or more assertions, along with the IT controls and underlying data that support the effectiveness of system-generated data and reports) that could result in misstatements potentially impacting all financial statement accounts and disclosures that would not be prevented or detected. Accordingly, management has determined these deficiencies in the aggregate constitute material weaknesses.
These material weaknesses resulted in adjustments in our 2019 and 2020 financial statements primarily related to revenues recognized from contracts with customers that were recognized in the improper periods, the accrual of certain compensation related costs, and the misstatement of income tax benefit related to the treatment of certain deferred tax positions. The material
Table of Contents
weaknesses described above could result in misstatements of our account balances or disclosures that would result in a material misstatement of our annual or interim financial statements that would not be prevented or detected on a timely basis.
We have designed and are implementing a remediation plan to address the material weaknesses described above.
While we believe the remedial efforts we will take will improve our internal controls and address the underlying causes of the material weaknesses, such material weaknesses will not be remediated until a remediation plan has been fully developed and implemented and we have concluded that our controls are operating effectively for a sufficient period of time. We cannot be certain that the steps we will take following the development and implementation of a remediation plan will be sufficient to remediate the control deficiencies that led to our material weaknesses in our internal control over financial reporting or prevent future material weaknesses or control deficiencies from occurring. While we will work to remediate the material weaknesses as timely and efficiently as possible, at this time we cannot provide an estimate of costs expected to be incurred in connection with the development and implementation of a remediation plan, nor can we provide an estimate of the time it will take to complete a remediation plan. Neither our management nor an independent registered public accounting firm has performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act because no such evaluation has been required.
If we fail to effectively remediate the material weaknesses in our internal control over financial reporting described above, we may be unable to accurately or timely report our financial condition or results of operations. Such failure may adversely affect our business, investor confidence in our company, our financial condition and the market value of our common stock.
As a public company, we are required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of internal control over financial reporting. Although we are required to disclose changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting on a quarterly basis, we will not be required to make our first annual assessment of our internal control over financial reporting pursuant to Section 404 until at least our second annual report required to be filed with the SEC, and we will not be required to have our independent registered public accounting firm formally assess our internal controls for as long as we remain an “emerging growth company” as defined in the JOBS Act.
When formally evaluating our internal control over financial reporting, we may identify material weaknesses that we may not be able to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirements of Section 404 of the Sarbanes-Oxley Act. In addition, if we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. We cannot be certain as to the timing of completion of our evaluation, testing and any remediation actions or the impact of the same on our operations. If we are not able to implement the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner or with adequate compliance, our independent registered public accounting firm may issue an adverse opinion due to ineffective internal control over financial reporting, and we may be subject to sanctions or by regulatory authorities, such as the SEC. As a result, there could be a reaction in the financial markets due to a of confidence in the reliability of our financial statements. Any such action could have a significant and effect on our business and reputation, which could affect our results of operations or cash flows. In addition, we may be required to incur additional costs in our internal control system and the hiring of additional personnel.
The price of our common stock may be volatile and may be affected by market conditions beyond our control, and the market price of our common stock may drop below the price you paid to acquire shares of our common stock.
Our quarterly results of operations are likely to fluctuate in the future as a publicly traded company. In addition, securities markets worldwide have experienced, and are likely to continue to experience, significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could subject the market price of our shares of common stock to wide price fluctuations regardless of our operating performance, which could cause a decline in the value of your investment. You should also be aware that price volatility may be greater if the public float and trading volume of shares of our common stock is low. Some factors that may cause the market price of our common stock to fluctuate, in addition to the other risks discussed in this Part I, Item 1A of this Form 10-K, include:
• our operating and financial performance and prospects;
• our announcements or our competitors’ announcements regarding new products or services, enhancements, significant contracts, acquisitions or strategic investments;
Table of Contents
• changes in earnings estimates or recommendations by securities analysts who cover our common stock;
• fluctuations in our quarterly financial results or, in the event we provide it from time to time, earnings guidance, or the quarterly financial results or earnings guidance of companies perceived by investors to be similar to us;
• changes in our capital structure, such as future issuances of securities, sales of large blocks of common stock by our stockholders, including our principal stockholder, or the incurrence of additional debt;
• departure of key personnel;
• reputational issues;
• changes in general economic and market conditions, including related to the COVID-19 pandemic;
• changes in industry conditions or perceptions or changes in the market outlook for the healthcare industry; and
• changes in applicable laws, rules or regulations or regulatory actions affecting us or our clients and other dynamics.
These and other factors may cause the market price for shares of our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares or purchasing new shares of our common stock and may otherwise negatively affect the liquidity of our common stock. In addition, in the past, when the market price of a stock has been volatile, holders of that stock sometimes have instituted securities class action litigation against the company that issued the stock. Securities litigation against us, regardless of the merits or outcome, could result in substantial costs and divert the time and attention of our management from the business, which could significantly harm our business, results of operations, financial condition or reputation.
Our principal stockholder, TPG, has significant influence over us, and its interests could conflict with those of our other stockholders.
As of December 31, 2021, our principal stockholder, TPG, holds approximately 74.7% of our common stock. As a result, our principal stockholder will continue to be able to influence matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other extraordinary transactions. TPG may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. The concentration of ownership may also have the effect of delaying, preventing or deterring a change of control of the Company, could deprive our stockholders of an opportunity to receive a premium for shares of their common stock as part of a sale of our Company and might ultimately affect the market price of our common stock.
As long as our principal stockholder, TPG, owns a majority of the shares of our common stock, we may rely on certain exemptions from the corporate governance requirements of the NYSE available for “controlled companies.”
We are a “controlled company” within the meaning of the corporate governance listing requirements of the NYSE because TPG continues to own more than 50% of our outstanding shares of common stock. A controlled company may elect not to comply with certain corporate governance requirements of the NYSE. Accordingly, our Board of Directors is not required to have a majority of independent directors and our Compensation Committee and Nominating and Governance Committee are not required to meet the director independence requirements to which we would otherwise be subject until such time as we cease to be a “controlled company.” We have taken advantage of certain of these exemptions. Accordingly, you will not have certain of the protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE.
Your percentage ownership in us may be diluted by future issuances of capital stock, which could reduce your influence over matters on which stockholders vote.
Pursuant to our amended and restated certificate of incorporation and amended and restated bylaws, our Board of Directors has the authority, without action or vote of our stockholders, to issue all or any part of our authorized but unissued shares of common stock, including shares issuable upon the exercise of options, or shares of our authorized but unissued preferred stock. Issuances of shares of common stock or shares of voting preferred stock would reduce your influence over matters on which our stockholders vote and, in the case of issuances of shares of preferred stock, would likely result in your interest in us being subject to the prior rights of holders of that preferred stock.
Future sales of a substantial number of shares of our common stock may depress the price of our shares.
Table of Contents
If our stockholders sell a large number of shares of our common stock, or if we issue a large number of shares of our common stock in connection with future acquisitions, financings or other circumstances, the market price of shares of our common stock could decline significantly. Moreover, the perception in the public market that our stockholders might sell shares of our common stock could depress the market price of those shares. In addition, sales of a substantial number of shares of our common stock by our principal stockholder could adversely affect the market price of our common stock.
All the shares sold in the initial public offering (“IPO”) were freely tradable without restriction, except for shares acquired by any of our “affiliates,” as defined in Rule 144 under the Securities Act, including our principal stockholder. Immediately after the IPO, the public market for our common stock included only the shares of common stock sold in our IPO and, upon registration, they can now be sold in the public market upon issuance, subject to restrictions under the securities laws applicable to resales by affiliates. In connection with our IPO, we entered into a Registration Rights Agreement with TPG, the Chairman of our Board of Directors and our Chief Executive Officer. The Registration Rights Agreement provides TPG with certain registration rights whereby TPG can require us to register under the Securities Act shares of our common stock.
We do not anticipate declaring or paying regular dividends on our common stock in the near term, and our indebtedness could limit our ability to pay dividends on our common stock.
We do not currently anticipate declaring or paying regular cash dividends on our common stock in the near term. We currently intend to use our future earnings, if any, to pay debt obligations, to fund our growth and develop our business and for general corporate purposes. Therefore, you are not likely to receive any cash dividends on your common stock in the near term, and the success of an investment in shares of our common stock will depend upon any future appreciation in their value. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which they are initially offered. Any future declaration and payment of cash dividends or other distributions of capital will be at the discretion of our Board of Directors and the payment of any future cash dividends or other distributions of capital will depend on many factors, including our financial condition, earnings, cash needs, regulatory constraints, capital requirements (including requirements of our subsidiaries) and any other factors that our Board of Directors deems relevant in making such a determination. The agreement governing the indebtedness of our subsidiaries imposes restrictions on our subsidiaries’ ability to pay dividends or other distributions to us, and future agreements governing debt our subsidiaries may enter into may impose similar restrictions. We cannot assure you that we will establish a dividend policy or pay cash dividends in the future or continue to pay any cash dividend if we do commence paying cash dividends pursuant to a dividend policy or otherwise.
Our amended and restated certificate of incorporation designates courts in the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, and also provides that the federal district courts will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, each of which could limit our stockholders’ ability to choose the judicial forum for disputes with us or our directors, officers, stockholders or employees.
Our amended and restated certificate of incorporation provides that, subject to limited exceptions, the Court of Chancery for the State of Delaware will be the sole and exclusive forum for:
• any derivative action or proceeding brought on behalf of the Company;
• any action asserting a claim of breach of a fiduciary duty owed by any director, officer, employee or stockholder of the Company to the Company or the Company’s stockholders;
• any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law (the “DGCL”) or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware or the Company’s amended and restated certificate of incorporation or amended and restated bylaws; and
• any action asserting a claim governed by the internal affairs doctrine.
Our amended and restated certificate of incorporation also provides that the federal district courts of the United States of America are the exclusive forum for the resolution of any complaint asserting a cause of action against us or any of our directors, officers, employees or agents and arising under the Securities Act. However, Section 22 of the Securities Act provides that federal and state courts have concurrent jurisdiction over lawsuits brought pursuant to the Securities Act or the rules and regulations thereunder. To the extent the exclusive forum provision restricts the courts in which claims arising under the Securities Act may be brought, there is uncertainty as to whether a court would enforce such a provision. We note that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. This provision does not apply to claims brought under the Exchange Act.
Table of Contents
Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to these provisions. These provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find these provisions of our amended and restated certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business or financial condition.
Provisions in our amended and restated certificate of incorporation and amended and restated bylaws, and Delaware corporate laws, may prevent or delay an acquisition of us, which could decrease the trading price of our common stock.
Provisions of our amended and restated certificate of incorporation and amended and restated bylaws and of state law may delay, deter, prevent or render more difficult a takeover attempt that our stockholders might consider in their best interests. For example, such provisions or laws may prevent our stockholders from receiving the benefit from any premium to the market price of our common stock offered by a bidder in a takeover context. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging takeover attempts in the future.
Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws may have anti-takeover effects and may delay, deter or prevent a takeover attempt that our stockholders might consider in their best interests. These anti-takeover provisions and laws may delay, deter or prevent a takeover attempt that our stockholders might consider in their best interests. As a result, our stockholders may be limited in their ability to obtain a premium for their shares.
Our amended and restated certificate of incorporation contains a provision renouncing our interest and expectancy in certain corporate opportunities, which could adversely impact our business.
Our amended and restated certificate of incorporation provides that TPG, any of its affiliates and the members of our Board of Directors who are affiliated with them (including, based on the current composition of our Board of Directors, Todd Sisitsky and Katherine Wood, who are Partners of TPG) will not be required to offer us corporate opportunities of which they become aware and can take any such corporate opportunities for themselves or offer such opportunities to other companies in which they have an investment. Such corporate opportunities include engaging, directly or indirectly, in the same, similar or competing business activities or lines of business in which we operate. We, by the terms of our amended and restated certificate of incorporation, will expressly renounce any interest or expectancy in any such corporate opportunity to the extent permitted under applicable law, even if the opportunity is one that we or our subsidiaries might reasonably have pursued or had the ability or desire to pursue if granted the to do so. Our amended and certificate of incorporation will not be to be amended to eliminate our renunciation of any such corporate arising prior to the date of any such amendment.
TPG is in the business of making investments in companies and TPG may from time to time acquire and hold interests in businesses that compete directly or indirectly with us. These potential conflicts of interest could have a material adverse effect on our business, results of operations, financial condition, cash flows or prospects if TPG allocates attractive corporate opportunities to itself or its affiliates instead of to us.
General Risks
We may become involved in litigation, investigations and regulatory inquiries and proceedings that could negatively affect us and our reputation.
From time to time, we may become involved in various legal, administrative and regulatory proceedings, claims, demands and investigations relating to our business, which may include claims with respect to commercial, tort, intellectual property, data privacy, consumer protection, breach of contract, employment, class action, whistleblower and other matters. In the ordinary course of business, we also receive inquiries from and have discussions with government entities regarding our compliance with laws and regulations. Such matters can be costly and time consuming and divert the attention of our management and key personnel from our business operations. Additionally, insurance coverage with respect to some claims against us or our directors and officers may not be available on terms that would be favorable to us, or the cost of such coverage could increase in the future. Similarly, if any litigation to which we are a party is resolved adversely, we may be subject to an judgment that may not be reversed upon appeal. Any or could cause us to incur significant expenses, including legal expenses, and, if asserted us, could require that we pay substantial , or prevent us from offering our products or services, or require that we comply with other terms. We may also decide to settle such matters on terms that are to us.
Table of Contents
Our financial results may be adversely impacted by changes in accounting principles applicable to us.
Generally accepted accounting principles in the United States are set by and subject to interpretation by the FASB and the SEC and new accounting principles are adopted from time to time. For example, in May 2014, the FASB issued accounting standards update No. 2014-09 (Topic 606), Revenue from Contracts with Clients, which superseded nearly all previously existing revenue recognition guidance under GAAP. The core principle of Topic 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to clients in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
If our estimates or judgments relating to our critical accounting policies prove to be incorrect or change, our results of operations could be harmed.
The preparation of financial statements in conformity with GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts in the consolidated financial statements and related notes thereto. We base these estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, as provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Use of Estimates.” The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities and equity and the amount of revenue and expenses that are not readily apparent from other sources. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. These estimates and judgments are based on historical information currently available to us and based on various other assumptions that we conclude to be reasonable under the circumstances. While management concludes that such estimates are reasonable when considered in conjunction with our consolidated balance sheets and statements of operations and comprehensive income (loss) taken as a whole, actual results could differ materially from those estimates.
Changes in accounting standards issued by the FASB or other standard-setting bodies may adversely affect our financial statements.
Our financial statements are subject to the application of GAAP, which is periodically revised or expanded. From time to time, we are required to adopt new or revised accounting standards issued by recognized authoritative bodies. It is possible that future accounting standards we are required to adopt may require changes to the current accounting treatment that we apply to our consolidated financial statements and may require us to make significant changes to our systems. Such changes could result in a material adverse impact on our business, results of operations or financial condition.
If securities analysts do not publish research or reports about our business or our industry or if they issue unfavorable commentary or negative recommendations with respect to our common stock, the price of our common stock could decline.
The trading market for our common stock will be influenced by the research and reports that equity research and other securities analysts publish about us, our business and our industry. We do not have control over these analysts and we may be unable or slow to attract research coverage following the completion of this offering. One or more analysts could issue negative recommendations with respect to our common stock or publish other unfavorable commentary or cease publishing reports about us, our business or our industry. If one or more of these analysts cease coverage of us, we could lose visibility in the market. As a result of one or more of these factors, the market price of our common stock could decline rapidly and our common stock trading volume could be adversely affected.
We will incur increased costs as a result of operating as a public company, and operating as a public company will place additional demands on our management.
As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act and rules subsequently implemented by the SEC and the NYSE have imposed various requirements on public companies, including the establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Compliance with these requirements will place significant additional demands on our management and will require us to enhance certain internal functions, such as investor relations, legal, financial reporting and corporate communications. Accordingly, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance.
Pursuant to Section 404 of the Sarbanes-Oxley Act, we will be required to furnish a report by our management regarding our internal control over financial reporting, including, once we are no longer an emerging growth company, an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve
Table of Contents
compliance with Section 404 of the Sarbanes-Oxley Act within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and time-consuming. In this regard, we will need to continue to dedicate internal resources, engage outside consultants and adopt a detailed work plan to assess and document the adequacy of our internal control over financial reporting, continue steps to improve control processes, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that neither we nor our independent registered public accounting firm will be able to conclude within the prescribed timeframe that our internal control over financial reporting is effective as required by Section 404 of the Sarbanes-Oxley Act. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.
