sententia capital long achi

Accretive Health. – Long Sententia Capital Management December 2014 ticker: ACHI mkt cap: $786m price: $8.10 intrinsic value: $11

Recommendation: Accretive Health is a buy at $8 with a base case of $11, representing 35% upside. We see a 1:4 risk to reward investment with further upside following a re-‐rating on the completion of the financial restatement. Key Points: Why Undervalued?

-‐ Financial restatement pending -‐ Recent NYSE Delisting

Company Highlights

-‐ Anticipated 10% FCF yield on restatement

-‐ Sticky customer base with expanding margins

-‐ RCM Industry leader -‐ Trading at 8.2x and 1.5x EBITDA

and sales, compared to 12x peers and a 4x recent buyout

Industry Trends

-‐ Shallow 10% penetration of healthcare customers

-‐ Increased complexity will lead to growing customer base to improve RCM efficiencies

Catalyst

-‐ Restatement expected mid-‐Dec 2014

-‐ Uplisting within three months of becoming current

Stock Information (as of December 2014)

Price 8.10$ Net Debt (228) 52 Week Low 9.82$ Enterprise Value 558 52 Week High 6.92$ % Insider Ownership 20.00%Shares Out 97.0 % Short Interest --Market Cap 786 % Dividend Yield 0.0%

Key Metrics 2009 2010 2011 LTM Restatement Income Statement 2009 2010 2011 LTM Restatement

Returns (%) NPR $12,000 $15,000 $22,000 $19,000 $18,000ROIC 17.4% 5.8% 8.7% 8.2% 8.2% Revenue $510 $606 $826 $974 $300ROA 14.1% 4.8% 8.0% 3.9% 3.9% growth -- 18.8% 36.3% 17.8% NAROE 68.5% 8.8% 12.3% 6.5% 6.5% EBITDA $33 $45 $82 $74 $75Multiples 2009 2010 2011 LTM Restatement margin 6.5% 7.4% 9.9% 7.6% 25.0%

EV/EBITDA 12.0x 21.0x 18.0x 9.0x 8.0x Net Income $15 $13 $29 $17 $19Valuation margin 2.9% 2.1% 3.5% 1.7% 6.0%

Cases (2015) EBITDAEV/EBITDA Mkt Cap Price Balance Sheet 2009 2010 2011 LTM Restatement

Low Case 65 9.0x 585 $8 Cash and Equi 44 156 197 220 228 High Case 80 13.0x 1,040 $13 Total Debt - - - - - Base Case 75 11.0x 825 $11 Debt/Equity NA NA NA NA NAMargin of Safety 25% Shares 37 71 97 97 97 Upside 34% BV per Share 0.48$ 1.51$ 2.35$ 2.56$ 2.56$

Accretive Health, Inc. provides revenue cycle management services for hospitals and healthcare providers in the United States. It offers integrated revenue cycle management services that help healthcare providers to manage their revenue cycles. Accretive Health, Inc. serves multi-hospital systems, including faith-based or community healthcare systems, academic medical centers, independent ambulatory clinics, and physician practice groups.Accretive Health, Inc. was founded in 2003 and is headquartered in Chicago, Illinois.

212.851.3488 © Sententia Capital Management, LLC [email protected]

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Executive Summary Overview Accretive Health is a Revenue Cycle Management (RCM) industry leader that will soon be re-‐rated as they restate three years of financials. We see a 1:4 risk to reward ratio as the company restates, and further catalysts as the company uplists and management builds out the customer base. Summary Accretive Health is a poster company for things that have gone wrong. Starting in 2011, on the back of losing a computer that contained unencrypted customer data, Accretive lost a key customer and business relationships in Minnesota. Soon after, in 2012, Accretive announced that all of its past SEC financial filings (3 years worth) would be restated through an audit. Over the next year, the company replaced its CEO and executives. This past March, the company missed its restatement timeline and delisted from the NYSE. Further, three weeks after the delisting, the company announced that its replacement CEO, Steve Shuckenbrock, would step down after his one-‐year commitment ends this October. All told, a mess. We like this mess, as we see clear signs that the company is not only a going concern, but has a foundation on which to further expand as the industry leader. The company has no debt and a quarter of its market cap is in cash. The company has stated that the audit restatement is above the line and will have no affect on cash and no affect on cumulative net income or EBITDA. Steve Schulman, a proven 40-‐year veteran of the healthcare industry, took over as Chairman of the Board in April, providing further confidence that there is no malfeasance in the reports. Steve led two healthcare companies through turnarounds, selling one. The CEO, Dr. Emad Rizk, was announced in July. He comes with 25 years experience and is recognized as a renowned healthcare industry expert. He comes with great connections in industry and a focused attention on client relationships, culture and operational excellence. Post restatement, Accretive is near 8x EV/EBITDA and a projected 1.5x sales. Prior to the restatement, Accretive traded closer to 12x EBITDA and up to 21x EBITDA. Competitors trade near 11x EV/EBITD. As a high mark, a smaller competitor was just purchased for 3.8x revenue. At $8, free cash flow yield is closer to 10% as their contracts have matured. We anticipate an initial re-‐rating and further upside as the company builds out. Potential Catalyst The near term catalysts is the restatement, expected mid-‐December 2014. A future catalysts will be an uplisting back into the NYSE. Jumping ahead, Accretive represents a great candidate for a buy-‐out as stability returns to the company.


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Table of Contents

Variant Perception ................................................................................................................................................... 3

Why is Accretive Mispriced? ............................................................................................................................... 3

Valuations .................................................................................................................................................................... 3

Accretive Health ........................................................................................................................................................ 5

Industry ..................................................................................................................................................................... 12

Keys to getting the investment right ............................................................................................................. 13

The Bear Case .......................................................................................................................................................... 13

Key Risks ................................................................................................................................................................... 13

Moving Forward .................................................................................................................................................... 13

Premortem ............................................................................................................................................................... 14


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Variant Perception Behavioral Accretive is currently in a dark period, literally and figuratively, through a pending restatement and investor sentiment. We are taking a long-‐term view and taking advantage of this period by investing ahead of the restatement.

Why is Accretive Mispriced? Uncertainty in Financials, Forced selling Uncertainty in Financials Accretive announced in February 2013 that they would restate their financials from till 2010 till 2012. This caused the stock to drop 25%. The company announced that although the revenues would be impacted, there would be no impact to cumulative net income or cash flows. Since then, there has been no indication that contracts or business has suffered aside from the Minnesota clients (discussed below), the uncertainty behind the restatement has continued to pressure the stock. Forced Selling Due to Accretive’s pending restatement, the company missed the New York Stock Exchange’s (NYSE) extensions to become current on their filings and delisted from the NYSE in March 2014. The stock went up initially, from $8 to $9.50, but settled near $7.50 as we feel the stock came under the forced selling from indexes and ETFs. Fidelity owned 14% of Accretive and sold between April and June of this year. These two items have provided the opportunity to come into Accretive at an attractive price.

Valuations Revenue, EV/EBITDA, Free Cash Flow For our valuations, we’ve attempted to come at this through a few different avenues as the financials are pending release. There are several cases and a wide range you can anticipate. Revenue A big portion of revenues will be reclassified as expenses on the restatement, so we have made some forecasts on what we can expect. Included in the 4-‐5% of hospital NPR costs were employee paychecks. Accretive classified these as revenue and these will now shift to expenses on the restatement. We see a range of 10% to 40% of base fees remaining as revenue, with a higher probability closer to 25%.


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The below table uses $760m in pre-‐restatement revenue, which was estimated against $18b in NPR; we applied 80% of total revenue to base fees, 14% for incentive and 6% for other; we add in cash of $228m. The 1.5x to 3x multiple is used to show the range of valuations. A recent competitor, SPi Healthcare, was purchased by Conifer for 3.8x Revenue.

EBITDA. Accretive had 10% margins in 2011. EBITDA will not change materially on the restatement, so we use the same measures as before. Holding this constant, we can estimate EBITDA of $76m. This implies 8x EV/EBITDA. Accretive has traded down to 6x during its restatement. Prior to the restatement announcement, Accretive traded down to 9x at its lowest point. It traded as high as 21x and more normally at 12x. You can see the sensitivity charts below for estimated EBITDA and multiple ranges.

Current'Mkt'Cap:'$810mRevenue Base Total 1.5x 2.0x 2.5x 3.0x

10% $61 $205 $536 $638 $741 $84320% $122 $266 $627 $760 $894 $1,02730% $184 $327 $719 $883 $1,047 $1,21040% $245 $389 $811 $1,005 $1,200 $1,394

8.0x 9.0x 10.0x 11.0x$65 $748 $813 $878 $943$70 $788 $858 $928 $998$75 $828 $903 $978 $1,053$80 $868 $948 $1,028 $1,108$85 $908 $993 $1,078 $1,163

97m 8.0x 9.0x 10.0x 11.0x$65 $7.7 $8.4 $9.1 $9.7$70 $8.1 $8.8 $9.6 $10.3$75 $8.5 $9.3 $10.1 $10.9$80 $8.9 $9.8 $10.6 $11.4$85 $9.4 $10.2 $11.1 $12.0

Current'Price:'$8.10Total 1.5x 2.0x 2.5x 3.0x

10% $205 $5.5 $6.6 $7.6 $8.720% $266 $6.5 $7.8 $9.2 $10.630% $327 $7.4 $9.1 $10.8 $12.540% $389 $8.4 $10.4 $12.4 $14.4


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Free Cash Flow Conservatively, we see cash flow yield at 5% ex cash. On the 2013 company update, Accretive stated that cash grew from $177m to $220m in nine months of 2012. This is +$43m. Adding back $13m ($20m -‐ $7m tax) from restatement and restructure costs, and removing $36m from working capital (remaining AR from Minnesota), we get to $26m, or $0.27 per share. This is near 5% ex cash. Now, we expect this to be higher as there are a greater number of RCM contracts maturing, 4Q has historically been a stronger quarter, and Salem Health also signed in 2013. With that, we estimate Accretive is closer to a 10% FCF yield.

Accretive Health Highlights, History, Management Highlights. Expanding Margins. First, to be comfortable with the valuations scenarios we have to first understand the ramp up in revenues through the Revenue Cycle Management (RCM) segment, which made up 95% of revenues. (We may use past tense for the revenues as they are pending restatement, but we’ve attempted to adjust for this in our analysis.) On the NPR ramp up, you can see the increase in NPR each year on the chart. The RCM contracts are for 5 years and the revenue ramp up happens from two areas, with both ramping up as the contract matures: 1) cost reduction (base fees) and 2) revenue lift (incentive fees). Base Fee. Each hospital is estimated to spend 4-‐5% of their NPR on the collection effort. Accretive works to reduce this from 0 to 15-‐30% through the fifth year, reaching a peak near year 4. Accretive takes 70% of this cost savings. Incentive Fee. Accretive estimates that it can reduce the hospital’s revenue leakage, which will increase revenue from 0 to 4-‐6% over five years. Accretive takes 25% of these increases. How does this look over five years? Like this: <. Starts out small and grows. Here is a sample for $1B. There are a lot of variables, so we capped cost reduction at 20% and reached that in year 4 and capped revenue increase at 4%, growing it 1% each year.


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We can see the effect on EBITDA margins through the financials as they grew from 6.5%-‐10% from 2009 -‐ 2011. Sticky Customer Base RCM contracts are normally 5 years. We get a rough estimate of when RCM contracts fall off and roll on based on the increase/decrease in NPR, coupled with projected NPR Accretive services with each customer. Here’s a look at the NPR adjustments pieced together. You can see the year of each increase in NPR and the extent of the contract life. You may notice that some NPR increases taper down. This is the affect of the Minnesota contracts lost in 2012. Now, if you hold the base case revenue growth we took from the first step and overlay this onto the RCM contracts rolling off and on, you see the below growth in revenue through 2014.

Again, there are too many variables with the first step so we are looking broadly at the impact of the NPR increases and decreases. As the contracts mature, they create greater revenue and higher margins. So even though we had a decrease of $4b in NPR since 2011, we can expect revenues to remain flat to up through this year. The last NPR metric given by management was $18b as of the end of 2013.

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Going forward, if there were no customers added this year, we can still expect growth through 2015, but this will fall sharply moving forward unless customers re-‐sign or Accretive adds more contracts. One customer, Beaumont, is expected to merge with two other health systems, Botsford and Oakwood. Should they use Accretive services, this could lead to a $2.5b increase in NPR in 2015. The merger has been announced and is in the final stages of completion. History. Minnesota AG Impact. Accretive has been on a roller coaster ride from its high of $30 in 2011. That year, an employee’s laptop was stolen, containing thousands of unencrypted customer details. This led to an Attorney General (AG) investigation in 2012. As the investigation took shape, Accretive was accused of aggressive collection tactics and a 6 volume report was released in 2012. Ultimately, many of the claims were unsubstantiated and the case was settled for $2.6m and the agreement by Accretive to not conduct business in Minnesota. Accretive lost $1.7b in market capita through this time. Accretive suffered headline and reputation damage but other than the Minnesota customers, they did not lose additional ones and continued to build out their customer base. The company purchased stock in 3Q2012 and 4Q2012, 1.1m and 3.2m shares respectively. You can see the impact below.

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Accre%ve'Stock'Price'(201022014)'

Accre:ve#Stock#Price#

Restatement##announced#for#mid(Dec#

Stolen#Laptop#

AG#Complaint#AG#alleges#HIPAA#viola:ons#

Fairview#drops#RCM#rela:onship#AG#releases#report#Fairview#drops#QTTC#rela:onship#

Next#chart#($1.7b#drop)##

Se5les,'no'wrongdoing'


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Restatement Impact. In early 2013, Accretive announced that it would postpone 4Q results and also announced that it would restate company filings back till 2010. In the midst of the restatement announcement, Accretive continued to add customers. Also in 2013, they announced that Steve Shuckenbrock would be named CEO and the founder and current CEO, Mary Tolan, would step down. Steve was to serve a one year contract with an option to extend. Steve announced a relocation of HQ from Chicago to Dallas and an employee reduction. Accretive provide a business update at the end of 2013, stating that cash grew and the restatement would continued with an expected March 2014 completion. They also announced that Accretive would repurchase $50m of stock after the restatement. March arrived, the restatement didn’t, and the company announced that it would be delisted from the NYSE. At the same time, Accretive announced that Steve would step down and not extend past October. Additionally, Steve Shulman, a well respected Board Director, was announced as Chairman. On the back of Mr. Shulman’s experience and reputation, we had further confidence that there was no malfeasance in the restatements and it was simply taking longer than anticipated. Accretive announced Dr. Emad Rizk as CEO in July and in November announced that the restatement is expected to be complete by mid-‐December. Below is the snapshot of the stock movement.

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Accre%ve'Stock'Price'(201222014)'

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Restatement##announced#for#mid,Dec#


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Management There have been many executive changes. In addition to stability through Accretive’s current leadership, there will be increased financial stability as lingering compensation/severance packages roll off as well. CEO

Accretive’s C-‐suite is on its third rotation this year. Mary Tolan, co-‐founder and CEO up to the restatement, resigned in 2012. Steve Shuckenbrock, a former DELL executive, came in on a one year commitment to replace Mary. There were positive and negatives with Steve’s appointment, mainly surrounding his experience in software, which is critical in RCM, but is lacking in healthcare industry relationships. During Steve’s short tenure, he planned to move some headquarter operations from Illinois to Texas. This move didn’t appeare to sit well with some key executives. Miles McHugh, the Chief Accounting Officer, is an example as he resigned shortly after the announcement with the 8-‐k citing the move as the reason. Ultimately, in March 2014, Steve announced his intention to resign in October 2014, which would be the end of his year commitment, and the move was quietly cancelled. Dr. Emad Rizk was named CEO in July. He brings over 25 years of healthcare experience, most recently as the President of McKesson Health Solutions, and was named one of the 50 Most Influential Physician Executive in the United States by Moder Physician. His experience and relationships will serve Accretive well as he brings stability, steadiness and vision to the Company. Dr. Rizk named four priorities when he took over: 1) Finishing the restatement, 2) Establish a company wide focus on consistent execution and operational excellence, 3) Develop market focused products and services to help the customers adapt to the evolution of the health care markets, and 4) Implement consistent processes and controls to develop an industrial strength platform. The pending restatement in mid-‐December will be his first tangible step. Here is Accretive’s announcement on his selection. [emphases added] “The Board was very strategic about finding the right person to become our new CEO – Emad is that person,” said Steve Shulman, chairman of Accretive Health’s Board of Directors. “He is a renowned healthcare industry expert who brings with him more than 25 years of experience, and at the same time has demonstrated a profound ability to drive growth and innovation.” Since 2003, Dr. Rizk has served as president of McKesson Health Solutions, a division of McKesson Corporation. As president of this division, he built a world-‐class team and oversaw significant growth, with a focus on helping providers and payers implement new delivery and financial payment processes

CEO Starts Resigns Salary Ends Options NotesMary%Tolan Founder Apr013 $731 Oct014 DirectorShuckenbrock Jul013 Jul014 $595 Oct014 2,900%%%%%%%%%% DirectorDr.%Rizk Jul014 Current $750 2,700%%%%%%%%%% Director


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as the healthcare industry transitions from volume-‐ to value-‐based care. During his tenure, he built an organization that became a leader in the healthcare industry. Prior to joining McKesson, Dr. Rizk served as senior partner and global director of Deloitte Consulting, prior to which he was worldwide medical director for Monsanto Corporation. He also currently serves on the board of Accuray Incorporated. In 2013, Dr. Rizk was named one of the 50 Most Influential Physician Executives in the United States by Modern Physician, the fifth time he has been recognized by this publication. He has also been counted among the Top 100 Most Powerful People in Healthcare by Modern Healthcare; and named one of the nation’s Top 25 Leaders in Disease Management by Managed Healthcare Executive. CFO

Peter Csapo has 16 years of experience in Healtcare Industry and worked with Dr. Rizk at McKesson. He was announced as CFO in August 2014. Below is the announcement. [emphasis added] “Peter is an accomplished leader with extensive healthcare experience and intimate knowledge of hospital and payer finance and operations, all of which we will leverage as we move forward,” said Dr. Rizk. “Peter spent a great deal of time working with hospital CEOs and CFOs during his time at VHA, and I know he is the ideal person to help us enhance our financial infrastructure and internal operating controls as Accretive Health moves into our next phase of growth and innovation.” Since 2011, Csapo has served as area senior vice president and chief financial officer for VHA, Inc., parent company of Novation, Provista and aptitude™, where he provided leadership to turn around the company’s financial strategy and infrastructure, and modernize information technology methodologies to align with and support VHA’s new business model. Prior to that, Csapo worked at McKesson Health Solutions as chief financial officer and vice president, customer operations. He joined McKesson in 1998, where he advanced through multiple corporate and divisional leadership roles during his 13-‐year tenure. Csapo also worked at Honeywell International, Inc., in finance and enterprise resource planning (ERP) systems. He began his career at the headquarters of Sears, Roebuck and Co. in audit and SEC financial reporting. Csapo is a graduate of the University of Wisconsin at Madison and received his Certified Public Accountant certificate from the state of Illinois. “After 16 years of working with hospitals and health plans, I look forward to capitalizing on my experience to evolve Accretive Health’s financial processes and systems to set us up for our journey to sustained growth and profitability,” Csapo said. “Emad and I made a great team when we worked together before, and it will be a privilege to have the opportunity to work with him again in this leadership capacity.”

CFO Starts Resigns Salary Ends Options NotesJohn%Staton Aug,13 Apr,14 33/month Oct,15 299 SeveranceSean%Orr Aug,13 Aug,14 $450 Aug,15 300 SVP,%restatementPeter%Csapo Aug,14 Current $470 470 Also%CAO


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CSO

David Mason’s announcement: David Mason brings more than 30 years of healthcare management and hospital revenue cycle experience to Accretive Health, most recently as senior vice president and general manager at RelayHealth, which he joined in 2007. While there, Mason led the company’s Financial Solutions division, where he was responsible for all business operations, business development, strategic planning, product management, client relationships and payer services. CAO

The CAO role was merged with the CFO roles following Thomas Gibson’s departure. Board of Directors The Board of Directors (BOD) consists of 13 directors. There are three classes, staggering the elections. From the breakout below, we see room for adjustments on the director positions as Accretive continues to progress.

CSO Starts Resigns Salary Ends Options NotesRichard(Kimball Apr/13 Aug/14 // 14/Aug 1000 ResignedDavid(Mason Aug/14 Current // 400

CAO Starts Resigns Salary Ends Options NotesMiles&McHugh Sep.13 Feb.14 .. May.14 No&relocationThomas&Gibson Jun.14 Nov.14 $285 Nov.14 Role&merges&with&CFO

# Name Joined Committee Notes Class1 Edgar'Bronfman Oct02006 Comp/Gov* Accenture'PE II020152 J.'Michael'Cline Aug02003 Comp/Gov Co0Founder I020143 Steven'Kaplan Jul02004 Audit/Comp*/Gov Morningstar II020154 Stanley'Logan Apr02011 Audit* Finance/Consulting III020135 Denis'Nayden Oct02003 Comp Oak'Hill'Capital I020146 Steve'Shulman* Apr02013 Chairman/Gov PE'Firm/Magellan I020147 Arthur'Spiegel Oct02003 Comp Private'Investor III020138 Mark'Wofsen Oct02003 Audit Oak'Hill'Capital III020139 Alex'Mandi Nov02013 Merger'experience10 Emad'Rizk Jul02014 CEO/President11 Stephen'Shuckenbrock Jul02013 Former'CEO12 Robert'Stanek Nov02013 Health'Care'Industry13 Mary'Tolan Aug02003 Co0Founder I02014

*Chairperson


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Steve Shulman, Chairman. Former CEO of Magellan Health Services. Steve led Magellan through a successful turnaround and restructuring out of bankruptcy in 2002 through 2008. He also led Prudential Healthcare, from 1997 to 1999, through a turnaround and ultimate sell of the company to Aetna. Mr. Shulman currently advises Water Street Healthcare Partners, a PE firm. His experiences and expertise will serve Accretive well as they transition out of the restatements.

Industry RCM is a growing industry with incoming competitors. Currently, Tenet Healthcare and HCA are two strong competitors through their subsidiaries, Conifer and Parallon. Both have expanded over the years. UnitedHealth has Optum, which created a JV called Optum360 that has also shown growth. Setting aside the differentiating services, the limiting factor for the main competitors is that they are subsidiaries of two of the larges for-‐profit hospital chains and other hospitals are not likely to contract with direct competitors. On the right is chart that shows the top 5 non-‐profit hospital systems. For services, Accretive works to set themselves apart from other competitors. The main differentiator is their End-‐to-‐End solution, as they do not consider themselves a consulting firm, a pure outsourcing model, or a software provider, but a comprehensive operating partner. The RCM industry has an estimated 10% penetration by RCM vendors, implying a $20b industry for hospitals. The physician portion is estimated at $45b. The low penetration is a function of providers doing their own RCM. However the complexity is increasing and this outsourcing can quickly ramp up. Some reasons for the increased complexity:

-‐ ICD-‐10: New coding standard requiring large system and talent upgrades -‐ Increased administrative costs: RCM requires additional employees to manage -‐ ACA affects: Increased financial risks due to higher deductible plans -‐ New EMR requirements -‐ Current vendor footprint is raising the bar on industry reporting.

Dr. Rizk spoke to the increasing complexity as one of his reason for joining Accretive. This evolving landscape will increase the attractiveness of Accretive’s comprehensive offerings to potential customers.

# Non%Profit+by+size Vendor1 Ascension Accretive2 Catholic/Health/Initiatives Confier3 Catholic/Health/East Accretive4 Adventist Cerner5 Dignity Optum


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Keys to getting the investment right Re-‐rating, Stabilization in Business Re-‐rating. The restatement should add stability to the stock. The keys will be revenue, margins and cash flow. We anticipate that the restatements will show Accretive as an attractive company with steady customers and maturing contracts reflected in its margins and increased cash flows.

The Bear Case Damaged Goods Between the AG investigation, restatement, cancelled HQ move, and delisting, Accretive has undergone some second guessing by potential customers. In spite of this, Accretive has continued to be recognized in the industry and has added new customers. With new management, we feel that their reputation will continue to improve as they exit the restatement.

Key Risks Customer Base 5 year contracts and close comprehensive partnerships with customers and software make Accretive a very sticky vendor. With that said, there the industry is evolving and key customers moving to other vendors may present problems. The main concern is Intermountain, which represents 20% of Accretive revenue. They have recently partnered with Cerner via software management and as Cerner has expanded their RCM services, Intermountain could make an easier transition to Cerner. Their contract is expected to be up for renewal at the end of 2015 and should be tracked.

Moving Forward We anticipate the following milestones as Accretive progresses, which may act as further catalysts. Moving Forward

1) Financial Restatement (mid-‐December 2014) 2) Investor Awareness via roadshows (Spring 2015) 3) Uplisting (Spring 2015) 4) Management/BOD adjustments (2015)


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Premortem Financials, Reputation Impact The restatements had more changes than we anticipated, leading to lower valuations. The year of restatements and negative news affected the customer base more than expected.

Sententia Capital Management Sententia Capital Management is a value investing based capital management firm. The firm manages a long centric, concentrated, market and capital agnostic equities fund with an opportunistic mindset to manage short-‐medium term volatility while capitalizing on long-‐term appreciation. We believe that a value-‐based approach to investing, enhanced by the use of derivatives and steeped in a culture of patience and discipline, is the most effective way to preserve capital in the short term and to grow wealth over the long-‐ term. We perform detailed analytical and fundamental work prior to making an investment. This analysis includes detailed financial analysis, industry dynamics, meetings with management when possible, and an understanding of technical factors that may affect the prices of the securities. The Fund may employ derivative applications. We will seek to maximize portfolio liquidity by investing in securities where there is an active market. Michael Zapata, Founder, Portfolio Manager Mr. Zapata is founder and general partner of Sententia Capital. He received his B.S. from Texas A&M University and was commissioned as a Naval Officer in May of 2001. Throughout his time in the Navy, Michael served as a Navy SEAL officer and deployed seven times during the Global War on Terrorism. Following his last command at the Naval Special Warfare Development Group, Michael transitioned out of the military to attend Columbia Business School in 2011. There he was accepted into the The Heilbrunn Center for Graham and Dodd Investing and earned his master’s degree with a focus on investment management. Upon completion of his MBA, Michael formed Sententia Capital Management.

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