Third Quarter 2017
Highlights
Inovalon (Nasdaq:INOV), a leading technology company providing
advanced, cloud-based platforms empowering a data-driven
transformation from volume-based to value-based models across the
healthcare ecosystem, today announced financial results for the
third quarter of 2017.
“Our third quarter results demonstrate strong
execution and momentum in our business on many levels,” said Keith
Dunleavy, M.D., Inovalon’s chief executive officer and chairman of
the board. “As healthcare’s transformation from volume-based to
value-based models advances, the Inovalon ONE™ Platform is seeing
very positive market demand and adoption. While notably highlighted
by our announced engagements with four national health plans over
recent months, the broad-based demand we are seeing is also
demonstrated by our healthy pipeline of high-value opportunities
and significant interest from clients and prospects across many
sectors of healthcare. The acknowledgements of Inovalon’s
differentiated capabilities within this increasingly data-driven
industry lead us to be evermore confident about our leadership
vision, value demonstration, and financial performance in the
fourth quarter and well beyond.”
Third Quarter 2017 Financial
Results
- Revenue for the third quarter of 2017 was $115.9 million, a
year-over-year increase of 10% compared with $105.0 million for the
third quarter of 2016, and a sequential increase of 5% compared
with $110.6 million for the second quarter of 2017.
- Cost of revenue for the third quarter of 2017 was $38.4
million, or 33.2% of revenue, compared with $35.4 million, or 33.7%
of revenue for the third quarter of 2016, and $37.2 million, or
33.6% of revenue for the second quarter of 2017. This translates
into gross margin for the third quarter of 2017 of 66.8%, a
year-over-year increase of 50 basis points compared with 66.3% for
the third quarter of 2016, and a sequential increase of 40 basis
points compared with 66.4% for the second quarter of 2017.
- Net income for the third quarter of 2017 was $8.2 million,
resulting in diluted net income per share of $0.06, compared with
$7.8 million and $0.05 per share, respectively, for the third
quarter of 2016, and $5.5 million and $0.04 per share,
respectively, for the second quarter of 2017.
- Adjusted EBITDA for the third quarter of 2017 was $30.8
million, a year-over-year increase of 17% compared with $26.3
million for the third quarter of 2016, and a sequential increase of
11% compared with $27.7 million for the second quarter of 2017.
Adjusted EBITDA margin for the third quarter of 2017 was 26.6%, a
year-over-year increase of 160 basis points compared with 25.0% for
the third quarter of 2016, and a sequential increase of 150 basis
points compared with 25.1% for the second quarter of 2017.
- Non-GAAP net income for the third quarter of 2017 was $12.6
million, resulting in Non-GAAP diluted net income per share of
$0.09, compared with $15.4 million and $0.10 per share,
respectively, for the third quarter of 2016, and $11.8 million and
$0.08 per share, respectively, for the second quarter of 2017.
- Net cash provided by operating activities for the first nine
months of 2017 was $80.9 million, a year-over-year increase of 18%
compared with $68.6 million for the first nine months of 2016.
“In addition to its technological advancements
and sales expansion, the Company has made strong progress in
transitioning its business to an increasingly subscription-based
model,” said Chris Greiner, chief financial officer and chief
operating officer of Inovalon. “This transition is best illustrated
by the sequential improvement we are seeing throughout the P&L
and balance sheet. In the third quarter, revenue, margins, and cash
flow all showed strong performance on both a year-over-year and
sequential basis, driven by expanding Inovalon ONE™ Platform mix,
strong core operating leverage, and solid acquisition
contribution.”
Adjusted EBITDA, Adjusted EBITDA margin and
Non-GAAP net income are Non-GAAP measures. Net income is the GAAP
financial measure most directly comparable to Adjusted EBITDA and
Non-GAAP net income. Reconciliations of net income to Adjusted
EBITDA and Non-GAAP net income, identifying the differences between
net income and each of these Non-GAAP financial measures, are
included in this press release after the consolidated financial
statements.
Key Highlights
- Strong Year-Over-Year and Sequential Financial
Performance. Third quarter 2017 revenue of $115.9 million
was ahead of the midpoint of the Company’s expected range, growing
10% year-over-year and 5% sequentially. Gross margin of 66.8% in
the third quarter improved by 50 basis points on a year-over-year
basis and 40 basis points on a sequential basis, representing
continued operating leverage from both technology-enabled
efficiencies and higher-margin offering mix. The Company’s
continuing investments in cloud-based platform offerings,
connectivity, modularity, compute power, natural language
processing, machine learning, and technology-enabled automation
continue to yield strong returns and drive significant demand in
the marketplace. Lower G&A expense as a percentage of revenue
in the third quarter of 2017 on both a year-over-year and
sequential basis, coupled with the increase in gross margin, drove
Adjusted EBITDA of $30.8 million, above the Company’s expected
range, and Adjusted EBITDA margin of 26.6%, representing expansion
of 160 basis points year-over-year and 150 basis points
sequentially. The Company's strong financial performance, coupled
with improving accounts receivable days sales outstanding (DSOs),
drove year-to-date net cash provided by operating activities of
$80.9 million, up 18% from the comparable period a year ago.
- The Inovalon ONE™ Platform Seeing Strong Market Demand
and Adoption. The Company witnessed significant market
validation of the Inovalon ONE™ Platform in the third quarter of
2017, increasing the number of national health plan wins
year-to-date to four by bringing the nation’s largest health plan
on to the Platform, as well as signing engagements with multiple
leading state and regional players. The Company also continues to
migrate a significant number of existing clients onto the Inovalon
ONE™ Platform, enabling access to greater speed and broader
functionality for clients, and increased operating efficiencies and
cross-sell opportunities for the Company. More broadly, in the
third quarter of 2017, Inovalon saw total annualized revenue from
new business signings increase by 546% over the prior year’s third
quarter, and average revenue per opportunity increase by 370% on
the same basis. On a year-to-date basis, these metrics are up 66%
and 163% year-over-year, respectively.
- Significant Data and Cloud Compute Expansion.
During the third quarter of 2017, Inovalon achieved significant
ongoing expansion of its healthcare ecosystem connectivity,
datasets, and cloud compute capacity reflecting both expanded
capabilities of the Company as well as increased Platform
utilization by the Company’s growing client base. At the end of the
third quarter of 2017, Inovalon had achieved direct electronic
health record (EHR) system connectivity with more than 117,000
physicians, representing growth of nearly 200% on a year-over-year
basis. Data within the Company’s proprietary MORE2 Registry®
dataset continued to expand with a unique patient count of 231
million and medical event count of more than 34.3 billion, up 65%
and 187%, respectively, on a year-over-year basis. The Company
continues to be in the process of integrating the growing influx of
data into its Platform and therefore expects continued strong
expansion of these proprietary datasets in the fourth quarter. Also
during the third quarter, Inovalon significantly expanded its cloud
computing environments in support of the growing demand for the
Inovalon ONE™ Platform. Reflecting this increasing Platform demand,
the Company saw its trailing 12-month Patient Analytics Months
(PAM) metric increase to more than 36.6 billion, an increase of 45%
on a year-over-year basis and 17% on a sequential basis. Inovalon’s
proprietary datasets, along with the analytics and insights they
power, extensive industry connectivity, and cloud-based Platform
speed and capabilities represent significant and increasing
differentiators for the Company in the healthcare marketplace.
- Expect Approximately 23% Year-over-Year Revenue Growth
in Q4 2017 at the Midpoint of Guidance. With the Company
seeing a return to growth in 2H 2017 materialize as expected,
Inovalon expects year-over-year revenue growth to further
accelerate in the fourth quarter of 2017 on both a reported and
organic basis. Specifically, year-over-year revenue growth in the
fourth quarter of 2017 is expected to be approximately 23% on a
reported basis and approximately 19% on an organic basis at the
midpoint of 2017 guidance. In addition, given the expected top-line
growth, as well as continued benefit from pricing, favorable
offering mix, and technology-enabled efficiencies, Inovalon expects
to see continued strong expansion of profitability in the fourth
quarter of 2017 and expansion of profitability in 2H 2017 versus 1H
2017 and the year-ago period.
Other Financial Data and Key
Metrics
The following constitute other financial and key
metrics which are presented quarterly.
- Growth of Datasets: At September 30, 2017, the MORE2
Registry® dataset contained 231 million unique patient counts and
more than 34.3 billion medical event counts, increases of 65% and
187%, respectively, compared with September 30, 2016.
- Investment in Innovation: For the quarter ended
September 30, 2017, Inovalon’s ongoing investment supporting
innovations in advanced, cloud-based platforms empowering a
data-driven transformation from volume-based to value-based models
was $19.9 million, or 17% of revenue, an increase of $6.7 million,
or 51%, compared to the prior year period.
- Analytical Process Count Growth: Inovalon’s trailing 12-month
Patient Analytics Months (PAM) count, which the Company believes is
indicative of the Company’s overall level of analytical activity,
grew to more than 36.6 billion as of September 30, 2017, an
increase of 45% as compared with September 30, 2016.
Please see the Company’s filings with the
Securities and Exchange Commission (SEC) for further detail
regarding the preceding other financial data and key metrics.
Shares Outstanding
During the third quarter of 2017, Inovalon
continued to repurchase shares of its Class A common stock in the
open market, pursuant to its previously-announced share repurchase
program, repurchasing approximately 1.5 million shares of Class A
common stock for a total of $19.8 million. This brings the total
number of shares repurchased from the open market since the start
of the repurchase program to approximately 12.7 million shares. As
of September 30, 2017, approximately $28.8 million remained
available to repurchase shares under the Company’s share repurchase
program. As of October 27, 2017, the Company had 64.7 million
shares of Class A common stock outstanding and 81.2 million shares
of Class B common stock outstanding.
2017 Financial Guidance
Inovalon is updating full-year 2017 guidance
previously provided by the Company on August 2, 2017, increasing
net income, diluted net income per share, and Non-GAAP diluted net
income per share.
Financial Metric |
|
Updated Guidance RangeProvided November 1,
2017 |
|
Previous Guidance RangeProvided August 2,
2017 |
Revenue |
|
$447.1 million to
$459.3 million |
|
$447.1 million to
$459.3 million |
Net income |
|
$20.0 million to $24.0
million |
|
$18.0 million to $22.5
million |
Adjusted EBITDA |
|
$105.2 million to
$112.5 million |
|
$105.2 million to
$112.5 million |
Non-GAAP net
income |
|
$42.2 million to $46.6
million |
|
$42.2 million to $46.6
million |
Diluted net income per
share |
|
$0.14 to $0.17 |
|
$0.13 to $0.16 |
Non-GAAP diluted net
income per share |
|
$0.30 to $0.33 |
|
$0.29 to $0.32 |
Inovalon’s 2017 guidance excludes the impact of
any additional acquisitions that have not yet been announced or
consummated. In addition, while the Company’s sales pipeline
contains a number of potentially significant strategic platform
opportunities, 2017 guidance does not assume a significant
contribution from these opportunities.
Reconciliations of net income, the GAAP
financial measure most directly comparable to Adjusted EBITDA and
Non-GAAP net income, identifying the differences between each of
these Non-GAAP financial measures and net income, are included in
this press release after the consolidated financial statements.
While the ongoing implementation of the share
repurchase program or changes in the stock price could change the
fully diluted share count, under the treasury stock method, the
Company is assuming 142.7 million shares for the full year
2017. Additionally, the Company’s guidance assumes an effective tax
rate of approximately 39.0% for the full year 2017.
Conference Call
Inovalon will host a conference call to discuss
its third quarter 2017 results at 5:00 p.m. Eastern Time today. To
participate in Inovalon’s conference call, please dial (855)
783-2604, conference ID 89637940; international callers should dial
(631) 485-4882 using the same conference ID. A replay will be
available on Inovalon’s investor relations website
(http://investors.inovalon.com).
Please refer to our Third Quarter 2017 Earnings
Presentation Supplement available at
http://investors.inovalon.com for additional information,
including slides that will be referenced during the Company’s
conference call.
About the Inovalon ONE™
Platform
The Inovalon ONE™ Platform is an integrated
cloud-based platform of more than 80 individual proprietary
technology toolsets able to be rapidly configured to empower the
operationalization of large-scale data-driven and value-based
healthcare initiatives. The Platform brings to the marketplace a
highly extensible, national-scale capability to interconnect with
the healthcare ecosystem, aggregate and analyze data in petabyte
volumes, arrive at sophisticated insights in real time, drive
meaningful impact wherever it is analytically identified best to
intervene, and intuitively visualize data and information to inform
business strategy and execution.
About Inovalon
Inovalon is a leading technology company
providing cloud-based platforms empowering a data-driven
transformation from volume-based to value-based models throughout
the healthcare industry. Through the Inovalon ONE™ Platform,
Inovalon brings to the marketplace a national-scale capability to
interconnect with the healthcare ecosystem on massive scale,
aggregate and analyze data in petabyte volumes to arrive at
sophisticated insights in real-time, drive impact wherever it is
analytically identified best to intervene, and intuitively
visualize data and information to inform business strategy and
execution. Leveraging its platform, unparalleled proprietary data
sets, and industry-leading subject matter expertise, Inovalon
enables the assessment and improvement of clinical and quality
outcomes and financial performance across the healthcare ecosystem.
From health plans and provider organizations, to pharmaceutical,
medical device, and diagnostics companies, Inovalon's unique
achievement of value is delivered through the effective progression
of “Turning Data into Insight, and Insight into Action®.” Providing
technology that supports nearly 500 healthcare organizations,
Inovalon's platforms are informed by data pertaining to more than
903,000 physicians, more than 385,000 clinical facilities, and 231
million Americans. For more information,
visit www.inovalon.com.
Forward Looking Statements
Certain statements contained in this press
release constitute forward-looking statements within the meaning
of, and are intended to be covered by the safe harbor provisions
of, Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended. All statements contained in this press release other than
statements of historical fact, including but not limited to
statements regarding the roll-out of any product or capability, the
timing, performance characteristics and utility of any such product
or capability, and the impact of any such product or
capability on the healthcare industry, future results of operations
and financial position, business strategy and plans, market growth,
and objectives for future operations, are forward-looking
statements. The words “believe,” “may,” “see,” “will,” “estimate,”
“continue,” “anticipate,” “assume,” “intend,” “expect,” “project,”
“look forward,” and similar expressions are intended to identify
forward-looking statements. Forward-looking statements in this
press release include, but are not limited to, strategies and
business plans, expectations regarding future results, expectations
regarding the size of our datasets, plans to repurchase shares of
Class A common stock, and financial guidance for the full-year
2017. Inovalon has based these forward-looking statements largely
on current expectations and projections about future events and
trends that may affect financial condition, results of operations,
business strategy, short-term and long-term business operations and
objectives, and financial needs. These forward-looking statements
are subject to a number of risks, uncertainties, and assumptions,
which could cause the future events and trends discussed in this
press release not to occur and could cause actual results to differ
materially and adversely from those anticipated or implied in the
forward-looking statements.
These risks, uncertainties, and assumptions
include, among others: the Company’s ability to continue and manage
growth; ability to grow the client base, retain and renew the
existing client base and maintain or increase the fees and activity
with existing clients; the effect of the concentration of revenue
among top clients; the ability to innovate new services and adapt
platforms and toolsets; the ability to successfully implement
growth strategies, including the ability to expand into adjacent
verticals, such as direct to consumer, growing channel
partnerships, expanding internationally and successfully pursuing
acquisitions; the ability to successfully integrate our
acquisitions and the ability of the acquired business to perform as
expected; the successful implementation and adoption of new
platforms and solutions, including the Inovalon ONE™
Platform, Data Diagnostics® and INDICES® Value-Based
Provider Platform; the possibility of technical, logistical or
planning issues in connection with the Company’s investment in and
successful deployment of the Company’s products, services and
technological advancements; the ability to enter into new
agreements with existing or new platforms, products and solutions
in the timeframes expected, or at all; the impact of pending
M&A activity in the managed care industry, including potential
positive or negative impact on existing contracts or the demand for
new contracts; the effects of and costs associated with compliance
with regulations applicable to the Company, including regulations
relating to data protection and data privacy; the ability to
protect the privacy of clients’ data and prevent security breaches;
the effect of competition on the business; and the efficacy of the
Company’s platforms and toolsets. Additional information is also
set forth in the Company’s Annual Report on Form 10-K for the
year ended December 31, 2016, filed with the SEC on
February 23, 2017, included under the heading Item 1A, “Risk
Factors.” The Company is under no duty to, and disclaims any
obligation to, update any of these forward-looking statements after
the date of this press release or conform these statements to
actual results or revised expectations, except as required by
law.
Use of Non-GAAP Financial
Measures
In the Company’s earnings releases, prepared
remarks, conference calls, slide presentations and webcasts, there
may be use or discussion of non-GAAP financial measures. The GAAP
financial measure most directly comparable to each non-GAAP
financial measure used or discussed, and a reconciliation of the
differences between the comparable GAAP financial measure and each
non-GAAP financial measure are included in this press release after
the consolidated financial statements.
Inovalon
Holdings, Inc.Consolidated Statements of
Income (unaudited)
(In thousands,
except per-share amounts) |
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Revenue |
$ |
115,855 |
|
|
$ |
105,013 |
|
|
$ |
334,739 |
|
|
$ |
331,495 |
|
Expenses: |
|
|
|
|
|
|
|
Cost of
revenue(1) |
38,431 |
|
|
35,433 |
|
|
113,914 |
|
|
120,570 |
|
Sales and
marketing(1) |
7,929 |
|
|
7,037 |
|
|
24,365 |
|
|
19,712 |
|
Research
and development(1) |
5,780 |
|
|
7,404 |
|
|
20,850 |
|
|
21,047 |
|
General
and administrative(1) |
36,283 |
|
|
37,209 |
|
|
108,002 |
|
|
105,222 |
|
Depreciation and amortization |
13,550 |
|
|
8,904 |
|
|
38,514 |
|
|
25,794 |
|
Total
operating expenses |
101,973 |
|
|
95,987 |
|
|
305,645 |
|
|
292,345 |
|
Income from
operations |
13,882 |
|
|
9,026 |
|
|
29,094 |
|
|
39,150 |
|
Other income and
(expenses): |
|
|
|
|
|
|
|
Realized
gains on short-term investments |
— |
|
|
9 |
|
|
— |
|
|
4 |
|
(Loss)
Gain on disposal of equipment |
(243 |
) |
|
— |
|
|
(381 |
) |
|
534 |
|
Interest
income |
1,365 |
|
|
1,450 |
|
|
4,045 |
|
|
4,424 |
|
Interest
expense |
(1,617 |
) |
|
(1,302 |
) |
|
(4,549 |
) |
|
(3,806 |
) |
Income before
taxes |
13,387 |
|
|
9,183 |
|
|
28,209 |
|
|
40,306 |
|
Provision for income
taxes |
5,146 |
|
|
1,376 |
|
|
10,840 |
|
|
13,883 |
|
Net income |
$ |
8,241 |
|
|
$ |
7,807 |
|
|
$ |
17,369 |
|
|
$ |
26,423 |
|
Net income attributable
to common stockholders, basic and diluted |
$ |
7,968 |
|
|
$ |
7,771 |
|
|
$ |
16,905 |
|
|
$ |
26,308 |
|
Net income per share
attributable to common stockholders, basic and diluted: |
|
|
|
|
|
|
|
Basic net
income per share |
$ |
0.06 |
|
|
$ |
0.05 |
|
|
$ |
0.12 |
|
|
$ |
0.17 |
|
Diluted
net income per share |
$ |
0.06 |
|
|
$ |
0.05 |
|
|
$ |
0.12 |
|
|
$ |
0.17 |
|
Weighted average shares
of common stock outstanding: |
|
|
|
|
|
|
|
Basic |
141,226 |
|
|
150,732 |
|
|
142,861 |
|
|
151,240 |
|
Diluted |
141,699 |
|
|
151,562 |
|
|
143,327 |
|
|
152,122 |
|
_______________________________________________________
(1 |
) |
Includes stock-based
compensation expense as follows: |
|
|
|
|
|
|
|
|
Cost of revenue |
$ |
474 |
|
|
$ |
94 |
|
|
$ |
1,189 |
|
|
$ |
334 |
|
|
Sales and
marketing |
561 |
|
|
140 |
|
|
1,456 |
|
|
446 |
|
|
Research and
development |
349 |
|
|
186 |
|
|
929 |
|
|
927 |
|
|
General and
administrative |
3,597 |
|
|
1,704 |
|
|
8,751 |
|
|
4,645 |
|
|
Total stock-based
compensation expense |
$ |
4,981 |
|
|
$ |
2,124 |
|
|
$ |
12,325 |
|
|
$ |
6,352 |
|
|
Inovalon
Holdings, Inc.Consolidated Balance Sheets
(unaudited)
(In
thousands) |
|
September 30, 2017 |
|
December 31, 2016 |
ASSETS |
|
|
|
|
Current assets: |
|
|
|
|
Cash and
cash equivalents |
|
$ |
232,555 |
|
|
$ |
127,683 |
|
Short-term investments |
|
293,101 |
|
|
445,315 |
|
Accounts
receivable (net of allowances of $2,669 and $5,865 at September 30,
2017 and December 31, 2016, respectively) |
|
83,818 |
|
|
85,591 |
|
Prepaid
expenses and other current assets |
|
11,747 |
|
|
12,100 |
|
Income
tax receivable |
|
4,104 |
|
|
15,165 |
|
Total
current assets |
|
625,325 |
|
|
685,854 |
|
Non-current
assets: |
|
|
|
|
Property,
equipment and capitalized software, net |
|
101,419 |
|
|
76,420 |
|
Goodwill |
|
184,932 |
|
|
184,557 |
|
Intangible assets, net |
|
93,176 |
|
|
103,549 |
|
Other
assets |
|
5,706 |
|
|
2,964 |
|
Total
assets |
|
$ |
1,010,558 |
|
|
$ |
1,053,344 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
Current
liabilities: |
|
|
|
|
Accounts
payable |
|
$ |
30,509 |
|
|
$ |
16,474 |
|
Accrued
compensation |
|
21,297 |
|
|
15,211 |
|
Other
current liabilities |
|
7,708 |
|
|
9,468 |
|
Deferred
revenue |
|
8,807 |
|
|
11,850 |
|
Deferred
rent |
|
1,520 |
|
|
1,016 |
|
Credit
facilities |
|
41,250 |
|
|
30,000 |
|
Capital
lease obligation |
|
108 |
|
|
115 |
|
Total
current liabilities |
|
111,199 |
|
|
84,134 |
|
Non-current
liabilities: |
|
|
|
|
Credit
facilities, less current portion |
|
202,500 |
|
|
236,250 |
|
Capital
lease obligation, less current portion |
|
136 |
|
|
215 |
|
Deferred
rent |
|
261 |
|
|
1,457 |
|
Other
liabilities |
|
11,932 |
|
|
13,158 |
|
Deferred
income taxes |
|
32,440 |
|
|
34,553 |
|
Total
liabilities |
|
358,468 |
|
|
369,767 |
|
Commitments and
contingencies |
|
|
|
|
Stockholders'
equity: |
|
|
|
|
Common
stock, $0.000005 par value, 900,000,000 shares authorized, zero
shares issued and outstanding at each of September 30, 2017 and
December 31, 2016, respectively |
|
— |
|
|
— |
|
Class A common stock, $0.000005 par value, 750,000,000 shares
authorized; 77,425,861 shares issued and 64,681,372 shares
outstanding at September 30, 2017; 72,271,298 shares issued and
64,786,705 shares outstanding at December 31, 2016 |
|
— |
|
|
— |
|
Class B common stock, $0.000005 par value, 150,000,000 shares
authorized; 81,215,212 shares issued and outstanding at September
30, 2017; 83,303,628 shares issued and outstanding at
December 31, 2016 |
|
1 |
|
|
1 |
|
Preferred
stock, $0.0001 par value, 100,000,000 shares authorized, zero
shares issued and outstanding at September 30, 2017 and
December 31, 2016, respectively |
|
— |
|
|
— |
|
Additional paid-in-capital |
|
532,084 |
|
|
516,300 |
|
Retained
earnings |
|
291,456 |
|
|
274,087 |
|
Treasury
stock, Class A common stock, at cost, 12,744,489 and 7,508,985
shares at September 30, 2017 and December 31, 2016,
respectively |
|
(171,217 |
) |
|
(106,231 |
) |
Other
comprehensive loss |
|
(234 |
) |
|
(580 |
) |
Total
stockholders' equity |
|
652,090 |
|
|
683,577 |
|
Total liabilities and
stockholders' equity |
|
$ |
1,010,558 |
|
|
$ |
1,053,344 |
|
|
Inovalon
Holdings, Inc.Consolidated Statements of Cash
Flows (unaudited)
(In
thousands) |
Nine Months Ended September 30, |
|
2017 |
|
2016 |
Cash flows from
operating activities: |
|
|
|
Net
income |
$ |
17,369 |
|
|
$ |
26,423 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
Stock-based compensation expense |
12,325 |
|
|
6,352 |
|
Depreciation |
27,129 |
|
|
20,368 |
|
Amortization of intangibles |
11,385 |
|
|
5,426 |
|
Amortization of premiums on short-term investments |
1,571 |
|
|
2,502 |
|
Realized
gains on short-term investments |
— |
|
|
(4 |
) |
Tax
payments for equity award issuances |
— |
|
|
95 |
|
Deferred
income taxes |
(1,540 |
) |
|
(3,110 |
) |
Excess
tax benefits from stock-based compensation |
— |
|
|
(1,135 |
) |
Loss
(Gain) on disposal of equipment |
381 |
|
|
(534 |
) |
Change in
fair value of contingent consideration |
(2,900 |
) |
|
706 |
|
Bad debt
expense |
— |
|
|
79 |
|
Changes
in assets and liabilities: |
|
|
|
Accounts
receivable |
5,259 |
|
|
1,332 |
|
Prepaid
expenses and other current assets |
1,931 |
|
|
(3,604 |
) |
Income
taxes receivable |
11,174 |
|
|
7,677 |
|
Other
assets |
(2,722 |
) |
|
4,189 |
|
Accounts
payable |
5,653 |
|
|
(5,903 |
) |
Accrued
compensation |
1,346 |
|
|
2,090 |
|
Other
liabilities |
(4,210 |
) |
|
5,866 |
|
Deferred
rent |
(696 |
) |
|
(557 |
) |
Deferred
revenue |
(2,507 |
) |
|
361 |
|
Net cash
provided by operating activities |
80,948 |
|
|
68,619 |
|
Cash flows from
investing activities: |
|
|
|
Maturities of short-term investments |
150,696 |
|
|
248,998 |
|
Sales of
short-term investments |
— |
|
|
31,549 |
|
Purchases
of short-term investments |
— |
|
|
(164,737 |
) |
Purchases
of property and equipment |
(17,544 |
) |
|
(11,267 |
) |
Investment in capitalized software |
(21,741 |
) |
|
(14,220 |
) |
Acquisitions, net of cash acquired of $1,535 |
(3,490 |
) |
|
— |
|
Net cash
provided by investing activities |
107,921 |
|
|
90,323 |
|
Cash flows from
financing activities: |
|
|
|
Repurchase of common stock |
(64,986 |
) |
|
(51,118 |
) |
Repayment
of credit facility borrowings |
(22,500 |
) |
|
(11,250 |
) |
Proceeds
from exercise of stock options |
3,781 |
|
|
5,111 |
|
Acquisition-related contingent consideration |
— |
|
|
(2,300 |
) |
Capital
lease obligations paid |
(84 |
) |
|
(31 |
) |
Tax
payments for equity award issuances |
(208 |
) |
|
(137 |
) |
Excess
tax benefits from stock-based compensation |
— |
|
|
1,135 |
|
Net cash
used in financing activities |
(83,997 |
) |
|
(58,590 |
) |
Increase
in cash and cash equivalents |
104,872 |
|
|
100,352 |
|
Cash and
cash equivalents, beginning of period |
127,683 |
|
|
114,034 |
|
Cash and
cash equivalents, end of period |
$ |
232,555 |
|
|
$ |
214,386 |
|
Supplementary
cash flow disclosure: |
|
|
|
Cash paid during the period for: |
|
|
|
Income
taxes, net of refunds |
$ |
725 |
|
|
$ |
10,014 |
|
Interest |
4,416 |
|
|
3,600 |
|
Non-cash investing activities: |
|
|
|
Accruals
for purchases of property, equipment |
8,295 |
|
|
816 |
|
Accruals
for investment in capitalized software |
3,892 |
|
|
492 |
|
|
|
|
|
|
|
Inovalon
Holdings, Inc.Adjusted Earnings Before
Interest, Taxes, Depreciation and Amortization
(unaudited)
Inovalon defines Adjusted Earnings Before
Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) as
net income calculated in accordance with GAAP, adjusted for the
impact of depreciation and amortization, realized losses on
short-term investments, loss or gain on disposal of equipment,
interest income, interest expense, provision for income taxes,
stock-based compensation, acquisition costs, tax on equity
exercises, and other non-comparable items. Adjusted EBITDA margin
is defined as Adjusted EBITDA as a percentage of revenue. A
reconciliation of net income to Adjusted EBITDA follows:
|
|
|
|
(In thousands,
except percentages) |
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Reconciliation
of Net Income to Adjusted EBITDA: |
|
|
|
|
|
|
|
Net Income |
$ |
8,241 |
|
|
$ |
7,807 |
|
|
$ |
17,369 |
|
|
$ |
26,423 |
|
Depreciation and amortization |
13,550 |
|
|
8,904 |
|
|
38,514 |
|
|
25,794 |
|
Realized
gains on short-term investments |
— |
|
|
(9 |
) |
|
— |
|
|
(4 |
) |
Loss
(Gain) on disposal of equipment |
243 |
|
|
— |
|
|
381 |
|
|
(534 |
) |
Interest
income |
(1,365 |
) |
|
(1,450 |
) |
|
(4,045 |
) |
|
(4,424 |
) |
Interest
expense |
1,617 |
|
|
1,302 |
|
|
4,549 |
|
|
3,806 |
|
Provision
for income taxes |
5,146 |
|
|
1,376 |
|
|
10,840 |
|
|
13,883 |
|
EBITDA |
27,432 |
|
|
17,930 |
|
|
67,608 |
|
|
64,944 |
|
Stock-based compensation |
4,981 |
|
|
2,124 |
|
|
12,325 |
|
|
6,352 |
|
Acquisition costs: |
|
|
|
|
|
|
|
Transaction costs |
700 |
|
|
355 |
|
|
821 |
|
|
1,076 |
|
Integration costs |
635 |
|
|
— |
|
|
1,516 |
|
|
— |
|
Contingent consideration accretion |
(4,200 |
) |
|
117 |
|
|
(2,900 |
) |
|
706 |
|
Compensatory contingent consideration |
911 |
|
|
5,241 |
|
|
1,408 |
|
|
11,087 |
|
Tax on
equity exercises |
— |
|
|
— |
|
|
32 |
|
|
95 |
|
Other
non-comparable items(1) |
341 |
|
|
528 |
|
|
2,673 |
|
|
1,360 |
|
Adjusted EBITDA |
$ |
30,800 |
|
|
$ |
26,295 |
|
|
$ |
83,483 |
|
|
$ |
85,620 |
|
Adjusted EBITDA
margin |
26.6 |
% |
|
25.0 |
% |
|
24.9 |
% |
|
25.8 |
% |
_______________________________________________________(1) Other
“non-comparable items” include items that are not comparable across
reporting periods or items that do not otherwise relate to the
Company’s ongoing financial results, such as certain employee
related expenses attributable to advancements in automation and
operational efficiencies. Non-comparable items are excluded from
Adjusted EBITDA in order to more effectively assess the Company’s
period over period and ongoing operating performance.
Inovalon
Holdings, Inc.Non-GAAP net income
(unaudited)
Inovalon defines Non-GAAP net income as net
income calculated in accordance with GAAP, adjusted to exclude
tax-affected stock-based compensation expense, acquisition costs,
amortization of acquired intangible assets, tax on equity
exercises, and other non-comparable items. A reconciliation of net
income to Non-GAAP net income follows:
(In thousands,
except per-share amounts) |
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Reconciliation
of Net Income to Non-GAAP net income: |
|
|
|
|
|
|
|
Net Income |
$ |
8,241 |
|
|
$ |
7,807 |
|
|
$ |
17,369 |
|
|
$ |
26,423 |
|
Stock-based compensation |
4,981 |
|
|
2,124 |
|
|
12,325 |
|
|
6,352 |
|
Acquisition costs: |
|
|
|
|
|
|
|
Transaction costs |
700 |
|
|
355 |
|
|
821 |
|
|
1,076 |
|
Integration costs |
635 |
|
|
— |
|
|
1,516 |
|
|
— |
|
Contingent consideration accretion |
(4,200 |
) |
|
117 |
|
|
(2,900 |
) |
|
706 |
|
Compensatory contingent consideration |
911 |
|
|
5,241 |
|
|
1,408 |
|
|
11,087 |
|
Amortization of acquired intangible assets |
3,850 |
|
|
1,772 |
|
|
11,385 |
|
|
5,426 |
|
Tax on
equity exercises |
— |
|
|
— |
|
|
32 |
|
|
95 |
|
Other
non-comparable items(1) |
341 |
|
|
528 |
|
|
2,673 |
|
|
1,360 |
|
Tax
impact of add-back items |
(2,905 |
) |
|
(2,512 |
) |
|
(10,621 |
) |
|
(8,991 |
) |
Non-GAAP net
income |
$ |
12,554 |
|
|
$ |
15,432 |
|
|
$ |
34,008 |
|
|
$ |
43,534 |
|
|
|
|
|
|
|
|
|
GAAP basic net income
per share |
$ |
0.06 |
|
|
$ |
0.05 |
|
|
$ |
0.12 |
|
|
$ |
0.17 |
|
GAAP diluted net income
per share |
$ |
0.06 |
|
|
$ |
0.05 |
|
|
$ |
0.12 |
|
|
$ |
0.17 |
|
Non-GAAP basic net
income per share |
$ |
0.09 |
|
|
$ |
0.10 |
|
|
$ |
0.24 |
|
|
$ |
0.29 |
|
Non-GAAP diluted net
income per share |
$ |
0.09 |
|
|
$ |
0.10 |
|
|
$ |
0.24 |
|
|
$ |
0.29 |
|
_______________________________________________________(1) Other
“non-comparable items” include items that are not comparable across
reporting periods or items that do not otherwise relate to the
Company’s ongoing financial results, such as certain employee
related expenses attributable to advancements in automation and
operational efficiencies. Non-comparable items are excluded from
Non-GAAP Net Income in order to more effectively assess the
Company’s period over period and ongoing operating performance.
Inovalon
Holdings, Inc.Key
Metrics (unaudited)
The Company believes the key metrics illustrated
in the tables below are indicative of its overall level of
analytical activity and its underlying growth in the business.
|
September 30, |
(in
thousands) |
2017 |
|
2016 |
MORE2 Registry® dataset
metrics |
|
|
|
Unique
patient count(1) |
230,916 |
|
|
139,534 |
|
Medical
event count(2) |
34,316,048 |
|
|
11,965,465 |
|
Trailing 12 month
Patient Analytics Months (PAM)(3) |
36,624,786 |
|
|
25,286,198 |
|
_______________________________________________________(1) Unique
patient count is defined as each unique, longitudinally matched,
de-identified natural person represented in the
MORE2 Registry® as of the end of the period presented.(2)
Medical event count is defined as the total number of discrete
medical events as of the end of the period presented (for example,
a discrete medical event typically results from the presentation of
a patient to a physician for the diagnosis of diabetes and
congestive heart failure in a single visit, the presentation of a
patient to an emergency department for chest pain, etc.).(3)
Patient Analytics Months, or PAM, is defined as the sum of the
analytical processes performed on each respective patient within
patient populations covered by clients under contract. As used in
the metric, an “analytical process” is a distinct set of data
calculations undertaken by the Company which is initiated and
completed by the Company’s analytical platform to examine a
specific question such as whether a patient is believed to have a
condition such as diabetes, or worsening of the disease, during a
specific time period.
Inovalon
Holdings, Inc.Investment in
Innovation (unaudited)
The Company’s business model is based upon the
ability to deliver value to clients through the combination of
advanced, cloud-based data analytics and data-driven intervention
platforms focused on the achievement of meaningful and measureable
improvements in clinical quality outcomes and financial performance
in healthcare. The Company’s ability to deliver this value is
dependent in part on the ability to continue to innovate, design
new capabilities, and bring these capabilities to market in an
enterprise scale. The Company’s continued ability to innovate the
platform and bring differentiated capabilities to market is an
important aspect of the Company’s business success. The Company’s
investment in innovation includes costs for research and
development, capitalized software development, and expenditures
related to hardware and software platforms on which data analytics
and data-driven interventions capabilities are deployed as
summarized below.
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(In thousands,
except percentages) |
2017 |
|
2016 |
|
2017 |
|
2016 |
Investment in
Innovation: |
|
|
|
|
|
|
|
Research
and development(1) |
$ |
5,780 |
|
|
$ |
7,404 |
|
|
$ |
20,850 |
|
|
$ |
21,047 |
|
Capitalized software development(2) |
9,637 |
|
|
5,248 |
|
|
24,570 |
|
|
16,780 |
|
Research
and development infrastructure investments(3) |
4,454 |
|
|
512 |
|
|
14,040 |
|
|
3,491 |
|
Total
investment in innovation |
$ |
19,871 |
|
|
$ |
13,164 |
|
|
$ |
59,460 |
|
|
$ |
41,318 |
|
As a percentage
of revenue |
|
|
|
|
|
|
|
Research
and development(1) |
5 |
% |
|
7 |
% |
|
6 |
% |
|
6 |
% |
Capitalized software development(2) |
8 |
% |
|
5 |
% |
|
7 |
% |
|
5 |
% |
Research
and development infrastructure investments(3) |
4 |
% |
|
1 |
% |
|
5 |
% |
|
1 |
% |
Total
investment in innovation |
17 |
% |
|
13 |
% |
|
18 |
% |
|
12 |
% |
_______________________________________________________(1) Research
and development primarily includes employee costs related to the
development and enhancement of the Company’s service offerings.(2)
Capitalized software development includes capitalized costs
incurred to develop and enhance functionality for the Company’s
data analytics and data-driven intervention platforms.(3) Research
and development infrastructure investments include strategic
expenditures related to hardware and software platforms under
development or enhancement.
Inovalon
Holdings, Inc.Forward-Looking Guidance
Adjusted EBITDA (Unaudited)
|
Guidance Range |
|
Year EndingDecember 31,
2017 |
(In
millions) |
Low |
|
High |
Reconciliation
of Forward-Looking Guidance Net Income to Adjusted
EBITDA: |
|
|
|
Net Income |
$ |
20 |
|
|
$ |
24 |
|
Depreciation and amortization |
52 |
|
|
52 |
|
Interest
expense |
6 |
|
|
6 |
|
Interest
income |
(6 |
) |
|
(6 |
) |
Provision
for income taxes(1) |
13 |
|
|
15 |
|
EBITDA |
85 |
|
|
91 |
|
Stock-based compensation |
17 |
|
|
17 |
|
Acquisition costs: |
|
|
|
Transaction costs |
— |
|
|
— |
|
Integration costs |
2 |
|
|
2 |
|
Contingent consideration accretion |
(3 |
) |
|
(2 |
) |
Compensatory contingent consideration |
2 |
|
|
2 |
|
Other
non-comparable items(2) |
2 |
|
|
3 |
|
Adjusted EBITDA |
$ |
105 |
|
|
$ |
113 |
|
Adjusted EBITDA
margin |
23.5 |
% |
|
24.6 |
% |
_______________________________________________________(1) A 39%
tax rate is assumed in order to approximate the Company’s effective
statutory corporate tax rate.(2) Other “non-comparable items”
include items that are not comparable across reporting periods or
items that do not otherwise relate to the Company’s ongoing
financial results, such as certain employee related expenses
attributable to advancements in automation and operational
efficiencies. Non-comparable items are excluded from Adjusted
EBITDA in order to more effectively assess the Company’s period
over period and ongoing operating performance.
Inovalon
Holdings, Inc.Forward-Looking Guidance
Non-GAAP net income (Unaudited)
|
Guidance Range |
|
Year EndingDecember 31,
2017 |
(In millions,
except per-share amounts) |
Low |
|
High |
Reconciliation
of Net Income to Non-GAAP net income: |
|
|
|
Net Income |
$ |
20 |
|
|
$ |
24 |
|
Stock-based compensation |
17 |
|
|
17 |
|
Acquisition costs: |
|
|
|
Transaction costs |
— |
|
|
— |
|
Integration costs |
2 |
|
|
2 |
|
Contingent consideration accretion |
(3 |
) |
|
(2 |
) |
Compensatory contingent consideration |
2 |
|
|
2 |
|
Amortization of acquired intangible assets |
15 |
|
|
15 |
|
Other
non-comparable items(1) |
2 |
|
|
3 |
|
Tax
impact of add-back items(2) |
(13 |
) |
|
(14 |
) |
Non-GAAP net
income |
$ |
42 |
|
|
$ |
47 |
|
|
|
|
|
GAAP diluted net income
per share |
$ |
0.14 |
|
|
$ |
0.17 |
|
Non-GAAP diluted net
income per share |
$ |
0.30 |
|
|
$ |
0.33 |
|
Weighted average shares
of common stock outstanding - diluted |
142,700 |
|
|
142,700 |
|
_______________________________________________________(1) Other
“non-comparable items” include items that are not comparable across
reporting periods or items that do not otherwise relate to the
Company’s ongoing financial results, such as certain employee
related expenses attributable to advancements in automation and
operational efficiencies. Non-comparable items are excluded from
non-GAAP net income in order to more effectively assess the
Company’s period over period and ongoing operating performance.(2)
A 39% tax rate is assumed in order to approximate the Company’s
effective statutory corporate tax rate.
Non-GAAP Financial Measures
Inovalon provides the measures Adjusted EBITDA,
Adjusted EBITDA margin, and Non-GAAP net income as additional
information for evaluating the Company’s operating results. These
measures are not prepared in accordance with, or as an alternative
for, GAAP accounting and may be different from non-GAAP measures
used by other companies.
Investors frequently have requested information
from management regarding depreciation, amortization and other
non-cash charges, such as stock-based compensation, as well as the
impact of non-comparable items and management believes, based on
discussions with investors, that these non-GAAP measures enhance
investors’ ability to assess Inovalon’s historical and projected
future financial performance. While management believes these
non-GAAP financial measures provide useful supplemental information
to investors, there are limitations associated with the use of
non-GAAP financial measures. For example, one limitation of
Adjusted EBITDA is that it excludes depreciation and amortization,
which represents the periodic costs of certain capitalized tangible
and intangible assets used in generating revenues in our business.
Inovalon compensates for these limitations by using these non-GAAP
financial measures as supplements to GAAP financial measures and by
reconciling the non-GAAP financial measures to their most
comparable GAAP financial measures. Investors are encouraged to
review the reconciliations of these non-GAAP financial measures to
the comparable GAAP measures that are provided above.
These non-GAAP measures include financial
information that is prepared in accordance with GAAP and presented
in our consolidated financial statements and are used to evaluate
our business, measure our performance, develop financial forecasts
and make strategic decisions and are an important factor in
determining variable
compensation.
Adjusted EBITDA and Adjusted EBITDA
Margin
The Company defines Adjusted EBITDA as net
income calculated in accordance with GAAP, adjusted for the impact
of depreciation and amortization, realized losses on short-term
investments, loss or gain on disposal of equipment, interest
income, interest expense, provision for income taxes,
stock-based compensation, acquisition costs (including transaction
costs, integration costs, costs related to contingent consideration
accretion and compensatory contingent consideration), tax on equity
exercises, and other non-comparable items. A reconciliation of net
income, which is the most directly comparable GAAP financial
measure, to Adjusted EBITDA is provided above.
Adjusted EBITDA margin is the Company’s
calculation of Adjusted EBITDA, divided by revenue calculated in
accordance with GAAP.
The Company uses Adjusted EBITDA and Adjusted
EBITDA margin as supplemental measures of performance to gain
insight into operating effectiveness. The Company uses Adjusted
EBITDA and Adjusted EBITDA margin as key metrics to assess its
ability to increase revenues while controlling expense growth and
the scalability of the Company’s business model. The Company
believes that the exclusion of the expenses eliminated in
calculating Adjusted EBITDA and Adjusted EBITDA margin provides
management and investors a useful measure for period-to-period
comparisons of the Company’s core business and operating results by
excluding items that are not comparable across reporting periods or
that do not otherwise relate to the Company’s ongoing operating
results. Accordingly, the Company believes that Adjusted EBITDA and
Adjusted EBITDA margin provide useful information to investors and
others in understanding and evaluating the Company’s operating
results. However, use of Adjusted EBITDA and Adjusted EBITDA margin
as analytical tools has limitations, and investors and others
should not consider them in isolation or as substitutes for
analysis of our financial results as reported under GAAP. In
addition, other companies, including companies in Inovalon’s
industry, might calculate Adjusted EBITDA and Adjusted EBITDA
margin or similarly titled measures differently, which may reduce
their usefulness as comparative measures.
Non-GAAP net income
The Company defines Non-GAAP net income as net
income calculated in accordance with GAAP, adjusted to exclude
tax-affected stock-based compensation expense, acquisition costs
(including transaction costs, integration costs, costs related to
contingent consideration accretion and compensatory contingent
consideration), amortization of acquired intangible assets, tax on
equity exercises, and other non-comparable items.
The Company uses Non-GAAP net income as a
supplemental measure of performance to gain insight into financial
effectiveness. The Company uses Non-GAAP net income as a key metric
to assess its ability to increase revenues while controlling
expense growth and the scalability of its business model. The
Company believes that the exclusion of the expenses eliminated in
calculating Non-GAAP net income provides management and investors a
useful measure for period to period comparisons of the Company’s
core business and financial results by excluding items that are not
comparable across reporting periods or that do not otherwise relate
to its ongoing financial results. Accordingly, the Company believes
that Non-GAAP net income provides useful information to investors
and others in understanding and evaluating the Company’s
performance. However, use of Non-GAAP net income as an analytical
tool has limitations, and investors and others should not consider
this measure in isolation or as a substitute for analysis of the
Company’s financial results as reported under GAAP. In addition,
other companies, including companies in Inovalon’s industry, might
calculate Non-GAAP net income or similarly titled measures
differently, which may reduce their usefulness as comparative
measures.
Contacts:
InovalonGeorge Price (Investors)Phone:
301-809-4000 x1190gprice@inovalon.com
InovalonKim E. Collins (Communications)Phone:
301-809-4000 x1473kcollins@inovalon.com
Inovalon (NASDAQ:INOV)
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Inovalon (NASDAQ:INOV)
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