First Quarter 2019
Highlights
Inovalon (Nasdaq: INOV), a leading provider of cloud-based
platforms empowering data-driven healthcare, today announced
financial results for the first quarter of 2019 and guidance for
the second quarter and remainder of 2019.
“We saw continued strong demand for our platform
capabilities and strong ‘go to market’ execution in the first
quarter, driving a year-over-year new sales ACV increase of 216%
during the three months,” said Keith Dunleavy, M.D., Inovalon’s
chief executive officer and chairman of the board. “Expanding sales
are translating into a broad-based organic growth across the
Company, with our payer, provider, pharmacy and life sciences
business units each seeing strong double-digit organic growth. In
addition to strong revenue growth, we are seeing a significant
translation of this growth into expanding margins and cash flow.
Continuing to build on the transformation to what we refer to as
‘Inovalon 2.0,’ we are seeing a tremendous trailing twelve month
inflection with adjusted EBITDA up 105%, Non-GAAP net income per
share up 105%, and free cash flow up 74% compared to the prior 12
months. The growth of our datasets, the sophistication of our
analytics, the efficiency of our platforms, the rising strength of
our go-to-market team, and the significant value being realized by
our clients, are driving a strong enthusiasm and a very positive
outlook going forward.”
First Quarter 2019 Financial
Results
- Revenue for the first quarter of 2019 was $145.5 million, a
year-over-year increase of 57% compared with $92.8 million for the
first quarter of 2018. Organic revenue growth2 was 14%
year-over-year.
- Cost of revenue for the first quarter of 2019 was $37.2
million, or 25.6% of revenue, compared with $33.5 million, or 36.1%
of revenue for the first quarter of 2018. This equates to gross
margin for the first quarter of 2019 of 74.4%, a year-over-year
increase of 1,050 basis points compared with 63.9% for the first
quarter of 2018. Removing the impact of ABILITY, gross margin for
the first quarter of 2019 was 69.5%, a year-over-year increase of
560 basis points compared to the first quarter of 2018.
- Net loss for the first quarter of 2019 was $8.3 million,
resulting in net loss of $0.06 per share, compared with a net loss
of $16.8 million and $0.12 per share, respectively, for the first
quarter of 2018.
- Adjusted EBITDA for the first quarter of 2019 was $44.5
million, a year-over-year increase of 466% compared with $7.9
million for the first quarter of 2018. Adjusted EBITDA margin for
the first quarter of 2019 was 30.6%, a year-over-year increase of
2,210 basis points compared with 8.5% for the first quarter of
2018.
- Non-GAAP net income for the first quarter of 2019 was $14.7
million, resulting in Non-GAAP net income per share of $0.10,
compared with Non-GAAP net loss of $5.0 million and Non-GAAP net
loss of $0.04 per share, respectively, for the first quarter of
2018.
- Net cash provided by operating activities for the first quarter
of 2019 was $14.8 million, a year-over-year increase of 115%
compared with $6.9 million for the first quarter of 2018.
“Across the Company we are pleased with the
strength that we are seeing in our performance,” said Jonathan
Boldt, Inovalon’s chief financial officer. “In addition to
significant top line revenue growth resulting from the ongoing
expansion of our platform capabilities and sales teams, we are
seeing strong increases in margins and cash flow as we see the
continued realization of strong technology efficiencies, positive
product mix, and significant operational leverage.”
Adjusted EBITDA, Adjusted EBITDA margin,
Non-GAAP net income, and free cash flow are Non-GAAP measures. Net
income is the GAAP financial measure most directly comparable to
Adjusted EBITDA and Non-GAAP net income. Net cash provided by
operating activities is the GAAP financial measure most directly
comparable to free cash flow. Reconciliations of net income to
Adjusted EBITDA and Non-GAAP net income, and reconciliations of net
cash provided by operating activities to free cash flow identifying
the differences between net income and net cash provided by
operating activities and each of these Non-GAAP financial measures,
are included in this press release after the consolidated financial
statements.
Key Highlights
- Strong Market Demand & Sales Success.
Demand for the Inovalon ONE® Platform continued to be strong in the
first quarter. Expanding platform capabilities, datasets, and
connectivity are significantly expanding the breadth of
applications and the value being realized by clients. Concurrently,
the increased scale and sophistication of Inovalon’s business
development and client success teams are accelerating the
translation of the market differentiation and rising demand into
expanding pipeline and sales success. This was seen in new organic
platform ACV sales (i.e., excluding ABILITY and Services) from
contract wins and contract expansions increasing to $19.6 million
during the first quarter, a 216% year-over-year
increase, supporting a full year increase in Coverage to 97%
at the mid-point as of March 31, 2019. The combination of the
Company’s expanded client retention rates and growing number of
successive quarters of meaningful new ACV sales are translating
into strong organic growth, with the Company realizing 14% organic
revenue growth in the first quarter. Total revenue growth was 57%
compared to the year-ago-period when also including the inorganic
contribution from the acquisition of ABILITY. Reflecting the
increasing demand for the Company’s cloud-based platform, the
portion of the Company’s overall revenue derived from its platform
offerings rose to 89%, up from 85% in the first quarter of 2018.
Subscription-based cloud-based revenue was 83% of overall revenue
during the period, up from 74% in first quarter of 2018.
- Margin Expansion. The strong demand for the
Company’s Inovalon ONE® Platform offering also supported the
realization of rising margins with the high-value solution mix
driving gross margin of 74.4%, an expansion of 1,050 basis points
year-over-year, and 70 basis points sequentially. Excluding
ABILITY, first quarter 2019 gross margin was 69.5%, reflecting
organic expansion of 560 basis points year-over-year further
emphasizing strong performance across the business. Additionally,
general and administrative expenses demonstrated significant
operating leverage in the first quarter, increasing to $53.6
million versus $49.4 million in the year-ago-period, an increase of
only 8.5% in the setting of a 57% increase in revenue over the same
period. The combination of the Company’s realization of gross
margin expansion, together with realized efficiencies from
integration activities, cost reduction initiatives, and
technology-based efficiency benefits reflected within the
aforementioned G&A efficiency, drove a first quarter 2019
Adjusted EBITDA margin of 30.6%, an increase of 2,210 basis points
year-over-year.
- Rising Strength in Inovalon’s TTM Performance.
Inovalon’s trailing twelve month (TTM) financial performance
reveals the significant, positive inflection resulting from the
Company’s multiple initiatives behind the transformation to
Inovalon 2.0. New platform ACV sales (excluding ABILITY and
Services) for the TTM period were $126.7 million, a 122% increase
compared to the year-ago-period. Revenue for the TTM period was
$580.4 million, up 34% when compared to the year-ago-TTM period.
Adjusted EBITDA rose to $188.6 million, up 105% year-over-year.
Non-GAAP net income per share was $0.39, also up 105%
year-over-year. Free cash flow3 was $42.7 million, up 74% when
compared to the year-ago-period.
Other Financial Data and Key
Metrics
The following constitute other financial data
and key metrics which are presented quarterly.
- Growth of Datasets: At March 31, 2019, the MORE2 Registry®
dataset contained more than 271 million unique patient counts and
45 billion medical event counts, increases of 12% and 15%,
respectively, compared with March 31, 2018. Data resulting
from the integration with ABILITY is not yet fully reflected within
the MORE2 Registry® dataset and is therefore not fully reflected
within the aforementioned data metrics as of this date.
- Investment in Innovation: For the quarter ended March 31,
2019, Inovalon’s ongoing investment supporting innovations in
advanced, cloud-based platforms empowering data-driven healthcare
was $17.3 million, or 12% of revenue, a decrease of $8.2 million,
or 32%, compared to the prior year period bringing the amount back
towards historical levels.
- 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 51.8 billion as of March 31, 2019, an
increase of 15% as compared with March 31, 2018.
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
As of April 19, 2019, the Company had 73.1
million shares of Class A common stock outstanding and 80.1 million
shares of Class B common stock outstanding.
2019 Financial Guidance
The Company is reiterating its full year 2019
guidance as initially provided on November 7, 2018 and revising
upward Inovalon’s full year 2019 net income, non-GAAP net income,
diluted net income per share, and the Non-GAAP diluted net income
per share guidance as provided below.
Financial
Metric |
|
Full Year
2019 Guidance Range Updated May 1, 2019 |
Revenue |
|
$637 million to $657
million |
Net income |
|
$2 million to $6
million |
Non-GAAP net
income |
|
$63 million to $71
million |
Adjusted EBITDA |
|
$200 million to $210
million |
Net cash provided by
operating activities |
|
$130 million to $145
million |
Capital
expenditure |
|
$52 million to $58 million |
Diluted net income per
share |
|
$0.01 to $0.04 |
Non-GAAP diluted net
income per share |
|
$0.42 to $0.48 |
While the Company believes that a longer term
view of its performance is most appropriate, in an effort to
provide additional insight into the progression of the Company’s
guidance through 2019, the following is being provided: Building
upon a backdrop of strong client retention rates (previously
disclosed as being in excess of 100% in 2019), the expanding new
ACV sales that have been realized over recent quarters and continue
to be realized by the Company are resulting in a positive
progressive layering of incremental subscription-based revenue.
Among other variables that may affect financial performance, the
timing of sales may not be evenly distributed within a quarter or
year, and the time from execution of a sale to its implementation
and revenue recognition may vary. With these variabilities
acknowledged, the Company is seeing approximately $10 to $12
million in successive incremental revenue at the midpoint each
quarter of the remainder of 2019, with a range of $2 million per
quarter variance to accommodate for the aforementioned influences
on revenue. As such, the Company is providing the following
guidance for the second quarter 2019 below.
Financial
Metric |
|
Second
Quarter 2019 Guidance RangeProvided May 1, 2019 |
Revenue |
|
$154 million to $158
million |
Net loss |
|
($4 million) to ($1
million) |
Non-GAAP net
income |
|
$13 million to $16
million |
Adjusted EBITDA |
|
$45 million to $49
million |
Diluted net loss per
share |
|
($0.03) to ($0.01) |
Non-GAAP diluted net
income per share |
|
$0.09 to $0.11 |
Additional assumptions made within the Company’s
2019 guidance are as follows:
- While changes in the stock price could change the fully diluted
share count, under the treasury stock method, 2019 guidance assumes
149 million weighted average diluted shares.
- 2019 guidance assumes an effective tax rate of approximately
28% for the full year.
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 the most directly comparable
GAAP financial measure, are included in this press release after
the consolidated financial statements.
Conference Call
Inovalon will host a conference call to discuss
its first quarter 2019 results at 5:00 p.m. Eastern Time today. To
participate in Inovalon’s conference call, please dial (855)
783-2604, conference ID 9996398; 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 First Quarter 2019 Earnings
Presentation Supplement available at
http://investors.inovalon.com for additional information,
including 2019 financial guidance, additional financial metrics,
and other topics 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 nearly 100 individual proprietary
technology toolsets and deep data assets able to be rapidly
configured to empower the operationalization of large-scale,
data-driven healthcare initiatives. Each proprietary technology
toolset is referred to as a Component, which are grouped into
Modules, and informed by the data of billions of medical events
within Inovalon’s proprietary datasets. Combinations of Components
and Modules are configured to empower highly differentiated
solutions for client needs quickly and in a highly scalable
fashion. The flexibility of the modular design of the Platform
enables clients to integrate the capabilities of the Platform with
their own internal capabilities or other third-party solutions. The
Platform brings to the marketplace a highly extensible,
national-scale capability to interconnect with the healthcare
ecosystem on a massive scale, aggregate and analyze data in
petabyte volumes, arrive at sophisticated insights in real-time,
and 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 provider of cloud-based
platforms empowering data-driven healthcare. Through the Inovalon
ONE® Platform, Inovalon brings to the marketplace a national-scale
capability to interconnect with the healthcare ecosystem, aggregate
and analyze data in real-time, and empower the application of
resulting insights to drive meaningful impact at the point of care.
Leveraging its platform, unparalleled proprietary data sets, and
industry-leading subject matter expertise, Inovalon enables better
care, efficiency, 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®.” Supporting thousands of clients, including 24 of the
top 25 U.S. health plans and 22 of the top 25 global pharma
companies, Inovalon's technology platforms and analytics are
informed by data pertaining to more than 972,000 physicians,
531,000 clinical facilities, 271 million Americans, and 45 billion
medical events. 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, statements regarding
the expected benefits and impact of the combination of Inovalon and
ABILITY, expectations about future business plans, prospective
performance and opportunities, strategies and business plans,
expectations regarding future results, expectations regarding the
size of our datasets, our ability to meet financial guidance for
the second quarter and full year 2019, expectations regarding tax
rates, and statements with respect to visibility, revenue retention
and recurring revenue, including ACV. 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 as of the date of this press release. 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, including successfully integrating acquisitions, including
ABILITY; 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,
ScriptMed® Cloud, Clinical Data Extraction as a Service (CDEaaS™),
Natural Language Processing as a Service (NLPaaS™), and Elastic
Container Technology (ECT™); 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
effects of changes in tax laws in the jurisdictions in which we
operate; the ability to protect the privacy of clients’ data and
prevent security breaches; the effect of competition on the
business; the timing, size and effect of business realignment and
restructuring charges; 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, 2018, filed with the SEC on February 20, 2019, included under
the heading Item 1A, “Risk Factors,” and in subsequent filings with
the SEC. 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.
1 Annualized Contract Value (ACV) is defined as
the total revenue expected from a contract divided by the duration
of that contract.2 Organic revenue growth is defined as growth
excluding revenue from businesses acquired within the last 12
months.3 Free cash flow is defined as net cash provided by
operating activities less purchases of property and equipment and
less investment in capitalized software. Free cash flow calculated
on a TTM basis reflects the last twelve months free cash flow.
|
Inovalon Holdings, Inc.Consolidated
Statements of Operations (unaudited) |
|
(In thousands,
except per-share amounts) |
Three Months Ended March 31, |
|
2019 |
|
2018 |
Revenue |
$ |
145,491 |
|
|
$ |
92,755 |
|
Expenses: |
|
|
|
Cost of
revenue(1) |
37,203 |
|
|
33,491 |
|
Sales and
marketing(1) |
13,526 |
|
|
7,902 |
|
Research
and development(1) |
8,201 |
|
|
6,421 |
|
General
and administrative(1) |
53,623 |
|
|
49,396 |
|
Depreciation and amortization |
27,047 |
|
|
16,380 |
|
Total
operating expenses |
139,600 |
|
|
113,590 |
|
Income (Loss) from
operations |
5,891 |
|
|
(20,835 |
) |
Other income and
(expenses): |
|
|
|
Interest
income |
610 |
|
|
1,395 |
|
Interest
expense |
(16,542 |
) |
|
(1,882 |
) |
Other
expense, net |
(11 |
) |
|
(1,120 |
) |
Loss before taxes |
(10,052 |
) |
|
(22,442 |
) |
Benefit from income
taxes |
(1,729 |
) |
|
(5,608 |
) |
Net loss |
$ |
(8,323 |
) |
|
$ |
(16,834 |
) |
Net loss attributable
to common stockholders, basic and diluted |
$ |
(8,323 |
) |
|
$ |
(16,272 |
) |
Net loss per share
attributable to common stockholders, basic and diluted: |
|
|
|
Basic net
loss per share |
$ |
(0.06 |
) |
|
$ |
(0.12 |
) |
Diluted
net loss per share |
$ |
(0.06 |
) |
|
$ |
(0.12 |
) |
Weighted average shares
of common stock outstanding: |
|
|
|
Basic |
147,774 |
|
|
139,378 |
|
Diluted |
147,774 |
|
|
139,378 |
|
(1) |
Includes stock-based
compensation expense as follows: |
|
|
|
|
Cost of revenue |
$ |
77 |
|
|
$ |
140 |
|
|
Sales and
marketing |
300 |
|
|
469 |
|
|
Research and
development |
370 |
|
|
628 |
|
|
General and
administrative |
4,492 |
|
|
2,511 |
|
|
Total stock-based
compensation expense |
$ |
5,239 |
|
|
$ |
3,748 |
|
|
Inovalon
Holdings, Inc.Consolidated Balance Sheets
(unaudited) |
|
|
|
|
(In thousands,
except share and par value amounts) |
March 31, 2019 |
|
December 31, 2018 |
ASSETS |
|
|
|
Current assets: |
|
|
|
Cash and cash
equivalents |
$ |
119,880 |
|
|
$ |
115,591 |
|
Short-term investments |
1,810 |
|
|
7,000 |
|
Accounts
receivable (net of allowances of $4,296 and $3,350 at March 31,
2019 and December 31, 2018, respectively) |
117,353 |
|
|
104,405 |
|
Prepaid
expenses and other current assets |
20,442 |
|
|
34,801 |
|
Income
tax receivable |
7,637 |
|
|
10,330 |
|
Total
current assets |
267,122 |
|
|
272,127 |
|
Non-current
assets: |
|
|
|
Property,
equipment and capitalized software, net |
138,282 |
|
|
141,758 |
|
Operating
lease right-of-use assets |
32,331 |
|
|
— |
|
Goodwill |
955,881 |
|
|
956,029 |
|
Intangible assets, net |
522,227 |
|
|
535,343 |
|
Other
assets |
16,019 |
|
|
16,158 |
|
Total
assets |
$ |
1,931,862 |
|
|
$ |
1,921,415 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
Current
liabilities: |
|
|
|
Accounts
payable and accrued expenses |
$ |
30,163 |
|
|
$ |
31,295 |
|
Accrued
compensation |
22,455 |
|
|
25,298 |
|
Other
current liabilities |
37,420 |
|
|
51,384 |
|
Deferred
revenue |
28,833 |
|
|
20,628 |
|
Credit
facilities |
9,800 |
|
|
9,800 |
|
Operating
lease liabilities |
9,982 |
|
|
— |
|
Finance
lease liabilities |
2,347 |
|
|
2,905 |
|
Total
current liabilities |
141,000 |
|
|
141,310 |
|
Non-current
liabilities: |
|
|
|
Credit
facilities, less current portion |
938,043 |
|
|
939,514 |
|
Operating
lease liabilities, less current portion |
27,357 |
|
|
— |
|
Finance
lease liabilities, less current portion |
14,154 |
|
|
13,927 |
|
Other
liabilities |
37,145 |
|
|
33,406 |
|
Deferred
income taxes |
103,874 |
|
|
110,669 |
|
Total
liabilities |
1,261,573 |
|
|
1,238,826 |
|
Commitments and
contingencies |
|
|
|
Stockholders’
equity: |
|
|
|
Common
stock, $0.000005 par value, 900,000,000 shares authorized, zero
shares issued and outstanding at each of March 31, 2019 and
December 31, 2018, respectively |
— |
|
|
— |
|
Class A common stock, $0.000005 par value, 750,000,000 shares
authorized; 87,816,006 shares issued and 73,195,831 shares
outstanding at March 31, 2019; 86,679,575 shares issued and
72,059,400 shares outstanding at December 31, 2018 |
— |
|
|
— |
|
Class B common stock, $0.000005 par value, 150,000,000 shares
authorized; 80,148,685 shares issued and outstanding at March 31,
2019; 80,608,685 shares issued and outstanding at December 31,
2018 |
1 |
|
|
1 |
|
Preferred
stock, $0.0001 par value, 100,000,000 shares authorized, zero
shares issued and outstanding at March 31, 2019 and
December 31, 2018, respectively |
— |
|
|
— |
|
Additional paid-in-capital |
622,751 |
|
|
618,674 |
|
Retained
earnings |
262,148 |
|
|
270,471 |
|
Treasury
stock, at cost, 14,620,175 shares at March 31, 2019 and
December 31, 2018, respectively |
(199,817 |
) |
|
(199,817 |
) |
Other
comprehensive loss |
(14,794 |
) |
|
(6,740 |
) |
Total
stockholders’ equity |
670,289 |
|
|
682,589 |
|
Total liabilities and
stockholders’ equity |
$ |
1,931,862 |
|
|
$ |
1,921,415 |
|
|
Inovalon Holdings, Inc.Consolidated
Statements of Cash Flows (unaudited) |
|
(In
thousands) |
Three Months Ended March 31, |
|
2019 |
|
2018 |
Cash flows from
operating activities: |
|
|
|
Net loss |
$ |
(8,323 |
) |
|
$ |
(16,834 |
) |
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
Stock-based compensation expense |
5,239 |
|
|
3,748 |
|
Depreciation |
13,931 |
|
|
12,529 |
|
Amortization of intangibles |
13,116 |
|
|
3,851 |
|
Amortization of debt issuance costs and debt discount |
1,072 |
|
|
— |
|
Deferred
income taxes |
(2,671 |
) |
|
(5,922 |
) |
Change in
fair value of contingent consideration |
379 |
|
|
200 |
|
Other |
1,129 |
|
|
1,352 |
|
Changes
in assets and liabilities: |
|
|
|
Accounts
receivable |
(13,893 |
) |
|
11,669 |
|
Prepaid
expenses and other current assets |
(802 |
) |
|
(2,560 |
) |
Income
taxes receivable |
2,830 |
|
|
177 |
|
Other
assets |
19 |
|
|
(3,264 |
) |
Accounts
payable and accrued expenses |
182 |
|
|
(1,669 |
) |
Accrued
compensation |
(3,602 |
) |
|
(4,017 |
) |
Other
current and non-current liabilities |
(2,056 |
) |
|
2,499 |
|
Deferred
revenue |
8,205 |
|
|
5,115 |
|
Net cash
provided by operating activities |
14,755 |
|
|
6,874 |
|
Cash flows from
investing activities: |
|
|
|
Maturities of short-term investments |
5,164 |
|
|
63,470 |
|
Sales of
short-term investments |
— |
|
|
161,772 |
|
Purchases
of property and equipment |
(3,796 |
) |
|
(9,645 |
) |
Investment in capitalized software |
(7,626 |
) |
|
(11,125 |
) |
Net cash
(used in) provided by investing activities |
(6,258 |
) |
|
204,472 |
|
Cash flows from
financing activities: |
|
|
|
Repayment
of credit facility borrowings |
(2,450 |
) |
|
(11,250 |
) |
Proceeds
from exercise of stock options |
— |
|
|
1,450 |
|
Finance
lease liabilities paid |
(672 |
) |
|
(31 |
) |
Tax
payments for equity award issuances |
(1,086 |
) |
|
(459 |
) |
Net cash
used in financing activities |
(4,208 |
) |
|
(10,290 |
) |
Increase
in cash and cash equivalents |
4,289 |
|
|
201,056 |
|
Cash and
cash equivalents, beginning of period |
115,591 |
|
|
208,944 |
|
Cash and
cash equivalents, end of period |
$ |
119,880 |
|
|
$ |
410,000 |
|
Supplementary
cash flow disclosure: |
|
|
|
Income
taxes (received) paid, net |
$ |
(1,931 |
) |
|
$ |
205 |
|
Interest
paid |
15,602 |
|
|
1,759 |
|
Non-cash transactions: |
|
|
|
Operating
lease obligations incurred |
2,990 |
|
|
— |
|
Finance
lease obligations incurred |
— |
|
|
4,536 |
|
Accruals
for purchases of property, equipment |
1,590 |
|
|
6,675 |
|
Accruals
for investment in capitalized software |
1,776 |
|
|
1,882 |
|
|
|
|
|
|
|
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 or loss calculated in accordance with GAAP, adjusted for
the impact of depreciation and amortization, interest income,
interest expense, other expense, net, provision for income taxes,
stock-based compensation, acquisition costs, restructuring expense,
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 March 31, |
|
2019 |
|
2018 |
Reconciliation
of net loss to Adjusted EBITDA: |
|
|
|
Net loss |
$ |
(8,323 |
) |
|
$ |
(16,834 |
) |
Depreciation and amortization |
27,047 |
|
|
16,380 |
|
Interest
income |
(610 |
) |
|
(1,395 |
) |
Interest
expense |
16,542 |
|
|
1,882 |
|
Other
expense, net |
11 |
|
|
1,120 |
|
Benefit
from income taxes |
(1,729 |
) |
|
(5,608 |
) |
EBITDA |
32,938 |
|
|
(4,455 |
) |
Stock-based compensation |
5,239 |
|
|
3,748 |
|
Acquisition costs: |
|
|
|
Transaction costs |
892 |
|
|
3,352 |
|
Integration costs |
2,469 |
|
|
757 |
|
Contingent consideration accretion |
105 |
|
|
200 |
|
Compensatory contingent consideration |
(30 |
) |
|
558 |
|
Other
non-comparable items(1) |
2,921 |
|
|
3,712 |
|
Adjusted EBITDA |
$ |
44,534 |
|
|
$ |
7,872 |
|
Adjusted EBITDA
margin |
30.6 |
% |
|
8.5 |
% |
(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, and legal expenses beyond those in the normal course
of business. 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 (loss)
(unaudited)
Inovalon defines Non-GAAP net income as net
income or loss calculated in accordance with GAAP, adjusted to
exclude tax-affected stock-based compensation expense, acquisition
costs, restructuring expense, amortization of acquired intangible
assets, amortization of debt issuance costs and debt discount, tax
on equity exercises, and other non-comparable items. The Company
defines Non-GAAP basic net income per share as Non-GAAP net income
divided by basic weighted average shares outstanding. The Company
defines Non-GAAP diluted net income per share as Non-GAAP net
income divided by diluted weighted average shares outstanding. A
reconciliation of net income to Non-GAAP net income follows:
(In thousands,
except per-share amounts) |
Three Months Ended March 31, |
|
2019 |
|
2018 |
Reconciliation
of net loss to Non-GAAP net income (loss): |
|
|
|
Net loss |
$ |
(8,323 |
) |
|
$ |
(16,834 |
) |
Stock-based compensation |
5,239 |
|
|
3,748 |
|
Acquisition costs: |
|
|
|
Transaction costs |
892 |
|
|
3,352 |
|
Integration costs |
2,469 |
|
|
757 |
|
Contingent consideration accretion |
105 |
|
|
200 |
|
Compensatory contingent consideration |
(30 |
) |
|
558 |
|
Amortization of acquired intangible assets |
13,116 |
|
|
3,851 |
|
Amortization of debt issuance costs and debt discount |
1,072 |
|
|
— |
|
Other
non-comparable items(1) |
2,921 |
|
|
3,712 |
|
Tax
impact of add-back items |
(2,810 |
) |
|
(4,303 |
) |
Non-GAAP net income
(loss) |
$ |
14,651 |
|
|
$ |
(4,959 |
) |
|
|
|
|
GAAP basic net loss per
share |
$ |
(0.06 |
) |
|
$ |
(0.12 |
) |
GAAP diluted net loss
per share |
$ |
(0.06 |
) |
|
$ |
(0.12 |
) |
Non-GAAP basic net
income (loss) per share |
$ |
0.10 |
|
|
$ |
(0.04 |
) |
Non-GAAP diluted net
income (loss) per share |
$ |
0.10 |
|
|
$ |
(0.04 |
) |
Weighted average shares
of common stock outstanding: |
|
|
|
Basic |
147,774 |
|
|
139,378 |
|
Diluted |
148,116 |
|
|
139,721 |
|
(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, and legal expenses beyond those in the normal course
of business. 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.Free Cash Flow
(unaudited)
Inovalon defines free cash flow as net cash
provided by operating activities less purchases of property and
equipment and less investment in capitalized software. A
reconciliation of net cash provided by operating activities to free
cash flow follows:
(In
thousands) |
Three Months Ended March 31, |
|
2019 |
|
2018 |
Reconciliation
of net cash provided by operating activities to free cash
flow: |
|
|
|
Net cash provided by
operating activities |
$ |
14,755 |
|
|
$ |
6,874 |
|
Less: Purchases of
property and equipment |
(3,796 |
) |
|
(9,645 |
) |
Less: Investment in
capitalized software |
(7,626 |
) |
|
(11,125 |
) |
Free cash flow |
$ |
3,333 |
|
|
$ |
(13,896 |
) |
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. Data
resulting from the integration with ABILITY is not yet fully
reflected within the MORE2 Registry® dataset and is therefore not
fully reflected within the related data metrics below as of this
date.
|
March 31, |
(In
thousands) |
2019 |
|
2018 |
MORE2 Registry® dataset
metrics |
|
|
|
Unique patient
count(1) |
271,486 |
|
|
243,421 |
|
Medical
event count(2) |
44,663,819 |
|
|
38,792,430 |
|
Trailing 12 month
Patient Analytics Months (PAM)(3) |
51,768,491 |
|
|
45,171,786 |
|
(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 within the Company’s
platform solutions 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 measurable
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 March 31, |
(In thousands,
except percentages) |
2019 |
|
2018 |
Investment in
Innovation: |
|
|
|
Research and
development(1) |
$ |
8,201 |
|
|
$ |
6,421 |
|
Capitalized software development(2) |
7,907 |
|
|
10,296 |
|
Research
and development infrastructure investments(3) |
1,170 |
|
|
8,765 |
|
Total
investment in innovation |
$ |
17,278 |
|
|
$ |
25,482 |
|
As a percentage
of revenue |
|
|
|
Research
and development(1) |
6 |
% |
|
7 |
% |
Capitalized software development(2) |
5 |
% |
|
11 |
% |
Research
and development infrastructure investments(3) |
1 |
% |
|
9 |
% |
Total
investment in innovation |
12 |
% |
|
27 |
% |
(1) Research and development
primarily includes employee costs related to the development and
enhancement of our service offerings.(2) Capitalized
software development includes capitalized costs incurred to develop
and enhance functionality for our platform
solutions.(3) Research and development infrastructure
investments include strategic capital expenditures related to
hardware and software platforms under development or
enhancement.
Inovalon
Holdings, Inc.Forward-Looking Guidance
Adjusted EBITDA (unaudited)
|
Guidance Range |
|
Year Ending December 31, 2019 |
(In
millions) |
Low |
|
High |
Reconciliation
of Forward-Looking Guidance Net income to Adjusted
EBITDA: |
|
|
|
Net income |
$ |
2 |
|
|
$ |
6 |
|
Depreciation and amortization |
107 |
|
|
107 |
|
Interest
expense |
66 |
|
|
66 |
|
Interest
income |
(1 |
) |
|
(1 |
) |
Provision
for income taxes(1) |
(1 |
) |
|
— |
|
EBITDA |
173 |
|
|
178 |
|
Stock-based compensation |
19 |
|
|
19 |
|
Acquisition costs: |
|
|
|
Transaction costs |
1 |
|
|
1 |
|
Integration costs |
3 |
|
|
4 |
|
Contingent consideration |
1 |
|
|
4 |
|
Other
non-comparable items(2) |
3 |
|
|
4 |
|
Adjusted EBITDA |
$ |
200 |
|
|
$ |
210 |
|
Adjusted EBITDA
margin |
31.4 |
% |
|
32.0 |
% |
|
Guidance Range |
|
Three Months Ending June 30, 2019 |
(In
millions) |
Low |
|
High |
Reconciliation
of Forward-Looking Guidance Net loss to Adjusted
EBITDA: |
|
|
|
Net loss |
$ |
(4 |
) |
|
$ |
(1 |
) |
Depreciation and amortization |
28 |
|
|
28 |
|
Interest
expense |
16 |
|
|
16 |
|
Interest
income |
(1 |
) |
|
(1 |
) |
Provision
for income taxes(1) |
(3 |
) |
|
(2 |
) |
EBITDA |
36 |
|
|
40 |
|
Stock-based compensation |
6 |
|
|
6 |
|
Acquisition costs: |
|
|
|
Transaction costs |
— |
|
|
— |
|
Integration costs |
1 |
|
|
1 |
|
Contingent consideration |
1 |
|
|
1 |
|
Other
non-comparable items(2) |
1 |
|
|
1 |
|
Adjusted EBITDA |
$ |
45 |
|
|
$ |
49 |
|
Adjusted EBITDA
margin |
29.2 |
% |
|
31.0 |
% |
(1) A 28% 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, and legal expenses
beyond those in the normal course of business. 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 Ending December 31, 2019 |
(In millions,
except per-share amounts) |
Low |
|
High |
Reconciliation
of Forward-Looking Guidance Net income to Non-GAAP net
income: |
|
|
|
Net income |
$ |
2 |
|
|
$ |
6 |
|
Stock-based compensation |
19 |
|
|
19 |
|
Acquisition costs: |
|
|
|
Transaction costs |
1 |
|
|
1 |
|
Integration costs |
3 |
|
|
4 |
|
Contingent consideration |
1 |
|
|
4 |
|
Amortization of acquired intangible assets |
53 |
|
|
53 |
|
Amortization of debt issuance costs and debt discount |
4 |
|
|
4 |
|
Other
non-comparable items(1) |
3 |
|
|
4 |
|
Tax
impact of add-back items(2) |
(23 |
) |
|
(24 |
) |
Non-GAAP net
income |
$ |
63 |
|
|
$ |
71 |
|
|
|
|
|
GAAP diluted net income
per share |
$ |
0.01 |
|
|
$ |
0.04 |
|
Non-GAAP diluted net
income per share |
$ |
0.42 |
|
|
$ |
0.48 |
|
Weighted average shares
of common stock outstanding - diluted |
149 |
|
|
149 |
|
|
Guidance Range |
|
Three Months Ending June 30, 2019 |
(In millions,
except per-share amounts) |
Low |
|
High |
Reconciliation
of Forward-Looking Guidance Net loss to Non-GAAP net
income: |
|
|
|
Net loss |
$ |
(4 |
) |
|
$ |
(1 |
) |
Stock-based compensation |
6 |
|
|
6 |
|
Acquisition costs: |
|
|
|
Transaction costs |
— |
|
|
— |
|
Integration costs |
1 |
|
|
1 |
|
Contingent consideration |
1 |
|
|
1 |
|
Amortization of acquired intangible assets |
13 |
|
|
13 |
|
Amortization of debt issuance costs and debt discount |
1 |
|
|
1 |
|
Other
non-comparable items(1) |
1 |
|
|
1 |
|
Tax
impact of add-back items(2) |
(6 |
) |
|
(6 |
) |
Non-GAAP net
income |
$ |
13 |
|
|
$ |
16 |
|
|
|
|
|
GAAP diluted net income
per share |
$ |
(0.03 |
) |
|
$ |
(0.01 |
) |
Non-GAAP diluted net
income per share |
$ |
0.09 |
|
|
$ |
0.11 |
|
Weighted average shares
of common stock outstanding - diluted |
148 |
|
|
148 |
|
(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, and legal expenses beyond those in the normal course
of business. 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 28%
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 and free
cash flow as a liquidity measure to evaluate the Company’s ability
to generate cash to support its ongoing business to service and
repay debt, and to invest in its business. 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, other expense, net, 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), restructuring
expense, 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 and Non-GAAP net
income per share
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), restructuring expense, amortization of acquired
intangible assets, amortization of debt issuance costs and debt
discount, tax on equity exercises, and other non-comparable
items.
The Company defines Non-GAAP basic net income
per share as Non-GAAP net income divided by basic weighted average
shares outstanding. The Company defines Non-GAAP diluted net income
per share as Non-GAAP net income divided by diluted weighted
average shares outstanding.
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.
Free cash flow
The Company defines free cash flow as net cash
provided by operating activities calculated in accordance with GAAP
less purchases of property and equipment and less investments in
capitalized software. The Company uses free cash flow as a
liquidity measure to evaluate its ability to generate cash to
support its ongoing business operations, to service and repay debt,
and to invest in its businesses. However, use of free cash flow has
limitations, and investors and others should not consider this
measure in isolation or as a substitute for analysis of the
Company’s liquidity as reported under GAAP. In addition, other
companies, including companies in Inovalon’s industry, might
calculate free cash flow or similarly titled measures differently,
which may reduce their usefulness as comparative measures.
Contact:
InovalonKim E. CollinsPhone: 301-809-4000
x1473kcollins@inovalon.com
Inovalon (NASDAQ:INOV)
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Inovalon (NASDAQ:INOV)
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