Inovalon Reports Fourth Quarter and Full Year 2015 Results

25 Feb, 2016, 16:10 ET from Inovalon

BOWIE, Md., Feb. 25, 2016 /PRNewswire/ --

Fourth Quarter 2015 Financial Highlights

  • Fourth quarter revenue of $120.6 million, 34% year-over-year growth
  • Fourth quarter Adjusted EBITDA of $37.8 million, 31% of revenue
  • Fourth quarter Non-GAAP net income of $19.7 million, resulting in Non-GAAP diluted net income of $0.13 per share

Full Year 2015 Financial Highlights

  • Record full year revenue of $437.3 million, 21% year-over-year growth
  • Record full year Adjusted EBITDA of $151.6 million, 35% of revenue
  • Record full year Non-GAAP net income of $75.4 million, resulting in Non-GAAP diluted net income of $0.51 per share

Inovalon (Nasdaq: INOV), a leading technology company providing advanced cloud-based data analytics and data-driven intervention platforms to the healthcare industry, today announced financial results for the fourth quarter and full year of 2015.

"We are pleased with the strong operational execution achieved in the fourth quarter which drove record results for the quarter and full year of 2015.  The Company recorded its highest level of fourth quarter and annual revenue and Adjusted EBITDA in its history while, simultaneously, integrating the Avalere acquisition, launching new products such as QSI®-XL and Data Diagnostics™ into the marketplace, and substantially expanding our addressable market," said Keith Dunleavy, M.D., Inovalon's chief executive officer and chairman of the board.

He continued, "We enter 2016 with a strong foundation, significant interest in our expanding platform capabilities, and a clear vision of multiple contributing paths of growth. While components of the marketplace such as the ACA and related Co-Ops have resulted in certain headwinds to our previously expected growth in such areas, the many components of positive execution and strong market interest in our capabilities result in our continued confidence in our ability to drive growth in 2016 and the coming years, remaining on track for our five year goal of balanced growth and innovation, achieving revenues of more than $1 billion with EBITDA margins of 40% by 2020."

Fourth Quarter 2015 Results

  • Revenue for the fourth quarter of 2015 was $120.6 million, inclusive of $13.3 million contributed by Avalere, an increase of $30.6 million, or 34%, compared with $89.9 million for the fourth quarter of 2014.
  • Cost of revenue for the fourth quarter of 2015 was $42.3 million, or 35% of revenue, compared with 31% of revenue for the fourth quarter of 2014.
  • Income from operations for the fourth quarter of 2015 was $26.2 million, compared with $24.2 million for the fourth quarter of 2014.
  • Adjusted EBITDA was $37.8 million for the fourth quarter of 2015, compared with $30.6 million for the fourth quarter of 2014. Adjusted EBITDA margin was 31.4% in the fourth quarter of 2015, compared with 34.0% for the fourth quarter of 2014.
  • Non-GAAP net income for the fourth quarter of 2015 was $19.7 million, resulting in Non-GAAP diluted net income per share of $0.13, compared with $14.8 million and $0.12 per share, respectively, for the fourth quarter of 2014.

Full Year 2015 Results

  • Revenue for 2015 was $437.3 million, inclusive of $17.5 million contributed by Avalere, an increase of $75.7 million, or 21%, compared with $361.5 million for 2014.
  • Cost of revenue for 2015 was $146.1 million, or 33% of revenue, compared with 31% of revenue for 2014.
  • Income from operations for 2015 was $116.5 million, up $6.4 million or 6%, from $110.1 million for 2014.
  • Adjusted EBITDA for 2015 was $151.6 million, up $18.0 million or 13.5%, from $133.6 million for 2014. Adjusted EBITDA margin was 35% for 2015, compared with 37% for 2014.
  • Non-GAAP net income for 2015 was $75.4 million, resulting in Non-GAAP diluted net income per share of $0.51, compared with $70.2 million and $0.53 per share, respectively, for 2014.

"Our results for the quarter reflect continued strong revenue growth coupled with solid profitability performance placing us within our previously issued financial guidance range for all metrics. Additionally, the Company is positioned well for the future as a result of our new product offerings, a strong pipeline of new business opportunities for our core products, and synergistic sales opportunities from our combination with Avalere.  As a result, the company remains on track to achieve high-teens revenue growth and increasing EBITDA margins for the year, which is consistent with our long-term growth plan," said Thomas Kloster, Inovalon's chief financial officer.

Adjusted EBITDA, Adjusted EBITDA margin and Non-GAAP net income are non-GAAP measures. The non-GAAP measures are described and reconciled to the most directly comparable GAAP measures at the end of this release.

Key Highlights

  • During the fourth quarter Inovalon launched Data Diagnostics™ in conjunction with Quest Diagnostics. Data Diagnostics™ is a suite of hundreds of patient-specific data analyses which support the identification and resolution of gaps in quality, risk, utilization and medical history insights at the point of care in real-time. Data Diagnostics are available to be ordered on demand at the point of care within the existing workflow of more than 600,000 clinicians nationwide through the Quest laboratory order entry platform, Care360, and more than 400 integrated EHR platforms. This unique solution supports the healthcare industry's transition from volume- to value-based healthcare by providing actionable insight to improve clinical and quality outcomes as well as financial performance for practices, health plans, ACOs, hospitals and other providers across the healthcare community in real time. The Company is pleased to report that during the fourth quarter, Quest began to sign business for Data Diagnostics, and that marketplace interest for Data Diagnostics™ is being found to be very strong.
  • During the fourth quarter Inovalon substantially completed its integration of Avalere Health, Inc. Furthermore, significant progress was made in combining Avalere's industry-leading subject matter expertise and strong client relationships with Inovalon's unique data, analytics, and technology platform capabilities to rapidly introduce unique offerings into the pharma, life sciences, and provider markets. As an example of the strong success being achieved, subsequent to year-end, the Company announced a significant, multi-year contract with Kindred Healthcare, the nation's largest provider of post-acute care (PAC) services, to implement Inovalon's analytics and data-driven platforms to support the strategic operation of Kindred's business in real time at the point of care, patient quality, utilization efficiency, operational insight and financial performance for Kindred, its clients and the patients utilizing post-acute care services. This relationship, which reflects the significant applicability of Inovalon's platform capability for the provider marketplace, is strong evidence of the unique synergies which exist between Inovalon's core business and the strategic addition of Avalere. Further, the Company is pleased to report that multiple additional demonstrations of these unique synergies are currently at various stages within Inovalon's pipeline.
  • The Company noted that, consistent with recently discussed trends and as separately reported widely within the healthcare industry at large, it continues to see weakness associated with certain organizations operating under the Affordable Care Act, particularly in relation to Co-Op plans and other organizations with heavy or complete dependency on ACA business lines. The negative impact on 2016 revenue expectations is approximately $20 million. Despite this negative headwind, the Company is maintaining its guidance for strong revenue growth for 2016 versus 2015.
  • The results for the fourth quarter are consistent with the continuing shift in seasonality trends which the Company discussed at its Investor Day on December 7, 2015. More specifically, in each of the past three fiscal years, the Company has seen a shift in quarterly revenue contribution from the first quarter to the fourth quarter equating to approximately 2% per year (i.e. the revenue contribution to the full-year revenue from Q1 has declined by approximately 2% while the contribution from Q4 has increased by approximately 2%). This trend is expected to continue during 2016 (inclusive of both Avalere's contribution and the aforementioned ACA-related headwinds). More information on the expected seasonality trends is provided in the supplemental earnings presentation within the investor section of the Company's website.

Other Financial Data and Key Metrics

The following constitutes other financial data and key metrics which are presented by the Company. Of note, the list of other financial data and key metrics was updated as part of the Company's Investor Day Presentation dated December 7, 2015 (of which both a webcast of the conference and the presentation are available at www.inovalon.com).

  • Growth of Datasets: At December 31, 2015, the MORE2 Registry® dataset contained more than 130 million unique patient counts and 11.0 billion medical event counts, increases of 9% and 19%, respectively, compared with December 31, 2014.
  • Investment in Innovation: For the year ended December 31, 2015, Inovalon's ongoing investment supporting innovations in advanced, cloud‑based data analytics and data‑driven intervention platforms was $47.8 million, or 11% of revenue, compared to $44.5 million, or 12% of revenue, in 2014.
  • Data Analytics and Data-Driven Intervention Mix Progression: In 2015, 54.2% of all revenue, exclusive of advisory services revenue, resulted from cloud-based data analytics subscriptions as compared to 57.7% in 2014. Revenue from fully automated data-driven intervention platform services expanded to 12.4% of revenue, from 7.3% in 2014.
  • Analytical Process Count Growth: Inovalon's trailing 12-month Patient Analytical Month (PAM) count, which the Company believes is indicative of the Company's overall level of analytical activity, grew to a record 21.4 billion as of December 31, 2015, an increase of 30% as compared with December 31, 2014.

In addition to the metrics provided above, the Company has made available an update of certain data presented as part of the Company's Investor Day Presentation dated December 7, 2015. This presentation (entitled: "INOV Q4 & FY 2015 Supplement (2.25.16) v1.0.0" and referred to as the "Inovalon Q4 & FY 2015 Earnings Release Supplement Presentation") can be found within the investors section of the Company's website at www.inovalon.com.

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.

2016 Financial Guidance

Inovalon is providing the following general guidance for the full year 2016:

  • Revenue is expected to be between $510 million and $520 million
  • Adjusted EBITDA is expected to be between $182 million and $188 million
  • Non-GAAP net income of between $88 million and $92 million
  • Non-GAAP diluted net income per share of between $0.57 and $0.60

During the first year following our IPO, the Company provided quarterly earnings guidance to further supplement quarterly information provided during our IPO process and to illustrate the effects of seasonality reflected in our financial performance throughout the year. The contributors to the Company's seasonality, its evolution over the past several years, and a graphical representation was provided within the December 7, 2015, Investor Day conference presentation and an update of such is provided within the "Inovalon Q4 & FY 2015 Earnings Release Supplement Presentation" released simultaneous with this earnings release. Both presentations are available within the investor section of the Company's website at www.inovalon.com.

Along with a continuation of the Company's seasonality evolution, Inovalon also expects a degree of quarter-to-quarter lumpiness to persist for the foreseeable future, driven by the timing of when certain opportunities close, especially larger prospects which the Company currently has within its pipeline, and the pursuit of additional opportunities which can be large in nature and variable with respect to the timing of their realization. 

While changes in the stock price could change the fully diluted share count, under the treasury stock method, the Company is assuming 152.8 million shares for the full year 2016.

Shares Outstanding

As of February 15, 2016, the Company had 61.7 million shares of Class A common stock outstanding and 90.1 million shares of Class B common stock outstanding.

Conference Call

Inovalon will host a conference call to discuss its fourth quarter and full year 2015 results at 5:00 pm Eastern Standard Time today. To participate in Inovalon's conference call, please dial (855) 783-2604, conference ID 45366568; 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).

About Inovalon

Inovalon is a leading technology company that combines advanced, cloud-based data analytics, and data-driven intervention platforms, to achieve meaningful insight and impact in clinical and quality outcomes, utilization, and financial performance across the healthcare landscape. Inovalon's unique achievement of value is delivered through the effective progression of Turning Data into Insight, and Insight into Action®. Large proprietary datasets, advanced integration technologies, sophisticated predictive analytics, data-driven intervention platforms, and deep subject matter expertise deliver a seamless, end-to-end capability that brings the benefits of big data and large-scale analytics to the point of care. Driven by data, Inovalon uniquely identifies gaps in care, quality, data integrity, and financial performance – while bringing to bear the unique capabilities to resolve them. Providing technology that supports hundreds of healthcare organizations in 98.2% of U.S. counties and Puerto Rico, Inovalon's cloud-based analytical and data-driven intervention platforms are informed by data pertaining to more than 784,000 physicians, 269,000 clinical facilities, and more than 130 million Americans. Through these capabilities, and those of its subsidiary Avalere Health, Inc., which offers data-driven advisory services and business intelligence to more than 200 pharmaceutical and life sciences enterprises, Inovalon is able to drive high-value impact, improving quality and economics for health plans, ACOs, hospitals, physicians, consumers and pharma/life-sciences researchers. 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 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 expected timing of the roll-out of Data Diagnostics™, the timing, performance characteristics and utility of Data Diagnostics™, and the impact of Data Diagnostics™ 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," "will," "estimate," "continue," "anticipate," "intend," "expect," 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, and earning's guidance for the first quarter of 2016 and full-year 2016. 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, and Statements of Work (SOWs), and retain and renew the existing client base and maintain or increase the fees and SOWs 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 Data Diagnostics™; 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 or SOWs; 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, 2014, filed with the SEC on March 31, 2015, 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 each non-GAAP financial measure and the comparable GAAP financial measure, are included in this press release after the consolidated financial statements.

 

 

Inovalon Holdings, Inc.

Consolidated Statements of  Income

(unaudited)

Three Months Ended

Year Ended

December 31,

December 31,

(In thousands, except per-share amounts)

2015

2014

2015

2014

Revenue 

$                 120,561

$                   89,918

$                 437,271

$                 361,540

Expenses:

Cost of revenue(1)

42,293

27,696

146,140

112,761

Sales and marketing(1)

6,511

1,788

14,684

7,143

Research and development(1)

5,131

5,754

22,329

23,130

General and administrative(1)

33,007

25,645

115,029

88,565

Depreciation and amortization 

7,380

4,868

22,633

19,880

Total operating expenses 

94,322

65,751

320,815

251,479

Income from operations 

26,239

24,167

116,456

110,061

Other income and (expenses):

Realized gains (losses) on short-term investments

1

 ― 

(328)

 ― 

Interest income 

1,196

2

3,003

6

Interest expense 

(1,102)

(1,127)

(4,420)

(1,336)

Income before taxes 

26,334

23,042

114,711

108,731

Provision for income taxes 

10,286

9,543

48,648

43,379

Net income 

$                   16,048

$                   13,499

$                   66,063

$                   65,352

Net income attributable to common stockholders, basic and diluted

$                   16,013

$                   13,499

$                   66,014

$                   65,352

Net income per share attributable to common stockholders, basic and diluted:

  Basic net income per share 

$                       0.11

$                       0.11

$                       0.45

$                       0.50

  Diluted net income per share 

$                       0.11

$                       0.11

$                       0.45

$                       0.49

Weighted average shares of common stock outstanding:

  Basic 

150,923

122,257

145,745

130,770

  Diluted 

152,260

125,359

148,275

133,289

(1)Includes stock-based compensation expense as follows:

  Cost of revenue

$                          79

 $                   ― 

$                        164

 $                   ― 

  Sales and marketing

51

 ― 

173

 ― 

  Research and development

260

 ― 

1,212

 ― 

  General and administrative

1,326

1,554

5,866

2,894

Total stock-based compensation expense

$                     1,716

$                     1,554

$                     7,415

$                     2,894

 

 

 

Inovalon Holdings, Inc.

Consolidated Balance Sheets

As of December 31,

(In thousands)

2015

2014

 Unaudited 

ASSETS

Current assets:

Cash and cash equivalents 

$                      114,034

$                      162,567

Short-term investments

614,130

Accounts receivable, net

81,305

43,938

Prepaid expenses and other current assets 

16,162

6,015

Income tax receivable 

18,377

6,797

Deferred income taxes 

491

Total current assets 

844,008

219,808

Non‑current assets:

Property, equipment and capitalized software, net 

65,031

50,962

Goodwill 

137,733

62,269

Intangible assets, net 

61,855

7,447

Other assets 

4,250

2,083

Total assets 

$                   1,112,877

$                      342,569

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:

Accounts payable 

$                        21,136

$                        10,974

Accrued compensation 

13,538

15,305

Other current liabilities 

11,444

1,992

Deferred revenue 

5,507

3,904

Deferred rent 

797

567

Credit facilities 

15,000

18,750

Capital lease obligation 

109

99

Total current liabilities 

67,531

51,591

Non‑current liabilities:

Credit facilities, less current portion 

266,250

281,250

Capital lease obligation, less current portion 

296

168

Deferred rent 

2,446

2,619

Deferred income taxes 

37,198

15,163

Total liabilities 

373,721

350,791

Stockholders' equity (deficit):

Class A common stock

Class B common stock

1

1

Additional paid‑in‑capital 

493,197

110,317

Retained earnings 

247,540

181,477

Treasury stock

(300,017)

Other comprehensive income (loss)

(1,582)

Total stockholders' equity (deficit) 

739,156

(8,222)

Total liabilities and stockholders' equity (deficit) 

$                   1,112,877

$                      342,569

 

 

 

Inovalon Holdings, Inc.

Consolidated Statements of Cash Flows

(unaudited)

Year Ended December 31,

(In thousands)

2015

2014

Cash flows from operating activities:

Net income 

$                        66,063

$                        65,352

Adjustments to reconcile net income to net cash provided    by operating activities:

Stock‑based compensation expense 

7,415

2,894

Depreciation 

19,221

15,512

Amortization of intangibles 

3,412

4,368

Amortization of premiums on short-term investments

2,212

Realized losses on short-term investments

328

Tax payments for equity award issuances

697

Excess tax benefits from share-based compensation

(18,608)

Deferred income taxes

5,786

1,882

Loss on disposal of long‑lived assets 

52

197

Impairment of long-lived assets

Loss on impairment of long‑lived assets 

255

Changes in assets and liabilities:

Accounts receivable 

(24,475)

(10,539)

Prepaid expenses and other current assets 

(1,110)

(3,484)

Income taxes receivable 

7,825

(2,025)

Other assets 

(1,776)

(1,035)

Accounts payable 

4,474

2,120

Accrued compensation 

(6,178)

7,686

Other liabilities 

2,788

1,314

Deferred rent 

(575)

(357)

Deferred revenue 

3

1,388

Net cash provided by operating activities 

67,554

85,528

Cash flows from investing activities:

Acquisitions, net of cash acquired

(114,718)

Escrow funding associated with acquisition

(7,875)

Purchases of short-term investments

(964,037)

Sales and maturities of short-term investments

344,653

Purchases of property and equipment 

(6,486)

(7,518)

Investment in capitalized software 

(19,951)

(15,164)

Proceeds from sale of property and equipment

94

63

Net cash used in investing activities 

(768,320)

(22,619)

Cash flows from financing activities:

Proceeds from issuance of common stock, net of underwriters' discount

362,082

Proceeds from issuance of treasury stock, net of underwriters' discount

282,172

Payment of offering costs

(5,182)

Proceeds from credit facility borrowings

300,000

Repayment of credit facility borrowings

(18,750)

Purchase of common stock

(309,083)

Dividends paid 

(2,852)

Proceeds from exercise of stock options 

14,659

720

Excess tax benefits from share-based compensation

18,608

409

Tax payments for equity award issuances

(1,245)

Capital lease obligations paid 

(111)

(130)

Net cash provided by (used in) financing activities 

652,233

(10,936)

Increase (decrease) in cash and cash equivalents 

(48,533)

51,973

Cash and cash equivalents, beginning of period 

162,567

110,594

Cash and cash equivalents, end of period 

$                      114,034

$                      162,567

 

 

 

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, interest expense, interest income, provision for income taxes, stock-based compensation, acquisition costs, tax on equity exercises, other non-comparable income and expenses, and certain legal costs. Adjusted EBITDA margin is defined as Adjusted EBITDA as a percentage of revenue.  A reconciliation of net income to Adjusted EBITDA follows:

Three Months Ended December 31,

Year Ended December 31,

(In thousands, except percentages)

2015

2014

2015

2014

Reconciliation of Net Income to Adjusted EBITDA:

Net income 

$                16,048

$                13,499

$                66,063

$                65,352

  Depreciation and amortization 

7,380

4,868

22,633

19,880

  Realized (gains) losses on short-term investments

(1)

328

  Interest expense 

1,102

1,127

4,420

1,336

  Interest (income) 

(1,196)

(2)

(3,003)

(6)

  Provision for income taxes 

10,286

9,543

48,648

43,379

EBITDA 

33,619

29,035

139,089

129,941

  Stock‑based compensation 

1,716

1,554

7,415

2,894

  Acquisition costs:

      Transaction costs

153

1,483

      Contingent consideration

2,232

2,938

  Tax on equity exercises

115

697

  Professional service fees

813

Adjusted EBITDA 

$                37,835

$                30,589

$              151,622

$              133,648

Adjusted EBITDA margin

31.4%

34.0%

34.7%

37.0%

 

 

 

Inovalon Holdings, Inc.

Non-GAAP net income

(unaudited)

Inovalon defines Non-GAAP net income as net income adjusted to exclude tax-affected stock-based compensation expense, tax-affected acquisition costs, tax-affected amortization of acquired intangible assets, tax-affected tax on equity exercises and tax-affected other non-comparable income and certain expenses. A reconciliation of net income to Non-GAAP net income follows:

Three Months Ended December 31,

Year Ended December 31,

(In thousands, except per share amounts)

2015

2014

2015

2014

Reconciliation of Net Income to Non-GAAP net income:

Net income 

$                16,048

$                13,499

$                66,063

$                65,352

  Stock‑based compensation 

1,716

1,554

7,415

2,894

  Acquisition costs:

    Transaction costs

153

1,483

    Contingent consideration

2,232

2,938

  Amortization of acquired intangible assets 

1,843

541

3,412

4,368

  Tax on equity exercises

115

697

  Professional service fees

813

  Tax impact of add-back items

(2,367)

(836)

(6,656)

(3,222)

Non-GAAP net income 

$                19,740

$                14,758

$                75,352

$                70,205

GAAP basic net income per share

$                    0.11

$                    0.11

$                    0.45

$                    0.50

GAAP diluted net income per share

$                    0.11

$                    0.11

$                    0.45

$                    0.49

Non-GAAP basic net income per share

$                    0.13

$                    0.12

$                    0.52

$                    0.54

Non-GAAP diluted net income per share

$                    0.13

$                    0.12

$                    0.51

$                    0.53

 

 

 

Inovalon Holdings, Inc.

Other Financial data and Key Metrics

(unaudited)

The Company believes the metrics illustrated in the tables below are indicative of its overall level of analytical activity and its underlying growth in the business. 

As of December 31,

(In thousands)

2015

2014

MORE2 Registry® dataset metrics:

Unique patient count(1) 

130,953

120,170

Medical event count(2) 

11,051,441

9,250,424

Trailing 12 month Patient Analytics Months (PAM)(3) 

21,449,667

16,519,827

Year Ended December 31,

2015

2014

Data analytics and data-driven intervention revenue mix(4):

      Revenue from data analytics subscriptions(5)

54.2%

57.7%

      Revenue from data-driven intervention platform services(6):

             Fully automated processes

12.4%

7.3%

             Partially automated processes

33.4%

35.0%

      Total revenue from data-driven intervention platform services

45.8%

42.3%

(1)

Unique patient count is defined as each unique, longitudinally matched, de-identified natural person represented in the MORE2Registry® 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. 

(4)

Revenue mix excludes advisory services.

(5)

Revenue from data analytics subscriptions is defined as revenue that results from subscription agreements/contracts for the provision of data analytics (which include such components as the company's data integration, data management, data analytics, and data reporting) services. 

(6)

Revenue from data-driven intervention platform services is defined as revenue that results from contracts for the provision of data-driven intervention platform services. This revenue is further broken down into revenue achieved through fully automated processes (i.e., those processes that require no material variable-based labor component) and partially automated processes (i.e., those processes that require certain material variable-based labor components). 

 

 

 

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 December 31,

Year Ended December 31,

(In thousands, except percentages)

2015

2014

2015

2014

Investment in Innovation

Research and development(1) 

$                  5,131

$                  5,754

$                22,329

$                23,130

Capitalized software development(2) 

5,095

4,617

20,199

16,375

Research and development infrastructure investments(3) 

2,310

456

5,255

5,023

  Total investment in innovation 

$                12,536

$                10,827

$                47,783

$                44,528

As a percentage of revenue

Research and development(1) 

4%

6%

5%

6%

Capitalized software development(2) 

4%

5%

5%

5%

Research and development infrastructure investments(3) 

2%

1%

1%

1%

  Total investment in innovation 

10%

12%

11%

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 Ending December 31, 2016

(In millions)

Low

High

Reconciliation of Forward-Looking Guidance Net Income to Adjusted EBITDA:

Net income 

$                 73

$                 77

   Depreciation and amortization 

32

32

   Interest expense 

5

5

   Interest (income) 

(6)

(7)

   Provision for income taxes (1)

58

61

EBITDA 

162

168

   Stock‑based compensation 

9

9

   Acquisition costs:

   Contingent consideration

11

11

Adjusted EBITDA 

$               182

$               188

(1) A 43% tax rate is assumed in order to approximate the Company's effective corporate tax rate.

 

 

 

Inovalon Holdings, Inc.

Forward-Looking Guidance Non-GAAP net income

(Unaudited)

Guidance Range 

Year Ending December 31, 2016

(In millions, except per share amounts)

Low

High

Reconciliation of Forward-Looking Guidance Net Income to Non-GAAP net income:

Net income 

$                 73

$                 77

   Stock‑based compensation 

9

9

   Acquisition costs:

   Contingent consideration

11

11

   Amortization of acquired intangible assets 

7

7

   Tax impact of add-back items (1)

(12)

(12)

Non-GAAP net income 

$                 88

$                 92

GAAP diluted net income per share

$              0.48

$              0.50

Non-GAAP diluted net income per share

$              0.57

$              0.60

Weighted average shares of common stock outstanding - diluted

153

153

(1) A 43% tax rate is assumed in order to approximate the Company's effective 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 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 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 as 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, interest expense, interest income, provision for income taxes, stock‑based compensation, acquisition costs, tax on equity exercises, other non‑comparable income and expenses, and certain legal costs. 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, tax-affected acquisition costs, tax-affected amortization of acquired intangible assets, tax-affected tax on equity exercises, and tax-affected other non-comparable income and expenses.

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:

Inovalon Kim E. Collins (Investors) 4321 Collington Road Bowie, Maryland 20716 Phone: 301-809-4000 x1473 kcollins@inovalon.com

Greenough Communications, on behalf of Inovalon Andrea LePain (Media) Phone: 617-275-6526 alepain@greenoughcom.com    

SOURCE Inovalon



RELATED LINKS

http://www.inovalon.com